To meet ambitious net zero targets, many companies plan to neutralize a large portion of their greenhouse gas emissions by buying carbon offsets in the voluntary market. This will enable them to offset their carbon emissions by funding projects that either reduce emissions (e.g., renewable energy) or remove emissions (e.g., reforestation). A number of stock exchanges around the world are looking to accelerate the availability of financing for such offset projects by catering to the needs of buyers and sellers of high-quality carbon credits. The aim is to create a trusted market-based environment for corporations and institutional investors to access carbon offsets, thereby increasing liquidity for efficient trading and providing capital at scale for the development of new climate projects.
This stock exchange was looking to launch a global marketplace and exchange for high-quality carbon offsets. The early-stage planning phase involved a review of the infrastructure that would be needed. This included a secure registry to track environmental projects and issue, transfer and retire credits, plus an auction platform with functionality for enrollment, bidding and price calculation.
Pain Points
The technology team was charged with outlining the critical infrastructure components needed to run an efficient carbon markets exchange. They had devised a list of essential requirements that included:
- A highly secure registry for tracking carbon credits from issuance to transfer to cancellation or retirement.
- Unique serial numbers to ensure that all emission reductions are properly accounted for and to avoid double counting.
- An administrative oversight function
- Easy online access for market participants to see credits available for sale, with indicative quantities and prices.
- A link to other trading/clearing platforms and a meta-registry to promote liquidity in the market.
- An auction capability with functionality for enrollment, bidding, price calculation and results generation, as well as connectivity interfaces to other platforms as needed.
- Easy account on-boarding and know-your-customer (KYC) checks.
- Algorithm/calculation of settlement prices, with publication of auction results and configurable floor price, unit type, vintage and entity bidding limits.
- Integration capabilities with the registry for electronic position settlement and the exchange for clearing/financial settlement.
- Insights on carbon market developments around the world as background information for exchange staff.
Team members contacted S&P Global Sustainable1 (“Sustainable1”) to discuss the firm’s capabilities for carbon markets. Sustainable1 brings together capabilities from across the enterprise to serve as a single source of essential sustainability intelligence. This includes solutions from S&P Global Commodity Insights that represents the merger of S&P Global Platts and IHS Markit Energy & Natural Resources that became effective in March 2022.
Carbon markets are expected to grow rapidly as more corporations set ambitious net zero plans and need access to offsets. Stock exchanges can play a vital role in connecting buyers and sellers of high-quality carbon offsets, but need reliable infrastructure to promote confidence in their platforms.
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The Solution
Specialists from Sustainable1 described its infrastructure capabilities and the expert guidance and consulting that would be provided on market infrastructure design and implementation. This would enable the technology team to put in place capabilities to:
Administer a carbon program
Environmental Registry is the largest global voluntary registry for carbon, water and biodiversity and would enable the exchange to manage global carbon credits in a centralized, financial markets-based system. The registry provides unique serial numbers, a regulator user role, credit tracking and more.
In addition, credits are searchable and viewable by registered buyers who can send expressions of interest. Buyers may also enter specific criteria for credits that they wish to purchase. Introduction through the platform enables parties to discuss potential bilateral transaction terms.
Users can also track forward sales of anticipated credits with the “pending issue unit” (PIU) tool. Each PIU represents an anticipated credit to be delivered based on a specified standard compliant project validation report. These anticipated units can be listed, serialized, held and tracked on the registry.
A project management dashboard lets users easily monitor and forecast the status of projects and issuances. In addition, an optional multilingual capability lets them view the registry’s navigation, forms, messages and all relevant meta-data in the language of their choice.
Carbon Meta-Registry is a secure online platform that seamlessly connects disparate environmental markets and registry systems around the world, enabling the exchange of carbon market data and mitigating the risk of double counting of credits. IHS Markit, now part of S&P Global, formed a Carbon Meta-Registry Advisory Board with leading experts from the public and private sectors and NGOs who are tasked to guide and inform the development of the platform to meet wider industry needs.
Support the buying and selling of credits on an auction platform
Auction Platform provides comprehensive auction and auction management services across over-the-counter (OTC) asset classes that can be easily configured to meet the needs of each auction program. The platform seamlessly connects all auction participants, including bidders, registries, auction monitors, regulators and other program stakeholders. Functionality is provided for each step in the process: auction setup, participant application/enrollment, bidding, price calculation, results generation, approvals and distribution of results, as well as connectivity interfaces to other platforms as needed.
With transparent rules for each auction, the market determines a clearing price via an equitable buying/selling mechanism.
A centralized, online platform enables regulators and other auction participants to share and disseminate documentation.
Provide market intelligence to exchange staff
Latest news and market commentary across the global carbon markets provides real-time insights on what is moving global carbon markets to support informed decisions in today’s fast-changing environment. A diverse range of topics are covered, including technological breakthroughs, changes in regional pricing patterns, global trading opportunities, the strategies of global and regional companies, the intricacies of policy and regulation in producing and consuming nations, key asset announcements and more.
Key Benefits
Members of the technology team saw that Sustainable1’s registry and auction platforms are well-tested infrastructure services utilized by governments, NGOs and exchanges around the world. They felt that the offering would address the exchange's need for:
- Trust and confidence with platforms developed by a leading provider that offer upmost integrity and security.
- Transparency and efficiency with seamless workflows, downloadable reports and an audit log of all activity.
- Maximum participation with extensive, easy-to-use functionality and searchable public view pages with full market visibility.
- A way to reduce the risk of double counting and double claiming by connecting with other registries through the Carbon Meta-Registry.
- Relevant insights for exchange staff into the trends that shape global carbon markets.
In addition, team members would benefit from Sustainable1’s expert guidance on the design and implementation stages. Given the strength of the offering, Sustainable1 was chosen to be the exchange’s development partner.
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