Capital markets News

Blockchain-based ClimateTrade admitted to EEX mandatory carbon market

carbon credits pollution

Yesterday, blockchain-based carbon marketplace ClimateTrade announced it would start trading in the mandatory carbon market after its admission to the European Energy Exchange, a subsidiary of the Deutsche Börse Group.

The move to the mandatory carbon market will mean that carbon credits bought and sold on the ClimateTrade marketplace can now be exchanged under the EU Emissions Trading Scheme (EU ETS) and can contribute toward official decarbonization targets.

How mandatory carbon trading works in the EU

Annual carbon emissions have a cap set by the European Union which applies to sectors responsible for significant pollution, such as power generators, manufacturing and airlines. 

Each organization is allocated a fixed number of EU Allowances (EUAs), representing a carbon credit of one ton of CO2 that may be emitted annually. They receive some of these EUAs for free and have to pay for the rest. For example, the industrial sector received 80% of EUAs for free in 2013, but in 2021 that proportion dropped to 30%. They can trade these credits between themselves, which is where the EU ETS comes in. The EEX operates the primary exchange on behalf of the EU.

As highlighted by a working paper released by ClimateTrade, the price of these mandatory credits skyrocketed in the last four years from €6 at the start of 2018 to €80 today. This is by design as the caps are reduced and the proportion of permits that are provided free declines. In turn, the high cost of the credits incentivizes a reduction in emissions.

ClimateTrade spans voluntary, mandatory carbon markets

ClimateTrade is the first organization in Europe that uses blockchain-based carbon offsetting on both the voluntary and mandatory carbon markets.

“Having the ability to operate in the EU’s mandatory carbon market is a crucial part of our strategy to power gigaton decarbonization, and we are very proud of this achievementm” said Francisco Benedito, CEO and co-founder of ClimateTrade. “We chose EEX for being the leading energy exchange providing secure, successful, and sustainable commodity markets worldwide.”

ClimateTrade alone has facilitated offsets in excess of two million tons of CO2 since it began trading in 2017. It has some significant partners in Spain, such as ACCIONA, a large renewable energy company. It also partnered with the Spanish stock exchange BME to explore a voluntary carbon market.

In January, the company raised $8M in funding from major investors to develop its international efforts. These backers included Telefónica’s Wayra, SIX Fintech Ventures, and Borderless Capital.

EEX recently partnered with another blockchain-based voluntary carbon market – AirCarbon Exchange. Additionally, EEX’s parent, the Deutsche Börse Group, made a significant investment in the startup. 

Image Copyright: olgagordeeva / 123rf