This is a promotional piece from Nasdaq, so read it with a grain of salt:
Powered by Nasdaq, a new exchange will help bring stability and transparency to the voluntary carbon market
As the warnings over climate change grow more dire, companies of every kind are making bold public commitments to reduce their carbon footprint. But some companies will have an easier time keeping those commitments than others. Many industries rely on resources and manufacturing processes that are naturally carbon intensive. And smaller companies from any industry may be unable to afford the infrastructure investments required to build truly emissions-free operations.
To address the emissions they are unable to eliminate, companies increasingly rely on carbon credits, which are certificates that represent greenhouse gases that have been kept out of the air or removed through sustainability programs like reforestation and carbon-sequestration projects. By purchasing these credits on the voluntary markets (as opposed to mandatory cap-and-trade markets), organizations are essentially buying time to reach their net zero targets through the funding of sustainability initiatives that otherwise might never get off the ground.
As net zero target dates approach, the market for these carbon credits is rapidly expanding. By 2030, the demand for carbon credits could increase by a factor of 15 or more, according to the Taskforce on Scaling Voluntary Carbon Markets, with the market for carbon credits reaching upward of $50 billion, according to McKinsey.
But trading carbon credits can be its own challenge. The market is fragmented and inconsistent, making it difficult for buyers to be confident that the credits they are purchasing will meet their regulatory requirements. Pricing data is often lacking, creating uncertainty around value and a lack of clear demand signals may cause risk-averse suppliers to initiate fewer projects. Ultimately, matching buyers with the appropriate sellers can be a time-consuming and inefficient process, hindering the growth of this all-important market. At Nasdaq, we are embracing the power of innovation to reimagine carbon marketplaces and tuning our technology to meet the requirements of this unique industry.
Bringing sellers and buyers together
For the voluntary carbon market to reach its potential, traders need reliable, standardized, transparent marketplaces. One of the most highly anticipated trading venues is slated to launch in 2023 by Climate Impact X (CIX), a global marketplace and exchange for quality carbon credits. Powered by Nasdaq’s robust matching technology, CIX’s new spot trading platform will enable resilient and dynamically scalable trading in a cloud-based Software-as-a-Service (SaaS) environment, ultimately unlocking price transparency and reducing transaction costs.
“One of CIX’s goals is to create strong pricing signals for the liquid market,” said Mikkel Larsen, Chief Executive Officer of CIX. “Enabling a trade matching process that is as seamless as possible will help to simplify the buyer’s journey and improve price transparency in the voluntary carbon market.”
By building a community of high-integrity buyers and suppliers, CIX’s spot trading platform aims to ease the concerns about quality and valuation that have historically created hesitancy among players on both sides of the transaction. By leveraging Nasdaq’s matching technology, CIX’s platform will match buyers and sellers based on unique requirements, ensuring that buyers are getting quality credits that meet their regulatory obligations while removing bottlenecks to supplier financing, further enabling the growth and development of the global carbon markets.
The emergence of new voluntary carbon exchanges will also help grow the market by establishing standardized terms and criteria. Carbon credits, like the projects that support them, are highly heterogeneous, and different buyers value certain characteristics more than others. This makes the matching of buyers and sellers a laborious and largely unscalable process. “Every carbon removal project is unique, and buyers of carbon credits have specific requirements, creating the need to match buyers and sellers based on unique parameters,” said Johan Toll, Head of Nasdaq's Marketplace Services Platform. Exchanges like CIX incentivize participants to settle on a standard taxonomy and a common set of standards, which will ultimately make it easier for sellers to market their projects and buyers to evaluate them.
Last year, Nasdaq announced its acquisition of a majority stake in Puro.earth, a leading marketplace for carbon removal. Puro.earth is the world´s first marketplace to offer industrial carbon removal instruments that are verifiable and tradable through an open, online platform. Puro.earth and CIX are partnering to provide a carbon credit portfolio blending nature-and-technology-based removal credits, addressing the demand for net zero-aligned solutions for the voluntary carbon market.
Building on the right technology
An exchange platform is only as good as the technology it uses to match sellers with buyers. Given the challenges in the voluntary carbon market, it is crucial that CIX has reliable and scalable technology that can grow with the exchange as they continue to add new asset types. This is one of the reasons CIX chose to work with Nasdaq, who sells technology that powers 130 marketplaces around the world.
“Nasdaq brings unparalleled expertise in trade matching technology, which will enable us to bring exchange-grade trading functionalities to the voluntary carbon market,” said Genevieve Soh, Head of Platforms and Ecosystems at CIX. “This will support our efforts to build a spot exchange platform underpinned by quality and transparency and caters to the increasingly complex needs of buyers and sellers of standardized contracts.”
Optimized for deployment in the cloud, Nasdaq’s Marketplace Services Platform’s trading services are designed for maximum reliability and scalability, allowing exchange operators to focus on core strengths and acquiring market participants while planning for long-term growth. The platform allows operators to seamlessly add new asset types, enabling new carbon credits and certificates to be added as the exchange grows. It also provides future-proof functionality, so as the exchange and the industry mature, additional matching models and algorithms, order types, order validations and attributes, and safeguards can be added.
For the CIX spot trading platform, Nasdaq will be doing more than helping buyers find lucrative investments. It will be using decades of experience matching buyers and sellers to help mature an essential market and empower thousands of companies around the world to reduce the carbon footprint of their operations. The companies themselves are already making commitments to decarbonization. CIX’s platform will help these companies fulfill those promises, powered by Nasdaq technology.
Powered by Nasdaq, a new exchange will help bring stability and transparency to the voluntary carbon market (cnbc.com) |
