After a period of exceptional profits, commodity trading markets are starting to normalize, causing industry-wide margins to stagnate or even recede. Our research shows commodity traders generated more than $100 billion EBIT in 2023, and 2024 earnings indicate industry value pools decreased by more than 30 percent year over year, with 2025 shaping up to look much the same.
During the boom years of 2022 and 2023, higher volatility spurred a dramatic increase in industry margins. This attracted a number of new entrants in commodity trading and motivated many incumbents to grow their existing trading capabilities. As margins compressed in 2024, traders faced increased pressure and higher competition. Despite these recent developments, longer-term trends show trading value pools continuing to grow steadily through the end of the decade.
A successful response to this new, leaner environment likely requires the embrace of new tools and revised operating models, both of which can help traders better quantify and manage price exposure and other key risks. This article examines the state of the industry across a number of core commodities and subsequently explores how industry players can best position themselves to capture the next S-curve in commodity trading.
Taking stock of the commodity trading industry
In 2024, commodity trading demonstrated remarkable resilience, with most prices trending downward and many pandemic-era supply chain disruptions successfully mitigated. Broadly speaking, price volatility also decreased, with 2024 presenting a more nuanced market environment. The continuing long-term growth trend of commodity trading value pools under a business-as-usual scenario shows a trajectory that could reach $115 billion in EBIT, implying approximately $200 billion in gross margin by the end of the decade (Exhibit 1).
Similar to previous years, energy sector value pools show the highest levels of change, with oil and oil products decreasing by approximately 40 percent. By contrast, liquefied natural gas (LNG) saw a more moderate change (decreasing by 23 percent), partially due to US export capacity coming online more slowly than expected.1 Power and gas commodity pools decreased by approximately 40 percent.
Meanwhile, agriculture saw a nearly 25 percent drop year over year as supply responded to near-record prices from 2020 to 2023 and crop inventories moved closer to ten-year-trend levels (in many cases, agricultural commodity prices are closer to the marginal cost of production). Finally, metals and mining margins saw an uplift—although overall prices fell, several merchant trading companies2 performed better than in 2023—leading to a growing margin value pool of nearly 20 percent.
Taking a longer-term view, steady growth in margins is expected for the remainder of the decade. The growing liberalization of power markets, increasing energy volatility from widespread adoption of renewables, and the need to optimize flex assets and demand will mean that power, gas, and LNG markets will likely drive much of the expected growth. Oil and oil products will likely grow at a slower rate or even stay constant, making it likely this commodity grouping will be surpassed by power and gas as the largest value pool by 2030. Finally, margins from emerging asset classes related to the energy transition could further augment trading income over the next five years.
Oil and oil products
Development. The overall profitability of oil and oil products decreased in 2024, continuing a sustained decline from record-breaking highs in 2022, when margins more than doubled historical averages. Oil price volatility also declined in 2024 compared with the previous year. However, various factors, including recent geopolitical developments in the Middle East, led to increased volatility in the third quarter of 2024.
2024 was an especially challenging year for many asset-backed traders operating in the refining space. Increased global refining capacity, coupled with relatively weak demand for petroleum products in the United States and other OECD nations, pushed down refining margins. 2024 also saw closures announced for several refineries in Europe and the United States, paired with new capacity coming online in regions with growing demand, such as the Middle East and Africa.
Competition outlook. Several factors could drive an uptick in crude price volatility in 2025. Recent years have seen constrained upstream capital expenditures, which could limit crude supply in the short term. Geopolitical developments remain a major source of volatility, with crude pricing and availability affected by ongoing developments in Eastern Europe and the Middle East. At the time of this article’s publication, proposed tariffs on imports to the United States could reshape crude flows, potentially rerouting a small portion of some Canadian crude to new markets in East Asia via the expanded Trans Mountain Pipeline.
The challenging operating environment for refiners provides merchant trading companies an opportunity to increase their exposure to downstream assets. Leaner operating structures, lower overhead costs, and commercial trading acumen can empower these players to engage in profitable asset-backed trading activity. Some independent traders have already begun to engage in M&A, deploying cash accumulated during the recent boom to purchase stakes in European and Asian refineries and international retail—a trend that will likely accelerate in the near future. Incumbent asset-backed players will likely continue leveraging commercial and operational levers to extract the full value from their downstream portfolios.
