Carbon credit marketplace growth needs transparent pricing and verifiable nature assets

As the pressing need to decarbonise continues, and with the continued challenges in reaching net zero the major topic of discussion at COP27 this year, the vital role of carbon credits in the global push towards carbon emission abatement can no longer be ignored.

With more and more carbon market legislations being put into place, it is important to celebrate the technology and marketplace innovation that is driving its growth.

After 180 countries signed the Kyoto Protocol in 1997, the carbon trading market struggled to gain momentum as the commitment of some signatories wavered. That has changed in recent years as corporates look to meet emissions targets and investor demands, as well as a better understanding of the market and how to access verifiable carbon credits in a transparent auction process.

The key words here are verifiable and transparent. These lie central to the integrity of the carbon credit market. With COP27 plagued by accusations of greenwashing, transparency and verifiability are vital to sustaining a legitimate carbon market. Verification is fundamental to ensuring that the purchase of a carbon credit will deliver a genuine emissions offset, and critical to the integrity of the process is transparency around the purchase terms and pricing.

A transparent process

The rapid growth in carbon trading has seen new exchanges emerge, along with a plethora of over-the-counter carbon credit brokers. This has helped to raise awareness and boost liquidity, but outmoded technology and practices often make such operations opaque. This can increase the risk of the market’s integrity being undermined.

What’s needed is a marketplace platform that offers completely verifiable assets located across different geographies and of different vintage, meaning that those purchasing can buy nature-based assets where they choose, along with selecting different levels of maturity or vintage. Younger, newer nature-based assets tend to have a higher value than older ones. That’s because the forward curve for carbon prices is rising. At an auction, when these become available, there will typically be a range of offerings, with different vintages and growth cycles, but also actual projects in different parts of the world to meet companies’ growing desire for diversification. The pricing can vary by location, climate and age of the nature-based carbon credits used to offset the emissions, amongst other factors – transparency of pricing is needed throughout the process.

Evolving carbon trading

In March 2022, Climate Impact X (CIX) – jointly established by Standard Chartered, DBS Bank, Temasek and the Singapore Exchange (SGX Group), – launched Project Marketplace, a Singapore-based digital platform for businesses and carbon project suppliers to list, discover, compare, buy and retire quality environmental credits. Its aim is to accelerate the corporate sector’s ability to take climate action through the provision of verified carbon projects.

Verification is carried out by standards companies, of which the world’s largest is US-based Verra, which runs Verified Carbon Standard (VCS) projects that include forest and wetland conservation and restoration, agricultural land management, and many more. CIX is integrated with Verra such that the latter’s projects are listed on CIX’s Project Marketplace, and in turn, Verra verifies any purchases to prevent any asset from being sold twice. This is just one way that technology can enhance the carbon market.

Moving forward, platforms equipped with trading and auction technology will take the voluntary carbon market to the next level, by offering a new method for responsible corporates to access high-quality carbon credits. With such a competitive market due to mismatched supply and demand, digital marketplaces are crucial to sustain the carbon market. Demand has and is predicted to increase dramatically over the next decade and could rise by 3000% by 2029, and such marketplaces offer a reliable, accessible option that can manage a mismatched market, while ensuring the positive environmental impact of carbon credits.

The platforms of the future

Online marketplaces must aim to provide a fair, transparent platform to prove that nature-based credits are a viable option for our planet’s future. Verified carbon credits carry very low levels of risk, and marketplaces will ensure a level of due diligence is conducted before credits are listed and can be purchased. With companies such as Verra, project-level risks such as natural disasters are covered by insurance, refunding the cost of the credits.

Ultimately, it is marketplaces like CIX that will bring credibility through quality environmental credits and transparent pricing signals, and boost liquidity and confidence in the market. Buyers will find that they have increased options for verifiable carbon credits in a safer, transparent market, and most importantly, this will accelerate progress towards net zero goals.

About the Author

Paul MacGregor is Head of Sales & Marketing at NovaFori. NovaFori specialises in designing, building and operating highly scalable marketplace solutions. Based in London and Málaga, with 100+ employees, we support clients worldwide, including Christie’s, CarNext, Lloyd’s of London, Hilco IPv4 Global, and Global Dairy Trade. Our technology supports B2B and B2C clients worldwide, with over $11 billion GMV transacted through our platforms since inception.

Featured image: ©Dilok