AirCarbon Exchange (ACX) revealed that its exchange and clearing house in Abu Dhabi Global Market (ADGM), became live. The carbon exchange also announced that key trades have already started on their platform, expected to be a rapidly expanding market for voluntary carbon credit trading.
Singapore-based ACX is a digital exchange seeking to speed up the world’s journey to net zero which uses blockchain technology to securitize carbon credits. These credits are certificates representing certain carbon emission reductions achieved by an initiative or project.
The Pioneering Move in Carbon Credit Regulation
Emissions trading schemes in carbon markets are valuable instruments to reduce greenhouse gas emissions. In the voluntary carbon markets (VCM), carbon credits are called carbon offsets, demand for which is projected to skyrocket.
In compliance carbon markets, the credits are allowances or cap on the amount of carbon companies can emit. When they exceed the emissions cap, they can buy carbon credits from others with surplus or unused allowances.
In February last year, Singapore-based ACX worked with the ADGM to establish the world’s first regulated carbon credits trading exchange in the emirate’s capital. ADGM will regulate the credits and the offsets as emission instruments while also issuing licenses for exchange platforms to work both as spot and derivative markets.
Abu Dhabi’s sovereign wealth fund, Mubadala, acquired a 20% stake in ACX in November 2022. This move is part of the fund’s economic diversification and commitment to responsible investing.
In the same year, the ADGM made history by becoming the first jurisdiction to regulate voluntary credits as financial instruments. This milestone was facilitated through the Environmental Instrument classification, which established a regulatory framework for licensing exchanges and clearing houses.
Following that groundbreaking step, ACX Abu Dhabi became the first entity to be licensed under ADGM’s framework. The exchange earned the recognition as the world’s first regulated Recognized Investment Exchange and Recognized Clearing House.
Setting the Stage for Carbon Credit Trading
The regulatory licenses gained by ACX significantly bolstered trust, security, and investor protection within the carbon credit trading space. By mandating fair trading practices, real-time market surveillance, and strict adherence to regulatory standards, ACX ensured heightened market integrity, transparency, and efficient price discovery.
With these in place, ACX successfully laid the groundwork for enabling VCM participants to trade under a robust regulatory framework.
Asserting the significance of this historic achievement, Arvind Ramamurthy, Chief of Market Development at ADGM noted that:
“As we find ourselves in a critical time with the development of global carbon markets, this step marks a momentous milestone in the journey towards a thriving market for voluntary carbon markets.”
The inaugural carbon credit trade on the fully regulated carbon trading platform occurred through a collaboration between First Abu Dhabi Bank (FAB) and Helix Climate.
FAB is UAE’s largest bank whereas Helix Climate simplifies the process of trading, settlement, valuation and retirement of carbon credits in the VCM. Their involvement underscores the importance of this remarkable evolution in the carbon market landscape.
Leading the Way to Market Integrity and Climate Action
Expanding its offerings, ACX Abu Dhabi announced the successful execution of the first trade on its Carbon Market Board (CMB). It is an advanced electronic trading platform that enables participants to carry out and finalize over-the-counter transactions.
The significant trade was in collaboration with South Pole, a renowned global leader in climate project development and solutions provision. The carbon developer’s Executive Director, Abderrahman Kasmi, emphasized the pivotal role of ACX in fortifying the integrity of carbon markets.
ACX’s commitment to innovation in this sector was recently acknowledged by Environmental Finance. It awarded ACX Abu Dhabi the prestigious title of the best carbon exchange of 2023 for the third consecutive year.
Meanwhile, ADGM’s progressive ecosystem allows businesses and investors to voluntarily buy verified carbon credits, signifying testament towards climate action.
Partnering with ACX is part of the United Arab Emirate’s net zero strategies. It’s also in preparation for hosting the upcoming climate change conference, COP28, in Dubai.
The UAE leads the process for all COP28 parties to come up with a clear roadmap to accelerate progress to inclusive climate action by employing a pragmatic global energy transition and a “leave no one behind” approach. The COP28 Action Agenda provides a practical plan of action to turn the Paris Agreement objectives into reality.
With the adoption of advanced technology and a robust regulatory framework, ACX could help facilitate transparent and secure carbon credit transactions, fostering trust and integrity within the burgeoning carbon market landscape.