Trade Carbon Credits in Us
Carbon markets are a vital tool for fighting climate change. They offer a way for businesses to offset their greenhouse gas emissions by investing in projects that reduce those gases, or “carbon neutralize.” They also help finance new technologies for reducing carbon dioxide and other greenhouse gasses.
Although the voluntary trade carbon credits market has received some criticism for not forcing companies to actually reduce their carbon footprint, there is no question that it’s made a real difference in the world by encouraging private finance into climate-action projects that wouldn’t otherwise be funded and by providing an opportunity to hedge against carbon risks. It’s no surprise, then, that demand for carbon credits continues to climb at an ever-increasing pace, with some experts predicting that the global market could be worth $50 billion by 2030.
The global carbon credit market is complex, with a variety of different attributes and factors that influence the price of each one. For example, the nature of a project is important in determining whether a credit is of a certain type or quality. This diversity makes it hard to generate reliable daily price signals and facilitates trading, but it also allows players to find the right carbon credit for their specific needs.
How to Trade Carbon Credits in Us
Despite the challenges, a number of efforts are underway to improve the carbon credit market. One is by creating standardized products that make it easier for traders and financial players to buy and sell. Exchanges such as Xpansiv CBL and ACX have developed products that ensure some basic specifications are respected, including the type of underlying project and a fairly recent vintage. Traders and other financial players have a strong preference for these standardized products, which allow them to see the particular characteristics of each underlying project before buying and avoid accusations of greenwashing.
Another effort involves improving the process by which carbon credits are verified and issued. This would involve developing a digital process to reduce issuance costs and speed up the process for projects, making it easier to track and trace credits, and helping boost the credibility of carbon claims made by companies. Ultimately, these improvements should also make the market more resilient to political and regulatory changes.
Other steps include promoting more liquidity in the market by allowing more buyers to purchase large quantities of carbon credits at once. Currently, the market lacks liquidity because the heterogeneity of the credits leads to buyers and sellers matching on a case-by-case basis, with each buyer looking for specific attributes. By combining core contracts based on the core carbon principles with standard attributes and a common taxonomy, this should make it much easier for buyers to match supply and demand. This is important for the continued growth of the carbon credit market, as well as for ensuring that it continues to be a source of private financing for climate-action projects around the globe.