Buying Carbon Credit Exchanges
Companies are increasingly relying on carbon offsets to help them meet sustainability goals. Tech, oil and gas companies, cement producers and other industries are putting money into the system. These companies are essentially buying projects or the companies that develop them to offset their emissions. They also buy the credits that these projects produce, which can be used for their own operations or sold to other companies.
The price of carbon credit exchange has risen sharply in recent years, as governments have set emissions limits that are increasingly stringent. The prices are expected to hit $20-$50 per metric ton of CO2 equivalent in 2030, a tenfold increase over current prices. One way to get around these high prices is by buying offsets from existing projects that already exist. This allows companies to avoid the high risk of future price increases by ensuring that they can count on these offsets for their own operations and for sale to other companies.
However, a wide variety of carbon projects exists, and putting a price on them is a complex task. Platts produces four standalone prices: CEC (reflecting CORSIA-eligible prices), CNC (reflecting nature-based solutions with a vintage of each of the past five years and including both avoidance and removal credits), Renewable Energy Carbon Credits price, and Methane Collection price, which reflect credits generated by projects aimed at reducing methane emissions such as Landfill Gas Collection, Waste Gas, and Livestock Waste Management projects.
Which Companies Are Buying Carbon Credit Exchanges?
While the global voluntary carbon market is growing, it remains relatively small and in need of significant investment to expand its infrastructure. This is why Platts has launched the Africa Carbon Markets Initiative (ACMI) to support the expansion of African carbon markets, which can unlock billions in climate finance and provide economic benefits while expanding energy access, creating jobs and protecting biodiversity.
As businesses commit to reducing their carbon footprint, many companies find they cannot fully eliminate their emissions, or cut them significantly below what they were previously. For these companies, buying carbon credits helps them meet their climate goals. In addition to helping companies meet their sustainability goals, carbon credits can be used to hedge against future carbon costs if they are not yet able to reach net-zero emissions. For these reasons, many companies are turning to the voluntary carbon market as a way to reduce their impact on the planet.
Carbon Credits are emission units (or “credits”) made possible by a legal framework that balances the emissions of a project. Typically, this is done through the creation of a cap-and-trade system. Traders and financial players are looking to buy and hold in anticipation of a surge in carbon credit demand. These players use standardized products from exchanges such as the New York-based Xpansiv CBL and Singapore based ACX, which offer guaranteed characteristics for credits.
Standardized products are a key point of differentiation in the voluntary carbon market, as they ensure the credit being traded has certain characteristics. These include the type of underlying project, a fairly recent vintage, and certification from a restricted group of standards.
However, these standardized products are not always suitable for end buyers who need to understand the characteristics of each underlying project they are purchasing. For example, some projects have a large leakage component, which means that the reduction in emissions did not occur only in the project’s immediate area, but may shift to other areas of the world. This lack of transparency can create suspicion about the quality of credits, making them less attractive to potential buyers.