Future of Carbon Credit Exchanges
A carbon market is an online marketplace where people and companies can trade carbon credits, which represent a standard unit of one ton of carbon dioxide or other greenhouse gases that have been reduced, eliminated, stored, or avoided. These markets have been booming because of the growing global climate crisis and the call for businesses to reduce their carbon footprints. The best carbon credit exchanges offer a variety of features to make the process of trading easier for people and corporations.
Unlike the compliance market, which is mandated by national, regional, or global carbon reduction systems, voluntary markets operate independently. These systems allow organizations to buy and sell carbon offsets freely without the obligation of using those credits for meeting compliance requirements. However, these carbon markets are often plagued with low liquidity, scarce funding, inadequate risk management services, and inconsistent data availability.
A new international system for trading carbon credit exchange may help to overcome some of these problems and unlock the full potential of this vital market. Delegates at the 2021 global climate change meeting, COP26 in Glasgow, approved a new rulebook that will govern global carbon markets. These rules include the requirement to verify that all credits sold for use in compliance systems are based on genuine emissions reductions. The rules also call for the creation of a market that can deliver high-quality carbon credits in a timely manner.
The Future of Carbon Credit Exchanges
One of the biggest challenges in developing a carbon credit exchange is establishing reliable methods for verifying and quantifying emissions reductions. This will require a thorough understanding of the technology, energy sources, and operating practices used to generate each credit. In addition, it will require a clear understanding of how each credit is created and the social, environmental, and economic benefits it creates. A new, open source platform that can bring together many of the players involved in the carbon credit ecosystem could help to establish a reliable, credible, and flexible marketplace for trading.
The first step in achieving this goal is to develop a standard set of features that all credits must meet. This includes core carbon principles that describe the quality criteria for a credit and standard attributes that define the additional benefits of a credit, such as community economic development or biodiversity protection. These standard attributes will need to be defined through a new standard taxonomy before they can be used by carbon credit buyers and sellers to match up.
The founders of Carbon Trade Exchange, an exchange that operates spot exchanges in multiple global environmental commodity markets, are pursuing these goals. Their platform is powered by DLT and is designed to be scalable and secure. The company has received $178.5 million in investment through several separate funding rounds. Its clients include investors, traders, stockbrokers, and those working on carbon projects. The company has offices in the United States, Singapore, and the Netherlands. It is also collaborating with other DLT-based platforms. This collaboration is part of an effort to develop programmable carbon, which would enable digital currency to be used for trading carbon credits.
