Is the ADGM-ACX Carbon Credit Exchange Good Or Bad?

ADGM-ACX Carbon Credit Exchange Good Or Bad

The carbon credit market is a global network of companies and individuals trading in emissions reduction credits. One tradable carbon credit represents the equivalent amount of greenhouse gas reduced, sequestered, or avoided. These credits can be used by organizations – or individuals – that exceed their emissions-reduction targets to offset part of their excess emissions. The main players in carbon markets are regulators, projects, brokers, and end buyers.

Regulated markets, such as the ones operated by governmental carbon-reduction systems or private emission-trading programs, operate under mandatory schemes to reduce greenhouse gas emissions. Typically, these schemes require businesses whose emissions are above a certain level or those that operate in specific industries to buy a permit, or allowance, for each tonne of greenhouse gases they emit. These permits can then be traded in exchange-based marketplaces with the aim of reducing total emissions.

These types of markets are characterized by rules and procedures to ensure that only high-quality projects can issue credits. The carbon-credit market also includes a number of standards, organizations that set specific methodologies, or requirements, for different kinds of carbon projects. For example, reforestation projects must follow specific rules to calculate how many carbon credit exchange they will produce over time.

Other kinds of projects that can generate carbon credits include energy efficiency measures, waste treatment and disposal, or renewable electricity generation. While their primary purpose is to reduce or remove GHGs from the atmosphere, some of these projects may also deliver additional ‘co-benefits’ such as community economic development and biodiversity protection.

Is the ADGM-ACX Carbon Credit Exchange Good Or Bad?

Aside from the regulatory systems, carbon-credit markets exist under voluntary initiatives as well. The ADGM-ACX carbon credit exchange is a new player in the carbon market, aiming to provide a regulated, transparent price discovery and efficient trading mechanism once it launches later this year.

The ADGM-ACX carbon market will connect project owners, broker traders, and financial players with end-buyers of credits. It will also serve as a settlement platform for large bilateral deals that have been negotiated offscreen, which currently make up a significant portion of volumes transacted on the market.

Carbon trading can take on a wide range of forms, from standard products backed by exchanges to customized transactions based on a buyer’s compliance needs. Some of the more common types of carbon trades include:

In general, exchange-backed standard products tend to be preferred by traders and financial players looking for a way to scale their positions in anticipation of skyrocketing demand. Meanwhile, end buyers who need to purchase credits to offset their own emissions tend to prefer non-standardized products that allow them to look into the specific characteristics of each underlying project and protect themselves from accusations of greenwashing. However, both of these approaches still entail significant costs and delays in the verification process. Ideally, all trading in the carbon market would be streamlined by moving to a digital process that could lower issuance costs, shorten payment terms, and accelerate credit issuance and cash flow for suppliers. This could also improve the credibility of corporate claims regarding carbon-offset use and bolster overall market integrity.