In the longer term, a gradual consolidation of margins in oil and oil products is likely, with demand potentially plateauing at some point between 2025 and 2035. In the short term, data show China moving away from its role as the primary driver of global demand (a mantle that will likely be taken up by non-OECD economies such as Brazil, India, and the Middle East).3
Power and gas
Development. Demand for power is surging as supply tightens (Exhibit 2). In 2024, this increase was intensified by market volatility from an uptick in the share of renewables and the ongoing role of gas in the energy transition. Demand was further heightened by electrification efforts and aging infrastructure, indicating this value pool will likely remain strong in 2025.
In Europe, power purchase agreements (PPAs) soared to 21 gigawatts (GW) in 2024, driven by renewable energy and corporate demand. Yet uncertainties persist around how to achieve targeted demand growth in times of sluggish installation of heat pumps, slower-than-expected electric-vehicle sales, lackluster industrial electrification investment, and project development delays. At the same time, some grid and market operators in the United States are revising forecasts to accommodate a 15 percent annual increase in power demand from data centers through 2030; however, the eventual energy needs from AI technologies could vary.
Competition outlook. Looking ahead, the increasing uncertainty about demand development, alongside renewables penetration and regulatory uncertainties, could drive volatility and risk premiums. Meanwhile, global power and gas markets have continued to liberalize, becoming increasingly complex and data-driven. Leading traders have expanded operations across commodities, markets, and geographies, profiting from a more sophisticated understanding of interconnected markets.
As markets evolve, the ability to process large volumes of data and leverage quantitative approaches through traditional AI and AI foundation models is becoming paramount for success. The following trends underscore this shift:
- Flexible assets, such as batteries, are gaining importance in the value chain but are significantly more complex to value and trade than traditional renewable assets, such as wind and solar. Although renewables often focus on PPA origination and short-term trading, flexibility requires traders to manage intricate models that account for storage, dispatch, and multimarket optimization.
- Short-term volatility is increasing as markets become more dependent on changes in the weather, with factors such as extreme weather events and renewable intermittency playing larger roles. At the same time, markets are becoming more granular, with additional trading zones, shorter trading periods, and more frequent transactions.
The competitive landscape is evolving with the rise of data-driven trading firms, which were able to capture remarkable profits in 2022 and 2023.4 Today, these firms challenge established traders for capital-intensive value pools, particularly in areas that require substantial creditworthiness and liquidity, such as covering margin calls.
LNG
Development. In general, 2024 was marked by sustained tightness in the global LNG market as traders continued to profit from geographic arbitrage opportunities to supply Europe and Asia. The initial supply shock in Europe’s natural gas markets following the start of the war in Ukraine has sent prices to record highs. Since then, natural gas demand has been reduced significantly, relative to consumption in 2021.5
The reduction of Europe’s demand, primarily due to reduced industrial manufacturing and warmer winter seasons, has rebalanced the region’s markets and significantly lowered gas prices (which are still about 50 percent higher than in 2021). With Russian pipe gas supply to Europe reducing and domestic production rapidly declining, Europe has become more dependent on imported LNG in terms of volumes. On this point, price backwardation reflects expectations of a tighter market next summer, when European storage injection requirements6 will likely need to outcompete Asian buyers for spot LNG.
On this point, the mandatory security of supply in wintertime is reducing the winter and summer spread wholesale markets as more gas in storage becomes available, therefore reducing the risk of shortages in areas with particularly cold weather. This has somewhat reduced the market-based returns for storage capacity as well as the trading and risk-management opportunities around winter and summer spreads.
Competition outlook. Although the LNG market is largely balanced, an inflection point is imminent as additional liquefaction capacity comes online in the United States. After some delays, the futures market now shows LNG prices dropping by as much as 30 percent by late 2026 or early 2027, as opposed to original expectations of an inflection point by 2025.7 Our research shows that once prices fall below $10 per million British thermal units (MMBTU), the economics of using LNG for power, fertilizer production, and road transportation could become increasingly attractive.
