Carbon Credit Exchanges Be Self Monitored
For companies looking to offset their carbon footprint, or comply with mandatory emissions reduction schemes, carbon credit exchanges offer an efficient way to meet their goals. The markets for carbon credits are booming, and are expected to continue growing as more companies look for cost effective ways to reduce their environmental impact.
Like most commodity markets, the carbon credit exchange market has many participants. In addition to producers and users, there are brokers and retail traders who link supply and demand, as well as investors and speculators, such as asset managers. The largest buyers are airlines, energy companies, and technology firms. But more companies across all industries are starting to explore these markets as they set net-zero climate targets or face the threat of regulations to cut their carbon emissions.
Carbon trading is currently carried out in a variety of ways, from private conversations to over-the-counter deals. Exchanges are emerging, however, to simplify and speed up the trading process by creating standard products. For example, the Xpansiv CBL and AirCarbon Exchange (ACX) have both developed label standards for certifying carbon credits that are nature-based or have a fairly recent vintage. This allows the credit to be sold to buyers with a guarantee that certain basic specifications will be respected.
How Can Carbon Credit Exchanges Be Self Monitored?
A number of problems plague the carbon markets, including high transaction costs and a lack of transparency on price. There is also difficulty verifying that a credit represents genuine emissions reductions, and there are concerns about money laundering. Improvements can be made, but it will take a collaborative approach. For instance, establishing a digital process could lower transaction costs and shorten payment terms, accelerate credit issuance and cash flow for project developers, and improve the credibility of corporate claims.
One solution could be to develop a common taxonomy for the features of carbon credits, so that all can be described through a common set of criteria. This would help match buyers and sellers, and it would also help to improve the quality of carbon credits by ensuring that all credits are verified according to consistent criteria. The process should also include requirements to reduce transaction risk and a mechanism for reporting on the verification results.
It is also important to find more effective ways for buyers of carbon credits to signal their demand, to encourage project developers to increase supply. This could come in the form of up-front agreements with projects to buy future emissions reductions or, for longer-term demand, in a registry of commitments to purchase carbon credits.
Lastly, companies must make sure that the trading of carbon credits is helping them achieve their environmental goals. Buying carbon credits doesn’t just help reduce their emissions, but also helps the planet. This is why it’s so important to have the right tools internally to monitor the trade, ensure it meets your company’s sustainability objectives, and that the carbon is actually having an effect on reducing your overall emissions. Ultimately, these are the only ways to be confident that your carbon trading is having an impact on your wider climate goals.