Last week the Abu Dhabi Global Market (ADGM), the UAE’s international financial center, announced its partnership with AirCarbon Exchange (ACX) to create a regulated carbon credit trading market. ACX is a blockchain-based voluntary carbon marketplace that recently received significant funding from the Deutsche Börse Group.
The collaboration will work by using ACX’s distributed ledger technology (DLT) to tokenize carbon credits on the public Polygon blockchain. Although blockchain-based, ACX trades these credits in a similar way to a commodity market, with a conventional trade matching engine. Tokenization benefits the process by making carbon credit ownership easier to trace and allowing for real-time settlement.
The ADGM will regulate the carbon credits and offsets for both spot and derivative markets. While ACX plans to start with spot trading, it has plans for derivatives in the future.
The addition of regulation from the ADGM to ACX’s market will allow traders to operate as they would with traditional financial assets, meaning that the familiar structure will encourage more people to trade and offset carbon.
That structure is reflected in the entities that ACX will set up in the region. This involves a regulated exchange and a Recognised Clearing House (RCH), responsible for custody, clearing and settling transactions.
“This initiative reinforces ADGM’s commitment and ongoing efforts to cement its position as a leading international financial center and world-class global commodities and carbon trading hub”, said His Excellency Ahmed Jasim Al Zaabi, Chairman of ADGM.
ACX has also recently been involved in a deal with Indonesian developer CarbonX, to establish a carbon marketplace in Indonesia. Its technology will expand the domestic trading of carbon credits and will help with national net-zero targets, which have been set for 2060. The expansion of green finance will be critical to many countries’ upcoming transitions to net-zero and beyond, making initiatives like ACX’s necessary.
Another initiative that demonstrates collaboration within voluntary carbon markets is the recent partnership between Carbonplace and Climate Impact X (CIX). Both startups are backed by major institutions, and by working together, they aim to create seamless blockchain-based carbon trading.