Speaker 1:

From the library of the New York Stock Exchange at the corner of Wall and Broad streets in New York City, you're Inside the ICE House. Our podcast from Intercontinental Exchange are markets, leadership and vision in global business. The dream drivers that have made the NYSE an indispensable institution of global growth for over 225 years. Each week we feature stories of those who hatch plans, create jobs and harness the engine of capitalism, right here, right now at the NYSE and at ICE's exchanges and clearing houses around the world. And now welcome Inside the ICE House, here's your host Josh King of Intercontinental Exchange.

Josh King:

Let's turn the clock back, say 500 years. The date is September 8th, 1522. Aboard the Victoria, the last of the five ships of Ferdinand Magellan's voyage of circumnavigation, the tattered remanence pf Magellan's crew led by Juan Elcano reached their final destination in Seville, Spain. After three years of weary tumultuous traveling, they could claim at last to be the first to truly span the globe. Now, half a millennium later, globe trotting for us is no big deal. Before the pandemic hit we hopped on a plane, booked a cruise and off we went out into the world somewhere exotic. But the achievement of Magellan's crew was momentous. Those five ships were powered by nothing but the wind and when you look at maps trotting their voyage, you see a red line wrapping around the world joining countries together like a thread weaving it's way through a piece of fabric.

Josh King:

Travel and exploration still united us, but times have changed. With the onset of new technology we're only a click away from someone on another continent. With my iPhone my son who I just dropped off at school hundreds of miles away, appears before me like Captain Kirk summoning Mr Spark with his communicator. If we pause for a second and take a step back we notice the travel, be it in the 16th century or now, even virtual from my apartment to my son's school, wouldn't be possible without energy. That airline seat consumes a lot of carbon going from place to place, as does that iPhone getting made on the assembly or making it's way to the Apple store via container vessel. Energy and our dependence on it unites us, without it the human race as we know it would not exist. And even with it we wonder how long it will last as well as the externalities of just plain old using it.

Josh King:

Which brings us to today's guest, Gordon Bennett managing director of Utility Markets at ICE. Whose expertise lies in his knowledge of all those things that power our lives, natural gas, coal, electricity and environmental market's crucial forms of energy that have formed the bedrock of our civilization for centuries by providing us with heating, transportation and industrial goods. Our conversation with Gordon on energy transition carbonomics and the future of markets and of course Coronavirus, will begin right after this.

Speaker 1:

Navigating dynamic markets requires a relentless pursuit of knowledge. Now, join market experts to learn with ICE Education live. Attend live video training with practical lessons across global asset classes, on-demand modules provide base knowledge. Participants can then attend live training sessions including group review and tests for certification. We also tailor training for your needs and in-house projects. ICE Education live courses, continue your education today.

Josh King:

Our guest today is Gordon Bennet, managing director in the Utility Markets for ICE Futures Europe. Gordon is responsible for sales and business development for ICE's long established European natural gas and power franchise, together with its international emissions and coal portfolios. Prior to joining ICE, Gordon spent over 12 years at the energy brokers Spectron, working in London and New York. Before joining Spectron, Gordon was senior manager in the Energy, Infrastructure and Utilities division of Arthur Andersen. Welcome, Gordon Bennett, Inside the ICE House.

Gordon Bennett:

Thanks very much, Josh. Pleased to be here.

Josh King:

We've wanted to have you on the show for a long time Gordon. Here I am, I'm sitting in the virtual library of the New York Stock Exchange which is in a city that you once called home. Give us a little thumbnail of your career and how it led you to head Utility Markets at ICE Futures Europe. How did you develop your interest in power markets?

Gordon Bennett:

Okay, so that could be a long story but let me try-

Josh King:

We've got plenty of time.

Gordon Bennett:

Let me try and start with the last step first. When I worked at Spectron the energy broker, it's a people business and you gain a lot of experience in managing people but also hiring them. And my boss there Andrew Stevens always said to me, "You need to tick two out of three boxes to get someone to leave their job." And the three boxes were ambition, disenchantment, although he used a different term or phrase, and money. So, if I tell you that I didn't get a pay rise to come to ICE, then you know which boxes were ticked. I think also looking back, I learned a lot over the 12 years I was at Spectron and I always needed a new start to put them into practice. That led to a call with Dave Goone. I eventually gave Dave Goone a call and said I was looking to move at Mardice as an organization and I basically said, "if anything comes up then I'm going to stick my hand in the ring." And he basically said, "I've got something for you now," and the rest is history really.

