How Can a Carbon Credit Exchange Be Sold?
Carbon markets are trading systems in which companies and individuals buy or sell credits derived from projects that reduce greenhouse gas emissions. One tradable credit represents a ton of carbon dioxide or another greenhouse gas reduced, sequestered or avoided. The credits are then used by a company or individual seeking to offset its own emissions.
The carbon credit exchange have a primary purpose of reducing or eliminating the impact of greenhouse gases on the climate, but many projects also generate additional ‘co-benefits’, such as biodiversity preservation, improved land management, local economic benefits and social equity. This extra value is not captured in the carbon market, but is valued by those who use the credits to offset their own emissions.
A variety of projects can generate carbon credits, and there is a range of potential buyers. These include government agencies, utilities and energy generators, as well as businesses and individuals who seek to reduce their own emissions by purchasing credits. In some cases, the credits are purchased to meet compliance obligations under cap and trade programs, such as the California Clean Air Act. In other cases, they are sold in voluntary markets, such as the Kyoto Protocol’s Clean Development Mechanism or the European Union’s Emissions Trading Scheme.
One way to ensure that the carbon credit market is robust and sustainable is for the industry to implement a set of standards that all participants can adhere to. These standards would set quality thresholds, ensuring that credits are based on genuine emissions reductions. They would also create a standard taxonomy for attributes that could be used to classify and verify credits. Finally, the establishment of a core carbon reference contract (spot or futures) would help to drive liquidity and facilitate supplier financing.
For these reasons, there is a pressing need to develop and grow a strong carbon market. This is why the ADGM-ACX partnership aims to bring regulatory integrity and efficiency to the trading of carbon credits.
The ADGM-ACX platform will allow users to purchase and sell carbon credits in the spot market through digital tokens, which are custodied by ACX Clearing Corporation and backed by blockchain smart contracts. In addition, the platform will offer futures market functionality enabling customers to trade carbon credit derivatives.
For tribal nations, this means the ability to generate revenue from the sale of their credits and to reinvest it back into their communities and natural resources. For some tribes, this has been a lifeline for re-purchasing ancestral lands and building essential infrastructure. For others, the revenue generated from the sale of their credits has helped to build community housing, provide school facilities and improve the quality of life for their members. For these reasons, many tribes are keen to explore carbon project opportunities. However, not all have had the best experiences with private project developers and are skeptical of the pie-in-the-sky projections often offered by those pitching new projects. This makes it important for them to have access to credible, independent information about the carbon marketplace and the entities offering new projects.