Despite the best efforts of technology, many companies are still emitting large amounts of greenhouse gases into the atmosphere. In order to mitigate their effect on global climate change, these entities can invest in carbon offset projects. The credits generated by these projects are then sold on a carbon credit exchange to entities that wish to reduce their emissions footprint. In order to scale the market, it is important that these trading platforms are efficient and secure.

The regulated carbon market (also known as compliance) is born out of laws mandating emission reductions. These programs assign maximum emission limits to businesses, also known as allowances, and then allow them to buy or sell credits based on their emissions in relation to their caps. For example, the European Union Emissions Trading System and California’s cap-and-trade program are both compliance markets.

Voluntary carbon credit exchange, on the other hand, are not government regulated and have been growing in recent years as ambitious organizations, corporations, and individuals seek to reach net zero or even nullify their previous historical emissions. This growth has led to a proliferation of carbon credit exchanges that offer a diverse range of project types and methodologies. These projects range from forest conservation to solar energy, wind power, and even biochar and direct air capture technologies (DACCS and BECCS).

Several of these carbon credit exchanges use advanced technologies to provide traders with an optimal trading experience. For example, the Carbon Trade Exchange uses blockchain-based technology in a traditional commodities trading architecture to ensure high-speed and reliable trade execution, clearing, and settlement. This is achieved by leveraging the Ethereum blockchain as a foundation. The company’s platform offers a centralized limit order book and allows for the exchange of carbon credits using standard GEO suite contracts, along with the ability to filter hundreds of listed projects by type and location.

ACX is another carbon exchange that has incorporated DLT into its platform. Unlike other carbon exchanges that organize their marketplace around individual projects, ACX securitizes the market by demand and then sources credits from the most popular methodologies. This way, more traders can gain exposure to this asset class. It currently operates as a spot exchange and provides trading in the following currencies: GBP, AUD, USD, and EUR. It also supports the trading of Verra certified credits and CTX CERs.

The emergence of new technologies, particularly in the copyright space, has led to innovative applications for this emerging asset class. One of the most promising is ACX’s carbon credit token market, which uses the blockchain to enable rapid and cost-effective trading for this niche market. Combined with the company’s other DLT-based offerings, this could create a more liquid and robust carbon credit trading ecosystem.