Josh King:

And if you think back to the Bennett household, wherever that was, whenever that was, Gordon. Were your parents engineers, teachers in the scientific fields?

Gordon Bennett:

Looking back, I'd probably get my energy DNA from my dad. He was a chief engineer in the Merchant Navy, he worked Exxon as you guys call it. He was moving crude oil and refined products all around the world and that seemed like a pretty cool job to a kid. You understand really later it's a pretty tough job being away from your family, but I think that's where the first, sort of... I started to think about energy it was there because my dad was in that business. I can't not mention my mom if I mention my dad but I think in terms of my DNA, I get my grit from my mother. The downside of your dad in the Merchant Navy is he's away for long periods of time. And so, me as an only child, my mom had to be fiercely independent so that sort of grit certainly, I think, comes from my mom's side.

Josh King:

I suspect your dad spent most of his time aboard vessels versus platforms versus fields, did you spend any time at sea at all?

Gordon Bennett:

No, I didn't. But you're right, he was on vessels but I would get on the oil tankers when he came into port. I never got to go to sea but did, my mom was allowed to travel at seas with him every now and again, so that was pretty cool. I think like a lot of kids, in the beginning, I desperately wanted to do something in sport more than anything else but that didn't work out. I reckon from my later high school years it was all about building optionality from a career perspective. Although I might be giving myself a bit too much credit to think that a 16, 17 year old kid was thinking about optionality but I chose chemistry at the University of Edinburgh. Interestingly it wasn't my best subject at school, my best subjects were maths and modern studies which is kind of political science in the Scottish curriculum. But I felt like chemistry gave me the optionality to either go into industry or to go into finance.

Josh King:

Speaking of industry in finance where they all come together, Gordon. Energy is inextricably linked to public policy, ESG hitting high in the agenda of governments as well as companies worldwide, big and small. In fact, New York City is hosting climate week from September 21st through the 27th, it's this annual summit which sees business and government leaders come together to discuss climate change, progress to date, as well as new ideas. What role does ICE play in the ESG discussion considering that ICE is this key energy trading exchange?

Gordon Bennett:

I've started to think about this differently over the last few months since I started co-chairing our sustainable finance working group. Before I start thinking about what our role in energy markets and sustainable finance is, I've taken a bit of a step back to think about what is the role of finance, financial markets and ICE's role therein. And I think importantly, how does it tie back to the real economy? So when I think about those things, the core of financial markets is effectively to allocate capital and manage risk and valuation is critical to both of those. Going back to my roots a little bit in terms of... I'm a chartered accountant by trade. In accounting, and in particular fair value accounting, there's a three-level hierarchy with quoted markets sitting at the top. So, I think of ICE as this one big valuation engine really, with our quoted markets whether it's the NYSE or our derivatives exchanges sitting at the top of the hierarchy and being complimented by our data services. So ICE for me now is really this big valuation engine.

Gordon Bennett:

Why are quoted markets at the top of the hierarchy? It's because they are executable so they're the most trusted source of value and they also allow you to risk transfer. And as I said earlier, how do you tie that back to the real economy? Company require access to finance to grow and this is where I'd like to introduce the concept of spreads and spread relationships which I think will be a common theme when we get into talking about energy. For me, every business is a spread business because profit and loss is the spread between revenue and costs. Companies with volatile earnings are harder to value, perceived higher risk so access to risk management and hedging allows them to smooth earnings.

Gordon Bennett:

Smoother earnings allows you more optionality to funding and cheaper access to funding. Access to debt to pay your principle back, to pay your interests. Access to equity to pay dividends to your shareholders and energy transition needs access to capital. So financial markets are critical to allow companies to grow and to invest in infrastructure.

Josh King:

Investing in infrastructure and what that infrastructure forms is going to take place decades ahead, brings us to this crucial point of energy transition, Gordon. ICE is one of the most liquid places in the world for customers to trade and hedge environmental products, tell us how is ICE helping its customers navigate and get involved with energy transition? We might as well begin by telling our listeners what we mean by energy transition.

