Stock - Carbon Trading
Carbon trading assumes significance as global enterprises seek to reduce their carbon footprint. Image Credit: Shutterstock

Dubai: The sustainability movement gets another boost with Abu Dhabi Global Market partnering AirCarbon Exchange (ACX) to create the world’s first fully regulated carbon trading exchange, based in Abu Dhabi. It will also function as a carbon clearing house.

ADGM is thus set to become the first jurisdiction to regulate carbon credits and offsets as emission instruments, and issue licenses for exchanges to operate both spot and derivative markets. The carbon exchange will be launched sometime this year.

The move will allow corporates to trade and finance carbon credits like conventional financial assets, “thus increasing participation and investment in global carbon reduction and offset programmes”.

Stock - ADGM
Image Credit: Supplied

How it works

The exchange - ACX – will initially use a distributed ledger technology within a traditional commodity trading process to create tokenised carbon credits for spot trading. At a later stage, ACX plans to offer carbon credit futures as commodity derivatives for trading.

All digital tokens will be custodised by a regulated Recognised Clearing House (RCH), settled and cleared using RCH’s blockchain smart contracts providing efficient settlement for all spot transactions. The RCH, once it starts operating within ADGM, will play a “pivotal role in other markets and financial instruments”, including virtual asset markets. It will add vital market infrastructure to the digital trading ecosystem.

ACX intends to extend its trading platform offering to include clean energy products, in addition to carbon credits.

This is another world's first for Abu Dhabi. This initiative reinforces ADGM’s commitment and ongoing efforts to cement its position as a leading international financial centre and world-class global commodities and carbon trading hub.

- Ahmed Jasim Al Zaabi, Chairman of ADGM

Last year, the UAE became the first in the Middle East and North Africa to announce a move to net-zero emissions by 2050. Through this, the UAE aims to attract inflows from global capital markets as investors increasingly seek ESG-compliant investments.

“Our recent partnership with the Deutsche Börse Group, expansion into Brazil and our already well-advanced full exchange and clearing application in ADGM complement each other to deliver a truly global marketplace from the heart of the MENA region," said William Pazos, Managing Director and Co-Founder of ACX. 

ACX maps out carbon strategy
Last year, ACX was recognised as the 'Best Carbon Exchange' in Environmental Finance's Voluntary Carbon Market Rankings.

In January, ACX partnered the UN Framework Convention on Climate Change (UNFCCC) to promote carbon offsetting via UNFCCC Certified Emission Reductions (CERs) to allow clients representing 30 different countries to purchase and retire CERs for their carbon offsetting purposes.

It will be the second exchange in the world - and the first in MENA - to list CERs held in the UNFCCC Clean Development Mechanism registry.