A carbon credit exchange is a marketplace where companies can buy and sell carbon credits. These are credits representing the ownership of the right to emit one metric ton of carbon dioxide. The price of a carbon credit depends on the nature of the project, the geography of the project, and other factors.
that operate worldwide. Some are regulated, while others are voluntary. The voluntary market has become more popular as a result of the international climate goals and corporate net-zero objectives. Generally, the price of carbon credits is quoted in Euros or a currency equivalent, such as US dollars. It is also possible to trade in other greenhouse gases.
Companies that have adopted new technologies or have implemented energy conservation programs can reduce their carbon emissions significantly. But the process of reducing emissions can be expensive and difficult. If a company can't reduce its emissions enough, it can still purchase carbon credits. However, the quality of the credits is questionable.
One solution is to create a regulated price discovery mechanism for carbon credits. This will be an important step in facilitating efficient trading and investment in global carbon emission reduction programs. In addition, it will allow organizations to invest in projects like solar and wind farms in a more traditional financial asset-like manner.
The regulated price discovery mechanism will be launched later this year by the Singapore-based AirCarbon Exchange. It is a joint venture between Temasek and Temasek, both of which are members of the Singapore Exchange. Other companies involved include DBS Group and Standard Chartered.
As well as offering a regulated price discovery mechanism, the new carbon exchange will have a digital token that is custodied by a recognized clearing house. This will facilitate the trading of high-quality carbon credits. It is also a promising solution to the fragmented carbon credit market.
According to a global private sector taskforce, the overall market for carbon credits could be worth up to $50 billion by 2030. The new CIX, if it achieves success, will open the door for organizations to invest in global carbon emission reduction programs. Using smart contracts and distributed ledger technology, it will be able to create digital tokens that will be tradable on the spot market.
The EEX Group has recently introduced a dedicated voluntary carbon product suite, and has also endorsed the industry taskforce's ambition to unlock the full potential of the voluntary carbon market. It also offers a futures market for allowances.
One of the most significant aspects of the carbon credit market is its lack of liquidity. A good market is characterized by a healthy mix of regular market participants and a relatively low cost of entry. Market liquidity is largely the result of competition between buyers and sellers. Good market liquidity is also achieved through transparent pricing and low transaction costs.
A regulated and effective market for carbon credits would not only help to ensure the integrity of the system, but also transmit signals of buyer demand. That would encourage sellers to scale up supply. And it would make it easier for organizations to find trusted sources.
Want to print your doc? This is not the way.
Try clicking the ⋯ next to your doc name or using a keyboard shortcut (