Nonetheless, LNG faces potential disruptions driven by factors including geopolitics (such as changes in trade policies), shifts in gas supply sources, or the reemergence of major suppliers in global markets. Europe has traditionally been a flexible off-taker market for global gas demand, but the region’s shift away from coal-powered generation to renewables has reduced this flexibility, making the region increasingly reliant on LNG imports to meet energy needs. As a result, competition for LNG between Asia and Europe will become a key determinant of global LNG prices. Potential optionality between these regions could provide traders with incentives to strategically augment access to regasification plants and LNG shipping capabilities.
Agriculture
Development. In 2024, grain and oilseed markets moved closer to ten-year price averages as production expanded, inventories were built, and market volatility from geopolitical risks softened (compared with the past three years). Meanwhile, other agricultural commodities demonstrated wide variations. In the United States, cocoa prices surged dramatically from approximately $4,000 per metric ton to more than $11,000 per metric ton,8 while supply constraints led to sporadic rallies in sugar and cotton. The biofuels sector struggled with margins as supply exceeded mandated levels in key markets, including the United States, and the shift from soybean oil to alternatives, such as used cooking oil and beef tallow, compounded pressures on renewable-diesel facilities.
Another development is the widespread move toward—and investments in—data-driven (AI) trading. Agriculture markets, in particular, stand to benefit from AI technology that can rapidly and consistently ingest data from numerous public and private sources and develop a synthesized, actionable recommendation.9
Competition outlook. Major agricultural players are set to shape future trade by enhancing efficiency and adapting to evolving trade flow dynamics and regulatory landscapes while balancing food security with environmental and sustainability goals. Leading companies are launching resilience initiatives and diversifying into specialty—often identity-preserved or custom-sourced—products for higher margins. And integrated agricultural traders are leveraging innovations in agriculture technology to mitigate volatility through AI and improved logistics.
However, uncertainties remain linked to certain factors such as trade policy and labor dynamics. For example, potential tariffs on imports of used cooking oil from China, along with the potential for changing US biofuel subsidies, could reshape agricultural flows, especially for soybean oil. These changes could lead to increasing volumes of soybeans traded between Brazil and China.
Some larger players are consolidating operations through value chain integration. In 2025, optimizing physical assets by aligning operations across feedstocks and storage could be pivotal for generating value. Some global networks keen on localized supply and demand shifts are pursuing arbitrage opportunities, accelerating access to critical insights.
Metals and mining
Development. According to McKinsey’s Global Materials Perspective 2024, demand for metals is projected to remain strong until 2035.10 Similarly, growth for most subcommodities is expected to outpace what has been observed over the past decade. As a result, traders have been focused on increasing access to concentrates of nonferrous metal and minerals, particularly gaining exposure to the battery metals value chain. However, uncertainty about which battery chemistry mix will become prevalent could affect future demand patterns (Exhibit 3).
Growing demand from the energy transition and data centers has offered incentives to mining companies and metal refiners alike to bring supply online faster than previously expected. Savvy metals traders are also investing in metals recycling and secondary processing assets for high-demand commodities such as copper. However, changing regulation and export controls intended to foster local output of strategic metals will likely add complexity to the value chain and trade patterns. For example, the EU’s Carbon Border Adjustment Mechanism (CBAM) is expected to take effect in 2026, along with the growing set of levies on metals imports put in place by the United States. Another trend is the increasing regionalization of supply chains. For instance, China currently controls much of the battery and solar supply chains, with other countries responding in different ways.11
Competition outlook. The negative price outlook for many metal commodities in 2024 means that producers saw trading margins compress. However, overall margin pools stayed flat as asset-light trading houses were able to outdo their 2023 performance by focusing on back-to-back trades and high-demand metals.
Some incumbent traders successfully protected access to in-demand nonferrous metals such as copper and lithium by locking in long-term contracts with miners and metals processors, offering prefinancing and investing in critical logistics assets. However, the shift toward low-carbon technologies is unfolding more slowly than expected, putting downward pressure on price levels, especially for battery materials such as nickel and lithium.12 As a result, there are increased opportunities for new trading entrants to capture market share of ore, concentrates, and refined metals.
Moreover, metals traders have had to account for the growing role of secondary metals. Supply shortages and decarbonization ambitions have led to significant investment in collection and recovery of scrap copper and aluminum.
