By Carbon Credit Exchange Cost
A carbon credit exchange is a marketplace for trading credits that reduce or offset greenhouse gases, allowing companies to meet environmental compliance standards. There are two major segments of the market: a regulatory market, set by “cap-and-trade” regulations at the regional and state levels; and a voluntary market. Each of these markets has a unique set of rules, and different kinds of projects create and sell carbon credits. In most cases, the projects creating these credits are farmers or forestry operators, and they sell them to individuals or businesses that want to offset their own emissions.
The price of a carbon credit exchange depends on how much a company wants to pay to offset their own emissions, and how many of the credits are available for purchase. A single credit is equivalent to one metric ton of CO2 or other GHGs, and a credit may be used once and then retired from the market.
There are four players in the carbon credit marketplace: brokers, traders, project developers and end buyers. The most familiar role is the broker, which buys carbon credits from a project developer and then markets them to an end buyer for a fee. Project developers themselves can also act as middlemen, or they may sell directly to an end buyer without a broker.
How Much Does Carbon Credit Exchange Cost?
Because the supply of carbon credits is limited, their price fluctuates dramatically. This is because, in the case of a regulated market, factories are required to purchase credits to stay within their emissions limits; when those credits are bought, they are taken out of the market, and the overall demand for them decreases. In the case of the voluntary market, which was valued at about $400 million last year, prices are projected to go up by a factor of 15 or more to reach $50 billion in 2030.
The biggest reason for the volatile price of carbon credits is a lack of transparency in the marketplace. Buyers often struggle to understand the quality of new credits, and suppliers are forced to wait for long lead times before their credits can be sold. There are also difficulties in verifying the reductions that a new credit claims, and it’s difficult to link credits with their associated co-benefits, which can include everything from local economic development to biodiversity protection.
The key to reducing these issues is to have a clear and consistent standard for measuring carbon credit quality, and this can be achieved through the creation of a carbon credit standard product. These are labels, such as the Xpansiv CBL and ACX Global Nature Token, which guarantee certain specifications of the credits that trade under them. This could help improve liquidity and the availability of financing for carbon credit suppliers. Ultimately, a standardized product would make it easier for companies to use carbon credits in their accounting processes and help maintain the integrity of the market. S&P Global Platts is currently working on developing such a standard, which will include a core carbon principles and attribute taxonomy that can be applied to all traded credits.