Emissions house of the year: Element Markets

Energy Risk Awards 2018: Established environmental business flourishes despite political uncertainty

Randall Lack, Element Markets

Given the stance US President Donald Trump has taken so far on climate and environmental issues, one might not expect business to be booming at a US-based environmental trading firm. Yet, for Element Markets, 2017 was its strongest year ever, with revenue up 17% from 2016 and net income rising by 53%, according to Houston-based chief marketing officer, Randall Lack. He adds that the business is currently experiencing its strongest quarter ever.

The company’s renewable natural gas (RNG) business has been a major factor in this, as well as its compliance services, which continue to expand, and a voluntary offering that has been boosted by a growing interest in corporate responsibility among US businesses, Lack says.

“The compliance side of our emissions and greenhouse gas (GHG) business has never been healthier,” he says. “Rules are continuing to progress in states like California and there have been developments in the market based on economic factors and a healthy environment for new growth.” Indeed, while demand from power market players has flattened somewhat, the petrochemicals and refining industries are growing and require more emissions trading services as a result. “Those industries have actually caused our emissions business to have our best year ever,” Lack says.

The compliance side of our emissions and greenhouse gas business has never been healthier

Randall Lack, Element Markets

He attributes much of the firm’s success to its stability and longevity in the market, which has engendered trust with clients and helped it to secure some noteworthy deals. Last year, for example, the organisation completed a regional emissions transaction with a client that was valued at more than $100 million. Lack believes it is the largest regional transaction ever completed in the space.

While overall market activity has certainly been affected by the current administration’s stance on climate change policy, the situation has also spurred organisations on the voluntary side of the market into action, according to Lack. “There has almost been a revolt among corporate customers who feel that, if the US isn’t going to do something, they are going to do it on their own,” he says. “As a result, demand in the US for renewable electricity and carbon offsets has been as good as we’ve ever seen. A lot of corporations – especially in the tech community – are saying that, with the US withdrawal from the Paris climate accord, they are going to address [climate change] alone. And that has been a very interesting phenomenon that has increased volume throughout our book. So, it’s a little counter-intuitive, but this business has increased, not decreased.”

The other major driver behind the growth the firm saw in 2017 is the RNG business. “The RNG business is a big addition to both our revenue and net income growth,” Lack says, explaining that the company generates renewable identification numbers (RINs) – or low carbon fuel standard credits in California – from RNG sales to compressed natural gas or liquified natural gas (LNG) businesses. Refiners and fuel importers buy these RINs to satisfy the federal Renewable Fuel Standard, which requires transportation fuels sold in the US to contain a minimum volume of renewable fuels.

Element Markets surpassed 50 million RINs delivered in 2017, according to Lack, and during this time the firm added six new projects to which it will provide services in this space. “That business is continuing to grow year over year and 2018 looks even better than 2017 [in terms of] volume, revenue and income,” Lack says.

We are set up to be an all-encompassing environmental commodity provider for our clients

Randall Lack, Element Markets

The refiners that Element Markets supplies with credits from its RNG business are often the same clients to which it provides emissions and GHG services. As such, the company’s longstanding position in the environmental space has enabled cross-pollination across its portfolio, boosting its performance in new sectors such as this. “We are set up to be an all-encompassing environmental commodity provider for our clients,” adds Lack.

While he does admit that underlying environmental commodity prices have been suppressed by political and regulatory uncertainty, Lack remains confident about the future for both the markets and the organisation.

Element Markets forecasts that by the end of 2019 it will have quadrupled its revenues from 2012 levels and, in addition to the new projects the company is adding this year, it has plans to almost double its RNG position over this year from the end of 2017. In line with this, it has also grown its staff – who are based in offices in Houston, California, New York and Budapest – by 20% since the beginning of 2017 to reach approximately 25 people.

“It will be a difficult environment from a political and regulatory standpoint,” Lack says. “But, based upon what we’ve seen so far and the continued volume growth in our book, we are optimistic about our business in this space.”