Creating alpha: The next S-curve in commodity trading
Global trade flows experienced unprecedented volatility and disruption in 2022 and 2023 and are unlikely to resume in the near term. When margin pools exploded in these record years, traders had an incentive to grow their operations to maximize value capture. High profits attracted new entrants to the trading space. As margins rapidly expanded, industry players were often able to turn a profit by simply participating in commodity markets. Traders were primarily focused on building capacity, taking advantage of the market structure, and managing volatility, including building out middle and back offices in an unstructured way.
Now, as margins recede and the tide comes back in, traders can run leaner and work harder to build profits. Trading performance as well as operational efficiency and effectiveness will be critical in the years to come. Proactive ideation of opportunities and relentless execution are key to drive the growth momentum. Doing these things entails increasing value from, and expanding, past core activities as well as tapping into new and emerging markets (Exhibit 4).
Increase value realized by core activities
Moving forward, three things could help commodity traders increase the value already being realized by core activities: comprehensive value chain optimization; reviewing, redesigning, and reallocating; and investing in growing digital capabilities.
Comprehensive value chain optimization. As margin pools across commodity classes rebound, traders with capital-intensive assets can aim to ensure maximum asset yield and efficiency. This is particularly clear when looking at the petroleum value chain. Here, refining spreads have compressed, and leading asset-backed traders are taking steps to extract every bit of value from asset optimization. Furthermore, leading international oil companies (IOCs), national oil companies (NOCs), and refiners are taking steps to harmonize commercial ambitions with operational effectiveness, empowering value-chain-optimization (VCO) organizations including advanced digital solutions to drive value creation.
The recent compression of global crack spreads makes VCO particularly critical for energy firms. The results are tangible. Operators that effectively optimize their downstream value chain see, on average, more than $1 per barrel in additional EBIT versus players with less sophisticated VCO capabilities. Our analysis shows that widespread implementation of these optimization measures can collectively augment trading, refining, and downstream profits and losses (P&L) by more than $30 billion a year. These opportunities extend beyond crude and refined products. Power companies are maximizing returns from a diverse asset profile, including wind, solar, gas, and nuclear plants. And metals producers are breaking down organizational silos and adopting mine-to-market mindsets.
With these points in mind, some energy firms are acting to debottleneck interfaces between business units, such as VCOs, upstream, refining, trading, logistics, and marketing. Often, each group has incentives to maximize its own P&L, rather than driving the general interest of the organization. That said, enabling asset optimization can require a cultural reset. This refresh of existing practices can enable better information flow and decision-making across the broader organization. However, cultural resets aren’t easy to accomplish and can entail reconfiguring organizational structures and evolving employee incentives and KPIs, resulting in new cross-team interaction.
In addition, some firms are intentionally incorporating commercial levers to drive asset-related decisions. For instance, we’ve seen a global push for many refiners to invest in blending capabilities and expertise, both at the refinery and further up- or downstream. In this example, improved cooperation between assets, traders, and VCOs is optimizing refinery crude and feedstock diets and product outputs and is finding synergies across multiple assets and regions.
Finally, a number of firms are empowering VCO groups to work with refinery operations to constantly identify and implement margin optimization initiatives. Centralized VCO teams are leveraging cross-asset linear programming models, regular back-testing, and other optimization tools to find innovative ways to increase refinery yields. And well-run VCOs are stepping in to arbitrate when asset and commercial priorities conflict, driving outcomes that maximize organizational P&L.
Review, redesign, and reallocate. The dramatic growth in commodity margins in 2022 and 2023 required traders to hire more staff, deploy increased working capital, and pursue aggressive growth strategies. These tactics were largely successful amid favorable market conditions. However, these operating models may no longer be effective and need to be restructured. Moving forward, traders have an opportunity to increase nimbleness, agility, and speed by improving cross-organizational collaboration and trading data transparency as well as by reviewing resources and reallocating them to the most favorable trading strategies. Our research shows opting for a leaner operating model can result in improved commercial capabilities, along with annual cost efficiencies of up to $1.5 billion across the trading industry.