Gordon Bennett:

Quite often, certainly if you're in a developed country like you and I, we maybe take energy for granted so we don't think about what it is or where it comes from. I tend to think about energy as in what you use it for. So I could it four pillars of energy. Those four pillars are heating, electricity generation, transportation and industrial, so if it had to be a feed stock to make things. And then each of those four pillars you have a merit order, so what forms of energy you use. I'll stick to electricity because that's one of the main focuses of my job. You can generate electricity by burning oil, by burning coal, by burning natural gas or you can use renewable forms whether it's hydro, wind or solar. So that's energy, you've got these four pillars and a merit order in each of them. And really the energy transition is effectively the changing of those merit orders over time.

Josh King:

We mentioned the externalities of using electricity or energy in the introduction. You are a strong believer Gordon in economics being one of the driving forces that's going to determine the success and pace of energy transition. I sense you believe economics has played a strong part in the progress made so far in people switching from burning coal to using gas where you make this merit order. Tell us how transparent markets can help decisions on fuel switching?

Gordon Bennett:

What we see now is something that's called carbonomics whereby you are internalizing an external cost and the external cost in this instance is pollution. We're going to go back to electricity generation again I'm afraid, but I think this is the best example of carbonomics at work. This has actually been going on for a long time in Europe where the European Emissions Trading System was started in 2005. And so the European ETS, the role of the cap and trade program was effectively to put a cost on pollution. Under a standard economic model you would look at say the profit margin of generating electricity by gas versus the profit margin of generating electricity by coal. The outcome under a standard economic model, certainly over the years preceding the ETS, was that it was cheaper to burn coal. You made more money by having a coal plant than you did in natural gas plant.

Gordon Bennett:

Now when you add the cost of pollution you get a different answer and it does depend on the price of carbon and the price of natural gas and coal. In effect that's one of the answers to your questions is that you need to know the cost of all the inputs and outputs for this to work, right? It's not just about cost of carbon, you need to know the cost of natural gas and coal and electricity. But what adding the cost of carbon dose is changing the merit order, its now better for people to burn natural gas than coal, so your incentivizing the burning of the least carbon of intensive fuel which is ultimately the goal of carbon traders to incentivize the abatement of emissions.

Josh King:

Gordon, you wrote recently that, I'm going to quote you here, "The road to a zero carbon economy will be a long and complex transition addressing the dual challenge of providing affordable energy for the 1.2 billion people without it, while halting climate change." So given that some of these renewable fuels remain intermittent in nature, we can't have hydro or wind in every place and that many are not yet cost competitive. If we want windmills across the country side, we're going to need the fossil fuel industry to fund it. How do you think the path of energy transition is going to play out?

Gordon Bennett:

Well, I think I'd like to quote the economist John Kenneth Galbraith in this instance where he said, "There are two kinds of forecasters, those who don't know and those who don't know they don't know." And I've not met anyone who can predict the future yet so it's a little bit of a cop out but I think what you can say is that it's going to be complex and it's going to be unpredictable for some of the things that you've already mentioned. Things that we haven't even thought of yet are likely going to come into the equation. History shows that there will be major technology breakthroughs that can significantly change the outcome. I don't think there are any silver bullets and I think importantly they all need to be compromised. I think it's important that opinion doesn't become too porous in something as complex as energy transition and climate change. What I mean by that is you've got, sort of, climate denials on the one hand and those who portray it to be easy. As you said early about there's nearly a billion people who don't have access to electricity it's not a simple payoff of reducing emissions.

Gordon Bennett:

People are in energy poverty so do you want to tell them, "You can't have electricity because it's coming from coal?" There's definitely a payoff there, so I think compromise is key. I think that people need to be pragmatic and not rule anything out, there's definitely quick wins there. Europe has proven that you can move coal out of the narrow order. Other countries are going to have follow suit, the US has been successful as well in moving coal down the merit order driven primarily by access to lots of cheap natural gas. I think what you can see is the merit order's going to change and if there were pointers looking at what's happening today, coal usage will need to decrease particularly in Asia. We'll need more renewables in the energy mix, electricity more prominent but it will have to come from less carbon intensive resources.

Gordon Bennett:

I'm a firm believer that hydrocarbons will stay in the energy mix. There are too many things are too hard to decarbonize or so reliant on hydrocarbon that hydrocarbon will remain in the future. It may be that more of it will need to be captured or it will need to be offset. In a lot of the statements that come from a lot of the big energy companies is that they're dealing with Scope 3 emissions i.e. the emissions footprint of the products that they're selling to the customers. There's going to be a move to having to deal with Scope 3 emissions, it's not okay to just worry about your Scope 1 and 2 anymore. So, yeah, as I said that it's complex but those are some thoughts as to how it's going to turn out.

