Liquidity provider of the year: Grey Epoch

Energy Risk Awards 2024: Environmental markets specialist supports shipowners coming under EU ETS scope

Edmund Lehmann, director of Grey Epoch Europe

The global shipping industry, which accounts for around 3% of the world’s greenhouse gas emissions, was brought under the scope of the European Union’s Emissions Trading System (EU ETS) from January 2024. Under the new rules, shipping companies are required to surrender their first EU ETS allowances (EUAs) for 2024, by September 2025. The volume of emissions they are required to have covered with allowances starts at 40%, but will reach 100% of reported emissions from 2027.

Getting to grips with these new obligations has been a challenge for firms in the maritime sector, many of whom have no prior experience of the EU ETS – or of any compliance cap-and-trade scheme. That’s why this year’s Energy Risk Liquidity provider of the year, Grey Epoch, has been using its considerable experience to provide support and trading services to this industry.

Grey Epoch Trading has been the number one liquidity provider in cleared emissions options for 2022 and the nine preceding years on the Intercontinental Exchange, the firm says. It executed the first exchange-cleared UK allowance options trade in 2022. It offers bid and ask prices for over-the-counter spot, futures and options, and also makes markets in bespoke products.

From its London office, Grey Epoch provides advice, risk management and procurement solutions for the EU and UK ETS to clients in the aviation, cement and utility industries, as well as commodity traders and funds – and now, maritime transportation companies.

Over the past 18 months, Grey Epoch has focused on helping shipowners understand the ETS rules, as well as how to place orders and execute transactions. “Some of the smaller and medium-sized companies, in particular, have gone from being clients without knowledge to companies that are now comfortably hitting bids and lifting offers,” says Emilio Fontana, business development manager at Grey Epoch Europe. “We bring tight, two-sided EUA option markets to the table every day, no matter the market conditions,” he adds.

Emilio Fontana, business development manager at Grey Epoch Europe

And the firm’s traders have experience of all kinds of market environments since EU ETS allowance prices have ranged from around zero to more than €100 (£86) since its 2005 launch. “Our traders have been trading EUA options since 2007 and, before that, they all had significant experience trading volatile currency markets,” Edmund Lehmann, director of Grey Epoch Europe, says. “We also have strict and robust risk management systems, proprietary live risk analysis programmes and sophisticated options software that provides traders with continuous live snapshots of their position and risk.”

This experience, as well as the firm’s proprietary software, helps Grey Epoch price even bespoke structures quickly and competitively, Lehmann says. This has been even more useful now the maritime transport industry has come under the EU ETS because Grey Epoch has found these firms often need more flexibility on delivery dates or volume sizes, for example, as well as having different cashflow needs and compliance requirements to satisfy. “For example, a ship might be coming from Asia to Europe, with a stop in between, and so the shipowner may not know where it stands in terms of ETS requirements. It’s not as clear-cut as working out your ETS compliance requirements for a power station in Germany, for example,” Lehmann explains.

As such, Grey Epoch sees its role as one of education, not just making markets. “We have dedicated significant resources to explaining the latest developments in the ETS and developing bespoke risk management solutions for this sector so we can offer more competitive prices, individual solutions and more personalised attention compared to more traditional risk management providers,” Lehmann says.

Indeed, one client from the maritime industry described Grey Epoch as “by far the best partner” it has worked with on emissions trading. It said the company appreciated its “patience and professionalism”, “precise explanations” and “excellent technical knowledge” as it tackled this new market.

And the variety of company types and sizes across the maritime sector has certainly kept Grey Epoch’s team on its toes. “Our sales team keep coming to me to approve different structures for this sector,” Lehmann says. “So, serving this new industry has been interesting, and actually quite enjoyable.”