Carbon Credit Exchanges Still Working
In the autumn of 2022, as the United Nations Climate Change Conference (or COP27) approached, an ominous new bearish trend appeared in the voluntary carbon market, or VCM. After a summer of high hopes – with buyers waiting to see clear rules about carbon crediting mechanisms being set at the COP27 meeting – it became apparent that the hoped-for demand was not materializing. This led to a sharp slowdown in market activity and prices across the segment.
The current market for carbon credit exchange is divided between two distinct segments: the compliance and the voluntary markets. The former, often referred to as eu emissions trading systems or etss, are born out of laws mandating that companies limit their greenhouse gas output. Emitters buy or sell allowances, also known as emissions permits, to balance their remaining allowable output.
As the world’s most important climate summit approaches, the need to reduce global carbon emissions has never been more pressing. It is a challenge that requires a broad coalition of regulators, businesses and environmentalists to agree on common time frames, price targets and verification standards, said Alok Sharma, president of this year’s UN climate change conference, or COP26.
While carbon pricing is on the rise, it has yet to translate into action that can actually reduce global greenhouse gases. The eu’s flagship scheme, the eu emissions trading system (eu ets), has been plagued with problems from its inception. For one, swaths of the economy are shielded from high carbon prices by exemptions like the steel industry in Europe being offered free etss, or perks such as the eu’s giving home-grown industrial firms a certain amount of free etss to prevent “carbon leakage” (where factories relocate to countries with weaker emissions rules).
Are Carbon Credit Exchanges Still Working?
Moreover, even when the eu’s ets does get bigger by linking up with regional markets, a patchwork remains. California’s ets, for instance, only covers power generation and other industrial sectors, while the rggi carbon markets of 11 north-eastern American states remain separate from the eu’s.
One potential solution could be to link up these regional patchworks into a single, larger, global market that is based on distributed ledger technology and the standardized process of verification for carbon credits. This would create a more liquid market that is less susceptible to volatility and would help form true prices.
A number of carbon credit exchanges have emerged to capitalize on this growing market. These include the Carbon Trade Exchange, or CTX, which was established in 2009. It is a spot exchange with members that range from individual reseller brokers to large corporations buying direct. It lists certificates that can be used to offset emissions under a variety of industry-standards, including Gold Standard, Verra VCS and BioCarbon Registry. In addition to carbon trading, CTX offers carbon footprint calculation and project development services. Its newest product, AirCarbon Exchange, is a digital platform that was launched in 2019 to facilitate the trading of verified reductions under the international aviation carbon offsetting and reduction scheme (CORSIA).