Sophisticated players not only scrutinize each trading strategy by historic returns but also assess performance across more-nuanced metrics, including value-at-risk productivity, full-time-equivalent (FTE) deployment, and working-capital intensity (Exhibit 5). Reviewing historical performance and trends across these metrics enables leaders to make educated choices on how to best deploy risk tolerance, working capital, and trading FTE. And reallocating these resources to the most promising areas is especially critical in a more challenging market environment.
The first step to redesigning an operating model is to conduct a functional review, breaking down roles across the deal life cycle. This typically yields a clean-sheet approach to how trading support functions can be restructured to maximize effectiveness and efficiency. Executives are thus empowered to make informed decisions about streamlining redundant processes, automating routine tasks, and identifying activities to be centralized in lower-cost service centers or delegated to a third party.
Any freed-up resources can then be routed to capabilities critical to fostering margin growth. Digital capabilities are one such area; however, upskilled origination, risk management, and structuring functions are also key. Best-in-class trading houses are differentiated by teams that enable complex, bespoke deal structures. Moreover, by prioritizing risk reporting and characterization capabilities, traders can enhance resilience by proactively managing risks. By realigning resources to areas that drive growth and enhance trading capabilities, companies can adopt an operating model that best positions them amid an increasingly competitive commodity trading environment.
Digital capabilities and systems in trading. As price volatility and trading margins decrease, digital capabilities will be a key differentiator. Industry players have more analytical tools at their fingertips than ever before, but digital use cases fall into two broad categories: business process optimization and improved trading analytics. Digital innovation in commodity trading typically leads to significant automation along with the use of larger data ensembles and advanced data-processing technologies. This can help accelerate the generation and quality of valuable information that traders use to optimize how they interact with the market.
Commodity traders have been slower than other industries to digitalize processes and adopt new workflow tools, yet our research shows realizing these business efficiencies could eliminate more than $5 billion in costs across the industry. Data-driven trading has already taken off in the equity space. Our analysis shows that quantitative funds with high rates of digital adoption have an average risk-adjusted return 27 percent higher than less-data-driven actively managed funds. In the coming years, we expect that growing adoption of digital tools and strategies by commodity traders will contribute to a performance gap that echoes what can already be observed in equities.
Several use cases have been widely adopted across commodity groups, ranging from machine learning algorithms that forecast supply and demand and scaled-up models that recognize key trading signals (such as weather variations or technical sentiment) to AI-powered interfaces for traders to quickly access market research, including advanced large language models. However, successful digital implementation does not simply result from adopting a standard set of digital use cases or the latest best practices. Rather it is the output of building advanced digital innovation capabilities rooted in organizational incentives for deep collaboration between traders and “quant” specialists and an organizational culture focused on innovation through continued ideation, testing, validation, and deployment.
With this in mind, leading commodity traders are seeking inspiration from tech companies to create an environment that fosters digital innovation. The following three enablers can help traders to foster sustained digital growth in trading capabilities: bringing on tech and analytics talent that supports traders, making data available across the organization, and investing in a software platform designed around functional requirements:
- On the first point, senior management must recognize that traders cannot do it alone and must bring on teams of data scientists and engineers to drive digital use cases. Although most leading players are fully on the journey to broaden their digital capabilities, most commodity traders are only now getting started. Some digital practitioners are developing opinions on the appropriate use of data and analytics and are also being given the freedom to ideate and develop use cases. Critically, digital practitioners should be given the time required to develop advanced technologies while ensuring strong coordination with traders. In addition, some leading power traders and some trading houses and large energy firms have shifted to this operating model by integrating IT talent within the broader trading organization.
- Successful digital adoption requires organization-wide data availability. Oftentimes, data is walled off in organizational silos. Trading desks, logistics, asset operators, and management groups at the same company often have access to separate but complementary data sets. Finding a way to integrate these insights unlocks improved decision-making capabilities. Top hedge funds and algorithmic traders are investing in data teams that build data sets by scraping internal and external sources, regularly review data quality, and maintain a centralized data lake that both data scientists and traditional traders can access. Moreover, effective data teams are working with traders to identify new, relevant data sets that can be swiftly prepared for analysis.
