The Fundamental Review of the Trading Book (FRTB) includes higher capital charges for carbon trading under the standardized approach to market risk, which has implications for banks in their role as intermediaries in the emissions trading system (ETS).

In an earlier paper, ISDA investigated whether the regulatory treatment of carbon credit trading under the FRTB is justified by focusing on the EU ETS. The appropriate treatment is important as overly stringent capital requirements would impair the functioning of the carbon market and hamper the willingness of firms to invest in the transformation to a green economy.

ISDA has published a new paper looking at the implications of the Fundamental Review of the Trading Book on #carbon certificate trading based on data from two North American markets and the UK Emissions Trading Scheme. Click here https://t.co/jMbipLBVmd

— ISDA (@ISDA) April 21, 2022

The analysis confirms ISDA’s previous recommendation for a risk weight for carbon certificates of 37% versus the 60% risk weight currently prescribed by the #FRTB framework

— ISDA (@ISDA) April 21, 2022

This paper extends the findings by investigating the risk of carbon certificate trading in two North American markets – the Western Climate Initiative and the Regional Greenhouse Gas Initiative – as well as the UK’s ETS.

Documents (1)for Implications of the FRTB for Carbon Certificates: A Global Perspective

• Implications of the FRTB for Carbon Certificates – A Global Perspective(pdf)

Source: ISDA