Singapore-based carbon exchange Climate Impact X (CIX) on Thursday formally launched its global spot trading platform, CIX Exchange, which aims to boost the liquidity of carbon offset trading and set a benchmark price for nature-based carbon credits.

The exchange represents another step in the growth of Singapore's carbon market and the nation's aspirations to be a global carbon trading and financing hub, said CIX Chief Executive Mikkel Larsen. The exchange began trading on Wednesday, CIX said in a statement on Thursday.

Seven transactions totalling 12,000 carbon credits were traded and cleared involving CIX's first standardised contract called CIX Nature X, or CNX.

Each carbon credit represents a tonne of carbon dioxide (CO2), the main greenhouse gas, reduced or avoided from projects that meet international standards and are verified by third-party auditors.

Firms involved in the trading included banks such as Standard Chartered and DBS Bank, carbon project developer South Pole and trading and commodity firms including Chevron (International) Trading, CICC Commodity Trading and Engie Energy Marketing Singapore.

Mr Larsen said the exchange is focusing on the trading of offsets from nature-based climate projects initially.

These include projects such as mangrove replanting or those that restore and protect large areas of rainforest from being chopped down for agriculture or mining. Trees soak up and store large amounts of CO2 as they grow.

"Although we sell many other types of credits, we still believe that nature-based solutions are a very important part of the market - hence why we're coming to market first with CNX, which is a nature-based solution contract," he told The Straits Times.

The CNX contract bundles 11 forest conservation projects. These projects are under the United Nations' Redd+ scheme, which refers to the reduction of emissions from deforestation and forest degradation, the conservation and sustainable management of forests, and the enhancement of forest carbon stocks.

The 11 projects are in Africa, Asia and the Americas and generate about two-thirds of all global Redd+ credits on the market. This ensures there is ample supply of offsets available - each CNX lot equates to 1,000 carbon credits.

Companies buy these offsets to reduce their own carbon footprint, especially in areas where it is hard to cut emissions to reach net-zero.

This idea underpins the roughly US$2 billion (S$2.7 billion) a year voluntary carbon market, in which investors who develop projects that reduce or avoid CO2 emissions are rewarded with the sale of their verified offsets to a buyer looking to reduce their emissions.

Traders also buy the offsets to sell later for a profit if the market rises.

But the market has long been clouded by criticisms that many projects lack integrity, do not lead to meaningful emissions reductions, or that some credit buyers are greenwashing.

For example, buyers may use the credits to claim they are tackling climate change, but they are not taking meaningful steps to reduce emissions themselves.

Mr Larsen said CIX recognises these concerns but that the firm conducts thorough vetting of all projects that are featured on its marketplace, sold at regular auctions or will be available for spot trading on the new exchange.

He said doubts about the market had hurt prices and buying interest, but the aim of the exchange is to help boost confidence.

"Many people have asked me: 'Why would you launch now?'" Mr Larsen said, referring to the spot exchange, especially since competitors such as AirCarbon Exchange already conduct spot trading in Singapore.

"I think that this is part of the contribution to making nature-based climate solutions credible again," he said.

A key to this is trying to establish a benchmark market price for nature-based offsets and to create liquidity through daily spot trading of the CNX contract and offsets from a total of 34 nature-based projects listed on the exchange.

"What we want to give is certainty of delivery, and we want to give certainty of execution. We've not come to market in a rush," he added.

"With our contract, if our (CNX) benchmark goes up, then the price for the other projects hopefully will go up as well. And that's what we're trying to create - a reliable benchmark, and there isn't such a thing today."

CNX aims to establish a benchmark price for credits issued between 2019 and 2022.

Mr Larsen said the plan is to keep expanding the types of spot trading contracts on the exchange and eventually lay the groundwork for futures contracts.

If the exchange is successful, he said it would show that Singapore, despite its size, can create global market liquidity for carbon spot trading.

"And hopefully that will be another cornerstone ensuring Singapore can be a carbon market, not just for Singapore but... for other countries as well."

CIX is jointly owned by DBS, Singapore Exchange (SGX Group), Standard Chartered and Temasek’s green investment company GenZero.

Source: The Straits Times ©️ SPH Media Limited. Permission required for reproduction.