Singapore-based carbon trading platform, ACX, is looking to address one of the key inefficiencies in voluntary carbon markets: opaque pricing.
In January, it launched a new Global Emission Reduction (GER) contract, in partnership with environmental contract developer, Net Zero Markets, and the German-based European Energy Exchange (EEX).
The exchange has seen steady trading activity since its launch at the end of June 2022, with trades ranging between $7 and $8 a tonne, said William Pazos, managing director and co-founder of ACX, in a recent interaction with FinanceAsia.
Voluntary carbon markets allow companies to offset unavoidable emissions from their operations by purchasing carbon credits, where one credit generally represents one metric tonne of greenhouse gas reduced or removed from the atmosphere by an emissions reduction project. This essentially represents investment into environmentally friendly initiatives. Carbon markets thus form an integral part of global efforts to reach net zero.
The GER, which was developed over two years, addresses the issue of inconsistent pricing by providing a single price for carbon. Typically, carbon credits vary in pricing depending on different standards, jurisdictions, project types and carbon offset vintages (the year an emission reduction occurred).
The GER contract categorises offsets into four tradeable sub-contracts: Base Carbon Contract (BCC), for projects in the renewables and energy efficiency sector; Forestry Carbon Contract (FCC), for the agricultural, forestry and land use sectors; Prime Carbon Contract (PCC), for projects that meet a minimum of three United Nations Sustainable Development Goals (SDGs); and Carbon Capture Contract (CCC), covering projects that provide long-lived removal of carbon emissions, such as biochar projects.
The CCC is the first in the market to cover carbon removal (rather than carbon avoidance), which differentiates the GER from existing contracts, Pazos explained. Through annual re-weightings, it will eventually represent a 100% weighting within the GER.
“ACX is making the process [of voluntary carbon trading] much easier for both buyers and sellers by condensing these different projects into a smaller selection of credits that have clear methodologies supporting them,” Pazos explained.
“This collective approach will drive volume into these areas, improving price transparency for the buyers as well as providing a simple marketplace for sellers of project credits.”
The increasing requirements for corporates to disclose their carbon emissions will create increasing demand for carbon offsets, Pazos believes. He notes the US Securities and Exchange Commission's (SEC’s) recently proposed rules to enhance and standardise climate disclosure, as an example of regulation that will soon make voluntary disclosures mandatory.
“ACX will be the ideal exchange for corporates to trade the volume of credits required to meet this surge in volume they will need to meet these requirements,” Pazos said. The firm is in the process of expanding into other markets, including Brazil and the Middle East, he shared.
ACX leverages blockchain technology to securitise carbon credits into tradeable assets. Transactions are placed on a trustless (ie, decentralised) ledger, which mitigates double counting. Trades on ACX are settled in real time.
Other Singapore-based efforts in the voluntary carbon exchange space include Climate Impact X (CIX), a joint venture between DBS, the Singapore Exchange, Standard Chartered and Temasek.
On Singapore’s potential as a voluntary carbon trading hub, Pazos highlighted the government’s willingness to innovate, as demonstrated by its announcement in the 2022 Budget in February that large emitters will be able to offset carbon taxes by purchasing carbon credits from 2024.
“Its location so close to some of the biggest emitters as well as some of the world’s most important biospheres illustrates both the scale of the task ahead as well as what we’re fighting to protect,” Pazos added.
