Carbon Trading Exchange and Clearing House

Carbon trading is a mechanism adopted globally to incentivize countries to reduce their carbon emissions for financial benefits. It operates through carbon markets, which commodify carbon dioxide emissions by applying monetary values to them^{i 1}. In this system, a country or organization may sell its remaining ‘carbon balance’ to other nations who are exceeding their carbon emission allowance. They were necessitated as a result of the Kyoto protocol and the Paris Agreement of 2015, putting pressure on organizations to reduce their carbon footprint².

In 2022, Singapore-based company, Air Carbon Exchange (ACX), established offices at the Abu Dhabi Global Market (AGDM)ⁱⁱ to regulate voluntary carbon credits as financial instruments³. It does through Environmental Instrument classification, which is a regulatory instrument to facilitate the licensing of exchanges and clearing houses for multiple typologies of carbon markets⁴. This makes ACX Abu Dhabi the first exchange and clearing house that offers environmental instruments in the form of carbon dioxide credits⁵.

There are seven types of products⁶ supported by ACX Abu Dhabi, each supported by its set of specifications:

• ACX Corsia Eligible Tonnes (CET): These represent carbon credits that are eligible under the Carbon Offsetting and Reduction Scheme for International Aviation, as established by the International Civil Aviation Organization
• ACX Global Nature Tonnes (GNT): These represent carbon credits generated through a nature-based project, such as those based on agricultural or reforestation methodologies.
• ACX Global Nature + Tonnes (GNT+): These represent carbon credits generated though a nature-based project, and accompanied by additional relevant certifications
• ACX Sustainable Development Goals Tonnes (SDGT): These represent carbon credits accompanied by the United Nations Sustainable Development Goals certifications.
• ACX Renewable Energy Tonnes (RET): These represent a carbon credit generated from a renewable energy project, such as those using biogas, solar, or wind as energy sources.
• ACX Household Offset Tonnnes (HOT): These represent carbon credits generated from an improved cooking solution, such as the use of biomass-based stove, solar cookers, or thermal energy production without the use of electricity.
• ACX Non-Exchange Carbon Tonnes (XCT): These represent carbon credits that to not meet any other ACX specification, but are issued under an eligible market registry.

While there is much debate regarding the transparency of voluntary carbon credits, ACX has committed to offer a transparent and efficient trading experience with fair price discovery, that is, a thorough process by which the market price of carbon assets will be determined. It also plans to establish a regulated clearing house to oversee commodity custody, clearing, and settlement operations.