Josh King:

Let's take a little bit of spin around the other part of the globe that part that we reference in Magellan's voyage, financial markets have made headway developments in into energy transition with the growth and development in more liberalized markets, especially in the use of natural gas places like Europe, the United States that you were just talking about Gordon. But writing for the Oxford Institute for Energy Studies, you explained how the interplay between ICE's global gas benchmark TTF and ICE's Asian gas benchmark, the Japan-Korea Marker which is known as the JKM, was transforming gas markets. How can liberalized markets help customers facilitate energy transitioning? And you might, sort of, explain for listeners how things are little different in Asia than they are in Europe or the United States.

Gordon Bennett:

I think liberalized markets it goes back to really the point that we were talking about earlier around and knowing the price of something. And economics driven ultimately in liberalized markets the price is set by the markets as opposed to the government. If you're a believer in free markets then you believe that the market is better allocating capital. I do think, with respect to climate risk and energy transmission, it's not one or the other. I think that governments and commerce need to work together and I think a great example of that was actually in the UK when it was a combination of policy and market force. What do I mean by that? There's a time when the ETS post the financial collapse, because of the demand destruction, there was a huge oversupply of carbons so the carbon price signal wasn't strong enough to produce the intended outcome of the carbon trade.

Gordon Bennett:

The UK government in 2013 introduced a carbon price support system which was basically an add-on. And if you looked at a graph of what happened to coal in 2013 to now and you see coal effectively coming out of the merit order. That wouldn't have happened without the policy intervention and you can compare and contrast that to say, what happened in Germany where there was no carbon price support and you've actually got this marginalization of the least carbon intensive hydrocarbon i.e. natural gas. And so, renewables was heavily subsidized so you got this great increase of renewable generation coming into the merit order and the carbon price was not strong enough to take coal out. People were shutting down gas plants which made no sense in terms of what the policy intent was.

Gordon Bennett:

And so, I think that markets, that particular merit order changing, and it ouches the regeneration in Europe is a great example of markets working in contrast Asia. I don't think there are any good examples of sort of a fully liberalized market structure. And so there's a lot of government intervention there. So I certainly firmly believe that the market is one of the best ways to determine value and create good outcomes.

Josh King:

The market, one of the best ways to determine value and create good outcomes, government and commerce working together, the policy intent merit order and markets working smoothly and orderly fashion. We'll get into all of that more with Gordon Bennett in the second half of the show, that's right after this.

Speaker 1:

Historical data can offer insight into the direction of markets. Get data processing, collection and storage can be challenging and costly. To simplify your data access needs and help find efficiencies, we launched ICE DataVault, a cloud-based platform that enables you to access take history for global exchanges, as well as our proprietary data source from our real-time feed. Back test your trading strategies to assess performance and viability, conduct transaction cost analysis and support compliance requirements, input data into surveillance systems to help detect and prevent abusive or illegal trading activities. Excess over 10 years of deep take history across asset classes, get tick data for an entire market or on an underlying list of instruments. Access additional securities is needed. With flexible delivery options to compliment your workflow, simplify your historical data management with ICE DataVault.

Josh King:

Welcome back. Before the break, Gordon and I were discussing energy transition, a key work for us here at Intercontinental Exchange. Gordon, as I was thinking about that introduction that I read about a Ferdinand Magellan, you and I were talking separately about this book, Energy and Civilization by Vaclav Smil, I mean, energy transition is not something that's happening purely in the second decade of the 21st Century. This has been going on for a long time, hasn't it?

Gordon Bennett:

Yeah, absolutely. Yeah. I would recommend it to anyone who wants to understand energy. And in fact, I recommend it to everyone. You should maybe won't read it, but you should certainly get the audio book. And so here, Vaclav Smil is a scientist and a policy analyst. I'm not going to do it justice, but effectively, it tells you that no energy transitions have been happening since the beginning of civilization. So from biomass to coil, to oil and natural gas to renewables. And it's simplest form, he basically is talking about that food is energy, right? And so you can't survive without food. And almost the first form of energy was muscle power. And so we all know about calories. And so calories give you muscle power.

