Carbon Credit Exchange Originate
The carbon credit market is a trading system that allows companies and individuals to trade credits for the environmental benefits of reduced greenhouse gas emissions. One carbon credit represents the equivalent of a ton of greenhouse gases that have been reduced, avoided, or destroyed, and it can be bought and sold in voluntary or compliance markets.
The most well-known type of carbon credit market is the cap and trade scheme, in which regulators set a limit on emissions for certain sectors or companies and allow them to buy or sell emissions permits (called allowances) that they can use to cover their total emissions. In the more recent years, voluntary carbon credit markets have grown as organizations seek to manage their impact more proactively, independent of government-led programs.
To be tradable, a carbon credit exchange must meet specific standards established by respected organizations that validate them. These standards, which vary by project type and the accounting methods used for each, are designed to ensure that a carbon reduction or avoidance project is legitimate and effective. Once a carbon credit is verified and approved for sale, the project can start issuing them. This process is usually overseen by a third-party auditor. Once a credit has been issued, the buyer can enter into an offtake agreement with the project developer, sell them to other buyers, or purchase them on a carbon exchange.
Where Did Carbon Credit Exchange Originate?
A fourth option is to have a broker purchase the credit and then market it to an end buyer, typically with some level of commission. This is a common way for carbon credits to reach buyers in the compliance markets, and makes up a significant percentage of volumes traded on CBL, which is Australia’s largest spot exchange for environmental, social, and governance (ESG) commodities.
While many of these projects are good for the environment and the people involved, they can still be vulnerable to fraud. As a result, some investors and stockbrokers are reluctant to purchase or trade carbon credits. However, a new solution could change this: blockchain. The technology behind the bitcoin blockchain, which uses a distributed ledger to record transactions, has been applied to carbon trading through a number of projects.
One of the most successful of these is Xpansive, which has launched a platform called CBL, the largest spot exchange for ESG commodities. It is a member-based exchange that accepts everyone from single brokerages to large corporates and project developers, as long as they meet requirements for membership. It combines core carbon principles and a standard attribute taxonomy to create reference contracts that are liquid, transparent, and easy to trade. Ultimately, these reference contracts should facilitate price risk management and supplier financing for carbon projects, and they would help to increase the value of carbon credit certificates by making it easier for buyers to match offers with supply. This would reduce the risk of illegitimate or fraudulent carbon credits entering the compliance markets, and also help to increase demand for them in voluntary markets.