(Credit: Pixabay)Abu Dhabi Global Market (ADGM), the International Financial Centre in Abu Dhabi, is partnering with AirCarbon Exchange (ACX) to create the world's first fully regulated carbon trading exchange and carbon clearing house which will be established in Abu Dhabi and serve corporations.
Pursuant to its recently released consultation paper, ADGM is set to become the first jurisdiction globally to regulate carbon credits and offsets as emission instruments, and to issue licenses for exchanges to operate both spot and derivative markets.
The regulatory framework will allow corporates to trade and finance carbon credits like conventional financial assets, thus increasing participation and investment in global carbon reduction and offset programs.
Expected to launch in 2022, ACX will be established as a Recognized Investment Exchange (RIE) and regulated by ADGM. As a regulated RIE, ACX aims to offer its market participants and customers efficient trading and a regulated transparent price discovery mechanism.
In addition, ACX aims to set up a regulated Recognized Clearing House (RCH) – which will be known as ACX Clearing Corporation - for the purposes of custodizing, clearing, and settling commodities and commodity derivatives.
ACX intends to initially use its distributed ledger technology within a traditional commodity trading construct to create tokenized carbon credits for spot trading. At a later stage, ACX plans to offer carbon credit futures as commodity derivatives for trading. All digital tokens will be custodized by the RCH, settled and cleared using the RCH's blockchain smart contracts providing efficient settlement for all spot transactions.
It is intended that the RCH, once established and operating within ADGM, will play a pivotal role in other markets and financial instruments, including virtual asset markets, adding vital market infrastructure to the digital trading ecosystem. ACX intends to extend its trading platform offering to include clean energy products, in addition to carbon credits.
In January, ACX partnered with the UN Framework Convention on Climate Change (UNFCCC) to promote carbon offsetting via UNFCCC Certified Emission Reductions (CERs) to allow clients representing 30 different countries to purchase and retire CERs for their carbon offsetting purposes. It will be the second exchange in the world, and the first in MENA, to list CERs held in the UNFCCC Clean Development Mechanism registry.
ACX aligns with the UAE's goal to accelerate national economic development. Last year, the UAE became the first nation in the Middle East and North Africa to announce a plan to achieve net-zero emissions by 2050. Through the Net Zero by 2050 Strategic Initiative, the UAE aims to attract inflows from global capital markets as investors increasingly seek ESG-compliant investments.