Gordon Bennett:

And then it really talks about the conversion of energy, the science of it. It refers to something called energetics. And so that's really about energy density and the conversion of one energy to another. And then it will walk into the economics. And so it talks about how the evolution of civilization and technology and advancement. Has allowed us to access more sources of energy and change how we use energy. And I'll give you a few examples. There are too many to really, as I say, give it justice, but it talks about, in the beginning for heat, humans were using twigs and the branches rather than the trees themselves. And so why did they do that? Because he didn't have access to the tools that allowed them to get to the trunk.

Gordon Bennett:

And so, as a civilization evolves, you're able to build tools. You suddenly have new access, this new access to energy, and that's really the trunk of the biomass. Another great example is it talks about the transition from biomass to coal in the UK. And this was really driven by economics more than anything else. So the UK was effectively running out of biomass. It was running out of trees, so it had to import trees. And the cost of that was rising. And so it was more cost-effective to mine for the coal. And so the economics of the biomass versus the coal meant that the UK sort of transitioned into coal. And then there's another really interesting one, which I had never really given much consideration about oil. And it talks about how really oil and associated gas, they were found at the same time, but no one did anything with the gasses. You couldn't do anything with it.

Gordon Bennett:

And the reason why oil was the most prevalent hydrocarbon is because it was the easiest to transport and store. So natural gas, you need compressors and steel pipes, and that didn't come for a long time after. So it's a fascinating book that talks you through all of these technology advances, and what that's meant for our energy consumption and supply.

Josh King:

And if you fast forward that all to the present, Gordon, I mean, what we've all been living through the last six months, the coronavirus pandemic and its impact on power markets, how do you see the evolution of supply and demand changing as a result of COVID-19 relative to the trajectory we were all on before, let's say February or March?

Gordon Bennett:

Oh, wow. So I think what's interesting about COVID-19 is it's been going on long enough now that people have developed new habits, right? So it's going to be interesting to see whether we really go back to what normal was like, or whether there'll be a new normal, but I think it gives some fascinating insight into behavior change and what the impact of behavior change is on particularly energy demand. If we look to the specifics of what happened, I think it will surprise anyone that just like we saw across all of the energy asset class. There was a lot of demand, destruction in power, especially around the lockdown. I think it ranged between just about say 25, 30 percent. Demand was down in places like Italy and Spain.

Gordon Bennett:

I think in the UK, in Germany and France is a little bit less, maybe sort of the 10 to 20 percent mark. The US is a bit difficult to work out because, was depending on how the states were enforcing lockdown, but I read something about it was a 16-year low in terms of eligibility demand in the US, down in five or 10 percent. So there was a lot of demand destruction. And I think it gives a really interesting point or to the future, because the other trend was, there was an uptick in the amount that renewables was in the mix. So there was a dramatic increase in renewables in terms of the total generated electricity. And that been talked about a lot in the UK because... and I was going to say, I'm not a scientist, but I've got a degree in chemistry, but this is not my forte, but essentially, without electricity, you can't store it. So you've got to balance the in and the out, right, what you produce needs to be consumed or given away.

Gordon Bennett:

And so you need inertia to balance the grid. And the inertia comes from the hydrocarbon generation. It comes from the natural gas generation, and it comes from the coal, and it comes from nucleus that the spinning parts of those thermal generation that provides the inertia. Because renewables was such a high part of the generation mix, there almost wasn't enough inertia to balance the grid. So we've seen recently the national grid announced that there were 718 million pounds worth of bouncing charges in the six month period. And that's huge. It was up something like 40%.

Gordon Bennett:

So in a world where we're trying to get to net-zero, and we foresee having more renewables in the mix, there's some real challenges to being able to balance the grid in its current form, it doesn't feel like it's able to do that. So that's going to require investment to change the grid structure from a balancing perspective.

Josh King:

So if you could direct the money for this investment, what would need to happen for hydrogen to become a realistic alternative for gas and electrification?

Gordon Bennett:

So hydrogen is an interesting one. There's three types of hydrogen; there's gray, blue, and green. Gray and blue both come from steam reforming of hydrocarbon. The difference between the two is in blue, you capture the CO2. So it's effectively carbon-zero. Whereas green, it comes from the electrolysis of renewable energy. So when people talk about hydrogen in the mix, they're really talking about the green hydrogen, or perhaps the blue. It's got a lot of policy support at the moment. So people are talking about hydrogen a lot, but in terms of its cost competitiveness, it's not where it needs to be. Again, I'm no expert in hydrogen, but I read an interesting study on it, and I've seen ranges of something like you need a carbon to be $50 a ton before a hydrogen is competitive in that transportation sector for say, cars, and trucks.

