What is Carbon Credit Exchange
When we talk about carbon credit exchange trading, we’re talking about the process of buying and selling carbon credits. These are essentially underlying assets that represent ownership of one metric ton of reduced CO2. These credits can be sold, purchased, and retired. They are typically traded privately, but there are a few carbon exchanges in operation.
There are many different factors that affect the price of carbon credit exchange. The volume of credits that are traded at any given time, the nature of the underlying project, and the geography of the project all contribute to the overall price of the carbon credits. Usually, industrial projects can produce larger volumes of credits, while community-based projects can trade at a premium to these types of projects.
The global private sector taskforce estimated that the overall market for carbon credits could be worth about $50 billion by 2030. In addition, there are many large companies that have made ambitious goals to achieve net zero carbon emissions. However, reducing emissions is often costly. This has led to the rise of carbon trading, which allows corporations to offset their emissions. The demand for carbon credits is likely to increase in the future, especially in light of the Paris Agreement.
What is Carbon Credit Exchange Trading?
While voluntary carbon exchanges exist, they are generally unregulated. This means that the quality of the credits is questionable, and the amount of information that is available is often limited. These markets are not conducive to efficient trading. They are also characterized by low liquidity and inadequate risk-management services.
Several states have joined regional initiatives that aim to implement policies to reduce carbon emissions. As a result, there are several carbon exchanges operating worldwide. Some of these exchanges, including the Singapore-based AirCarbon Exchange, are expected to launch by the end of this year. Another promising solution for the fragmented carbon credit markets is the new CIX, a joint venture between DBS Group and Standard Chartered. CIX plans to offer a new, regulated price discovery mechanism for the exchange of carbon credits, enabling greater investment in global carbon emission reduction programs.
The new CIX will offer digital tokens that are custodied by a recognised clearing house. Using smart contracts, the tokens will be tradable on the spot market. This will enable greater investment in new renewable energy projects, as well as a new form of investment in carbon emission reduction programs.
The new regulated price discovery mechanism will be available for the trading of carbon credits later this year. The new exchange will allow organizations to trade carbon credits like conventional financial assets. It will also use distributed ledger technology to create digital tokens for carbon credits. The tokens will be custodied by a recognised carbon clearing house.
In order to establish a more regulated and transparent carbon credit market, the Taskforce on Scaling Voluntary Carbon Markets was established in 2020. Its aim was to lower the volatility of carbon credits by increasing transparency, while allowing customers to manage their risks.