- Finally, realizing digital aspirations requires a software platform designed around the functional requirements of the trading business, including data ingestion and analysis, trade execution, market analysis, and risk management. There is no one-size-fits-all solution; traders can build a platform by deploying the latest off-the-shelf technology, partnering with third-party software providers, or developing a custom in-house solution as needed. The outcome should be a legacy-free digital system that is intentionally designed to support intended digital use cases, with a modular structure that retains the flexibility to meet future business needs and allow for efficient building and testing of new use cases.
Building a culture that values digital enablement and is focused on innovation will further allow trading companies to stay competitive and create value. In contrast, players that choose not to build digital capabilities risk being left behind and outperformed by an increasingly competitive market and will soon find it increasingly difficult to catch up.
Expand past core activities
The evolution of commodity trading demands a more versatile approach to identifying new ways to secure optionality in supply and demand and hence value creation opportunities across markets. An effective approach to originating new business not only helps increase the volume of trades but also builds exposure to stable sources of income with reliable counterparties. Independent traders have already embraced the organizational creativity needed to effectively originate new business. It is now increasingly critical for asset-backed traders and producers to innovate and find nuanced ways to commercialize their blend of assets and trading capabilities.
We’ve observed the following ways traders can identify, engage, and optimize new value sources:
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First, technology firms are becoming critical partners to identify and access new trading strategies. Often, these players have access to valuable data but do not have the commercial capabilities to monetize their insights. One way to do this is by working with—and even investing in—cutting-edge firms that are redefining how commodities can be deployed. For instance, battery technology and metals recycling are emerging fields that require sourcing and offtake of commodities. Traders are partnering with early movers in these spaces to enable commercialization—but even more importantly to understand and influence trade flows in nascent markets.
Moreover, traders are partnering with firms to better understand how demand patterns for key commodities and end markets will develop. On this point, some energy firms take equity stakes in online travel portals as a means of gaining unique insights into consumer demand they can then trade around. In particular, this type of technology partnership will become increasingly important for players in downstream oil products and power trading markets.
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Second, an expanded origination strategy can be aimed at building partnerships with junior miners, smaller oil companies, and stand-alone asset operators, many of which lack robust trading capabilities. Some trading firms are providing market access and financing support that are critical to ensuring operational success for smaller players. In return for this support, traders receive long-term access to raw materials or processing capacity, often at discounted prices.
Traders are uniquely positioned to provide early-stage financing for greenfield and brownfield ventures. Unlike banks and other lenders, traders can leverage their market access to offset the risk of default. Sophisticated trading houses are already leveraging their balance sheets to lock in access to in-demand commodities. That said, there is an opportunity for a broader set of firms to partner with smaller players, especially for commodities that are thinly traded and limited in supply.
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Third, firms can build a “trading as a service” offering, providing clients full-service solutions—from market analysis to contract execution—without the clients needing to build internal trading capabilities. This is particularly attractive to large industrial players that aspire to participate more actively in commodity markets but lack the required scale or operational and financial capacity. Governments are also increasingly stockpiling and requisitioning strategic commodities to support energy transition and national security agendas, creating an opportunity for traders to serve as sourcing (or selling) agents.
Robust market access involves significant fixed costs, including back-office setup, software architecture, and operations teams. By bundling trading as a service, commodity players can lessen the burden and empower manufacturers to optimize their materials acquisition processes. This origination approach is increasingly relevant as large OEMs look to decarbonize their supply chains, and traders with a nuanced understanding of commodity markets are providing a prepackaged procurement solution for buyers willing to pay a premium for quality products.
The future of commodity trading lies in the ability to diversify sources of value and find new ways of doing business. This responsibility cannot sit only with a stand-alone origination group but can rather be prioritized by leadership and championed by individual traders to successfully nurture a competitive edge. By integrating these strategies, trading firms can tap into previously inaccessible opportunities, enhance supply security, and position themselves as indispensable partners in a rapidly changing industry landscape.
Tap into new and emerging commodities
The energy transition continues to be the largest force shaping commodity markets. Its impact stretches beyond commodities such as power, oil, and LNG, which are part of the world’s energy mix, and extends to metals and agricultural products that will play an increasing role in enabling the transition. Traders must not only react to the impact of decarbonization on the supply and demand of traditional commodities but also proactively find ways to participate in new and emergent trading markets that provide significant growth opportunities.