Gordon Bennett:

If you want to get into bigger transportation like shipping and aviation is near $100 a ton. And then finally, if you wanted to get into the thermal mix, IE, electricity degeneration, then you're talking north of $100 a ton. So those are way above where carbon is at the moment. Carbon is say $30 a ton in Europe. So as I said, hydrogen seems to be getting a lot of policy support, but we need a higher price signal in carbon for that to really hit the merit order, if that makes sense.

Josh King:

So let's be a little bit ambitious than, I mean, thinking about your dad on the vessels for SO. We've seen certain industries turn to different fuels for their energy. Let's think about shipping. LNG has grown as an alternative fuel to power ships, as opposed to petroleum. Is this a solution to help meet climate targets?

Gordon Bennett:

Yeah, I think so. As I said, there's no silver bullet. It's going to require lots of different solutions. You certainly see LNG is increasingly used in the transportation of LNG. So the LNG vessels themselves are powered by LNG. Anecdotally, I also hear the LNG is more prevalent in cruise ships. But to give you an anecdote, when I was in Singapore last year, and I was talking to someone in the shipping industry. This isn't solely related to the shipping industry either. It's a little bit of a case of there's a debate around some people think that hydrocarbons aren't part of the future, and natural gas is not a future fuel, and it's not even a transition fuel, but if you're a ship owner, what are you supposed to do?

Gordon Bennett:

These are capital intensive, but do you invest in your LNG ship only to find out later that no one wants them? Or do you wait for something else? And it's definitely a case of you need to wait for something else, because there isn't anything. And if you wait, will it come? So you perhaps miss some of those easy wins those I was talking about earlier by not making the investment. So LNG in shipping seems to be part of the solution, but there'll be plenty of others.

Josh King:

There's easy wins, Gordon, and those hard winds. I read an article last week in the Financial Times saying that, I'm going to quote, "There's a claim that ESG advocates assert that shareholder returns can always align with the social good, but in reality, ESG investors starting point is different than mitigation of risk." What's your take on that statement?

Gordon Bennett:

Well, I think it's both, really. It's case of risk mitigation as well as social good. From my perspective and the environmental is probably the most advanced in terms of measuring it because of the existence of Carbonomics. And as I said, it's existed in practice since the ETS in 2005. So it's 15 years old and specifically, the climate component or the E is about avoiding the risks of climate change. The physical climate risk, IE, the impact of weather events, for example, is I think clearly disproportionate impact on those most socially disadvantaged. So then it's about risk mitigation and having a social impact. The SDGs, I know less about that. The GPs, I find a little bit odd sometimes because as a chart of accounts, things like Sarbanes-Oxley and the Combined Code in the UK have been around for as long as I can remember.

Gordon Bennett:

So for me, good governance is something it's not like you aspire to. You must have it. So I find G a little bit weird, but maybe G is about ensuring the implementation of the ENS, when I think about it. And the AS pieces is clearly important. I'm not sure how you measure it in an objective way. I think the S and the G are a bit more subjective than the E, so it has challenges. But look, I think sustainable finances is here to stay. I don't think you can take a traditional view of financial markets anymore. You're going to have to overlay new inputs and take a view on different types of risk in order to allocate your capital going forward.

Josh King:

Staying on sustainable finance for a minute, Gordon, we hear this term greenwashing. It's used quite a lot where people used to label a corporate or an institution, which has seemed to be giving a false impression or unsubstantiated claims about how its products or businesses are environmentally-friendly. How, in your opinion, can companies avoid that label?

Gordon Bennett:

Yeah, I think it's a difficult one because I feel that we're at the bit of a start of the journey on ESG and sustainable finance. So I think people are still trying to work out what that means for them, and how to set goals, and then to measure it. I think, as I said in the previous discussion, it's a little bit subjective. But there's certainly lots of challenges because if you look at, say, the voluntary offset market, in particular, you get a range of... you can buy an offset for 50 cents, and you can buy an offset for 6 bucks, and then the carbon trades at, say, $17 in California and $30 in the EU. So there has to be some question marks in terms of which ones of these offsets are really sort of reducing my carbon footprint.

