By US Have Carbon Credit Exchanges
Carbon trading is growing in popularity among individuals and companies because of its potential for reducing greenhouse gas emissions. As the climate movement continues to gain momentum, a number of start-ups are emerging that allow for the sale and purchase of these credits. However, there are some issues that need to be addressed before this type of market is ready for large scale participation.
The first issue is the lack of a credible and effective platform for carbon trading. There are a few different platforms that facilitate carbon credit sales and purchases, but most of them have significant limitations. The next is the difficulty in ensuring that the buyers and sellers are actually legitimate entities. Lastly, there is the need for better liquidity and better risk management services.
As the demand for carbon credit exchange grows, a new type of exchange is emerging that allows for the trading of standardized carbon contracts in real time. It is a distributed ledger technology (DLT) marketplace called ACX. It aims to use blockchain technology to create a platform that is able to offer instantaneous trade execution, clearing, and settlement for carbon.
Does the US Have Carbon Credit Exchanges?
While the need to reduce carbon emissions is widely accepted, implementing solutions to do so has proven difficult. The most promising solution is carbon pricing, which creates financial incentives to encourage those able to make the most cost-effective reductions to do so. The US has a number of carbon-pricing programs, including the voluntary Carbon Trade Exchange and the mandatory cap-and-trade program in the northeastern US.
A carbon credit is a permit that enables a polluter to offset or neutralize its greenhouse gas emissions by purchasing credits from those that have cut their own emissions. The resulting credits can then be used to reach carbon-neutrality or even zero emissions goals. Software giant Microsoft, for example, has announced plans to be carbon negative by 2030 and eliminate all of its previous emissions by 2050.
In the past, businesses have purchased carbon credits to help them meet their compliance targets under existing regulatory systems. The emissions caps that they are required to meet are based on their industry and the intensity of their operations in comparison with other industries in their sector. However, some larger companies produce more than the amount of carbon credits allocated to them each year can cover. They may therefore need to buy additional carbon credits from others in a compliant market.
Voluntary carbon markets are a crucial source of private financing for climate-action projects that wouldn’t otherwise get off the ground. These projects can deliver co-benefits such as biodiversity protection, rural economic development, and improved public health.
Carbon trading is a complex and highly regulated market, with two primary markets — the compliance market and the voluntary market. The latter is a growing opportunity for investors looking to support climate action while also enhancing their portfolio. However, the challenges of these markets are numerous and include the need for greater liquidity, better financing options, and more robust risk-management tools.