Carbon Credit Exchange Money Go
In the crowded world of climate investments, there are a number of different ways to invest your money. Among them is through a carbon credit exchange, where companies like online brokerages take the guesswork out of investing in projects that reduce greenhouse gas emissions. These companies do the investigation, research, and evaluation of the projects that generate these credits, then offer them to buyers. They can also help you decide which credits are best suited for your particular investment strategy and risk tolerance.
There are three main markets in which carbon credit transactions occur: the voluntary, regulatory, and offset. The bulk of the carbon credit market is in the voluntary sector, where buyers buy credits from entities that have reduced or removed greenhouse gases from the atmosphere. The underlying activities that create these carbon credit exchange are often called carbon projects and can range from reforestation to wind farms to energy efficiency retrofits. Each project is independently verified and certified by a reputable standards organization.
The verification and certification process is meant to ensure that each metric ton of carbon dioxide (or other greenhouse gas) avoided, reduced, or sequestered is the result of a specific project activity. These projects are then listed on the carbon markets and sold to end buyers who want to offset their own emissions. These credits are tradable, meaning they can be bought and sold on the carbon markets, as well as used in compliance with certain government programs.
Where Does Carbon Credit Exchange Money Go?
As the voluntary carbon market scales, more and more buyers are turning to carbon credits as an affordable alternative to meeting their emission reduction obligations. This has led to the development of a variety of different trading platforms for buying and selling carbon credits. Some of these are run by companies with the technical expertise to facilitate the trade, while others simply connect supply and demand in over-the-counter deals.
To speed up and streamline the transaction process, some of these platforms have created standardized products that ensure that basic specifications are met. Examples include the Xpansiv CBL and ACX standard products for nature-based credits, which guarantee that each credit has certain attributes including a particular type of underlying project, a fairly recent vintage, and a certificate from a limited set of standards organizations. These standardized products tend to be preferred by traders and financial players who are looking to purchase large volumes of credits for forward delivery.
Some of these standardized products are also being used to settle large bilateral deals negotiated offscreen. The Xpansiv CBL market note shared in May stated that an increasing number of the company’s tradable credits were coming from this larger, offscreen market.
The goal of the standardized products is to enable greater liquidity in the carbon credit markets by providing price signals that can be used by both traders and suppliers. These signals could be delivered through liquid reference contracts with a clear, daily price signal to help manage pricing risks and grow supplier financing.