Can I Trade Carbon Credits
The world’s carbon market provides a financial incentive for companies to reduce their greenhouse gas emissions. They receive a number of emissions credits, which decrease over time, and can sell them to companies that haven’t achieved their emission reduction goals. The resulting carbon credit price is expected to increase significantly in the future as governments, businesses and individuals set ambitious new goals for reducing global emissions. Investors can participate in this growing market through the purchase of carbon-credit exchange-traded funds (ETFs), such as the KraneShares Global Carbon Strategy ETF or the KraneShares California Carbon Allowance ETF.
The main players in the carbon trading marketplace are companies and buyers, brokers and retail traders, and project developers. Buyers include companies that have committed to offset their own GHG emissions, or carbon neutrality, with credits from verified projects. These companies can be as diverse as technology companies, airlines or banks. They can also be as large as the United States’ biggest power plants.
There are a number of ways to trade carbon credits, but the most common is through the use of a broker. These traders are similar to those who operate in any other commodity markets and buy credits directly from a supplier, typically for a commission. This is known as an over-the-counter (OTC) deal.
Where Can I Trade Carbon Credits?
Another way to trade carbon credits is through the use of a carbon-credit exchange, such as the New York-based Xpansiv CBL or Singapore-based AirCarbon Exchange (ACX). An exchange allows parties to buy and sell standardized contracts in real time. These platforms are designed with speed, security and scale in mind. In addition, the infrastructure is highly scalable and can be used by institutions, brokers, and traders to conduct business in liquid, standardized carbon contracts.
Project developers generate carbon credits by reducing, avoiding or eliminating GHG emissions from their operations. These projects must meet specific standards for verification to produce a CER, which can then be sold in the carbon credit market. These standards can vary from one type of project to the next, but they all focus on delivering measurable and verifiable emission reductions.
Credit prices are influenced by many factors, including the volume of credits traded at any given time, their geography, vintage (the older the carbon credit is, the cheaper it tends to be), delivery date, and whether or not the project has additional ‘co-benefits’. These can include improved welfare for local communities, greater water quality or the reduction of economic inequality.
While most of the carbon credits in the market are traded through OTC deals and private conversations, there are a number of exchanges that are emerging. In particular, the Platts CTX exchange collects bids and offers for carbon credits certified by a variety of different standards, including Gold Standard, Climate Action Reserve, Verified Carbon Standard (VCS) and Architecture for REDD+ Transactions. These are then matched up with end buyers, who can range from small reseller brokers to large corporate buyers purchasing CERs direct.