Gordon Bennett:

So you're going to need more standards. There's going to have to be more standardization, whether that's in a voluntary offset market or just ESG in general. I think that things like carbon accounting standards are going to be critical and things like the task force for climate-related financial disclosures are going to be critical, but they're somewhat voluntary at the moment. The more mandated they become will allow people set their goals and benchmark going forward.

Josh King:

Looking ahead, Gordon, toward people, as they set their goals, the FT published the big feature recently on carbon trading, looking at how the market is getting bigger and bigger with more people wanting to get involved, to express their conviction, that the cost of pollution reflected in the carbon price is going to keep going up. What are your thoughts on this, and how do you think it's going to impact sustainability agendas across Europe and other continents?

Gordon Bennett:

Yeah. And I'm glad you brought this article up because I found it really interesting, and it's something that we talk about in my team a lot because I think the crux of the article seems to be about short-term supply and demand fundamentals versus long-term trend for carbon pricing. And so personally, I haven't spend a lot of time thinking about the short-term fundamentals. I think more carbon as a long-term asset because these allowances are bankable. So the theme for me says that the cost of pollution needs to be higher to meet the goals of the Paris Agreement. And the hygiene example that we talked about earlier, we were saying 50 to 100 dollars a ton. So there's a benchmark for hydrogen to get into the merit order. And then if I look at sort of public policy documents, see, the UK shadow price of carbon for 2030, somewhere in the range of 40 to 120 pounds per ton, and the factory sort of shadow price of carbon in the multilateral development banks.

Gordon Bennett:

Again, you see ranges from 25 to 80 dollars in 2020, and north of $200 and in 2050. So if we are to meet the goals of the Paris Agreement, and certainly speaking from a European perspective, there are some very strong signals coming out of the commission that they want to be net-zero in 2050. So carbon prices should have to go up in order to meet that goal.

Josh King:

Tell me, Gordon, as we wrap up, what's going to be keeping you personally busy over the next few months? Are there any major projects that you're particularly excited about?

Gordon Bennett:

Yeah. We're going to continue to focus on building liquidity to create more benchmarks across our existing portfolio. You mentioned TTF, and JKM earlier is definitely a key objective of me and the team. I think that TTF is transitioning into the most globally relevant gas benchmark. And we certainly look to help building the liquidity there. We're working hard to make sure that JKM cements its position as the Asian natural gas benchmark, as we talked about, liberalization of markets in Asia are perhaps not so advanced. So we think that that's critical to the sort of the future market structure of Asian energy markets. We're definitely also taking a little bit of an eye on what's next? What are our customers going to need next in terms of building the benchmarks of tomorrow, allowing them to risk manage more effectively those benchmarks that are going to allow the facilitation of the energy transition, I think is going to be important.

Gordon Bennett:

And then finally, I think I'm spending a lot of time thinking about building and communicating what our sustainable finance strategy is. We've already got some great products and services across the ICE franchise. So I think I aspire to really unleash the potential of our valuation engine that we were talking about earlier.

Josh King:

Building the benchmarks of tomorrow, the work of Gordon Bennett and his team at Intercontinental Exchange. Gordon, thanks so much for spending a little time with us today Inside the ICE House.

Gordon Bennett:

Thanks, Josh. You're very welcome. I'm glad I tried it. I think it was fun.

Josh King:

It was indeed. And we'll do it again, my friend. And that is our conversation for this week. Our guest was Gordon Bennett, managing director of utility markets, ICE features Europe. If you like what you heard, please rate us on iTunes so other folks know where to find us. And if you've got a comment or a question you'd like one of our experts like Gordon to tackle on a future show, email us at [email protected] or tweet at us at ICE House Podcast. Our show is produced by Pete Asch and Veronica Slumka with production assistance from Stephen Romanchic, Andean Woolf. I'm Josh king, your host signing off from the remote library of the New York Stock Exchange, thanks for listening. Talk to you next week.

Speaker 1:

The information contained in this podcast was obtained in part from publicly available sources and not independently verified. Neither ICE nor its affiliates make any representations or warranties express or implied as to the accuracy or completeness of the information and do not sponsor, approve, or endorse any of the content herein. All of which is presented solely for informational and educational purposes. Nothing herein constitutes an offer to sell, a solicitation of an offer to buy any security, or a recommendation of any security or trading practice. Some portions of the proceeding conversation may have been edited for the purpose of length or clarity.