The global market for energy-transition-related asset classes is expected to grow fourfold over the next decade, primarily driven by emerging compliance and voluntary carbon markets (VCMs) (Exhibit 6). Similar to other developing commodity markets, VCMs are characterized by higher information asymmetry, opaque pricing practices, and significant regulatory uncertainty. In addition to carbon markets, commodity traders must pay particular attention to guarantees of origin (GOOs) and green metals.
Looking at carbon trading, forecasting volumes and prices remains a highly uncertain exercise, mostly due to lack of homogeneity in pricing, opaque trading, and uncertain demand for VCMs, and CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation). Our most conservative 2030 outlook puts this specific value pool at less than $100 million, assuming persistent low prices and depressed demand for carbon credits. However, this number could see a fourfold increase under the following conditions:
- acceptance of carbon credits by several current and emerging domestic compliance markets, driving up pricing for eligible credits
- significant demand from the aviation industry (CORSIA) manifests (while the first phase has started, the full degree of future implementation of the CORSIA scheme is currently uncertain)
- persistent demand for credits from corporations looking to meet 2030 net-zero targets
The United Nations has already taken steps toward building a regulatory framework for a global carbon market, intended to ensure standardization, market integrity, and demand consistency. In addition, recent resolutions in the 29th UN Climate Change Conference (COP29) have formalized key frameworks under Article 6 of the Paris Agreement.13 Some world leaders have endorsed a decentralized market that enables bilateral agreements between nations, along with a centralized UN-managed market for carbon credit issuance and transfers. Although additional policy guidance is pending, credits should begin to roll out under the new framework in 2025 or early 2026. Similarly, the EU’s CBAM is expected to provide an incentive for an increase in the volume of European carbon allowances (EUAs) traded.
As these nascent carbon markets develop, they will require intermediaries with expertise in deal structuring, relationship management, and navigating illiquid markets. Commodity traders are participating in carbon markets by helping buyers with market access, credit differentiation, and quality assurance. Synergies between traditional energy commodities and carbon credits are providing an incentive for established traders to organically grow their carbon desks as well as to acquire niche traders specializing in carbon markets. And asset-backed traders are strategically investing in carbon removal (CDR) technology that offsets emissions activity linked to their asset operations, resulting in carbon-advantaged products.
In addition to using credits to encourage lower carbon consumption, governments are encouraging more renewable-power generation. Power GOOs, known as renewable energy certificates (RECs) in North America, began as a traceability mechanism.14 However, they have grown into a critical financial driver for the renewable energy market, with volume traded doubling from 2015 to 2021. Prices have risen from less than €1 per megawatt-hour (MWh) to up to €10 per MWh in recent years. Despite some price normalization, particularly in Europe, these markets are expected to remain highly valuable, with forward curves suggesting sustained elevated pricing of existing products and new international markets emerging, as evidenced by China’s recent launch of a domestic replacement for RECs.
The promise of energy-transition-related trading margins extends into metals trading, which is affected by trends in electrification and decarbonization. A McKinsey survey of materials buyers and sellers shows growing interest in—and willingness to pay for—green materials across several commodities, including lithium and nickel (Exhibit 7). Moreover, traders are increasingly involved in the value chain for secondary or scrap metals, driven by factors such as high demand for energy transition metals, inelasticity of primary metal production, and corporate circularity goals.
Metals producers and traders are already taking steps to build out a more sustainable, lower-carbon value chain. Similar to carbon credits and RECs, reliably accessing premiums and participation in secondary markets requires adherence to stringent regulatory criteria along with a robust documentation system to ensure traceability of commodities traded. Successful traders are leveraging their existing capabilities and subject matter expertise to drive sustained growth in these new markets.
Investing in energy-transition-related business building could be critical for trading organizations over the long term. Starting today, this entails not only trading certificates but also integrating new technologies into the value chain, establishing market standards, and creating pathways for large-scale adoption.
Long-term trends show value pools reaching an unprecedented $135 billion by 2030, largely due to market shifts as part of the broader energy transition. Increased price pressure and competition over the past year requires players to embrace new tools and revised operating models. And success in the years to come will largely be determined by actions taken today related to performance and operational efficiency.
