Abu Dhabi to launch 'world's first' carbon credit trading exchange and clearing house

Companies can trade and finance carbon credits like conventional financial assets

ADGM is set to become the first jurisdiction globally to regulate carbon credits and offsets as emission instruments. Victor Besa / The National

Abu Dhabi Global Market, the UAE capital's financial free zone, is teaming up with AirCarbon Exchange (ACX) to create the “world’s first fully regulated” carbon trading exchange and clearing house in the emirate, it announced on Tuesday.

ADGM will regulate carbon credits and offsets as emission instruments, and issue licences for exchanges to operate both spot and derivative markets, it said in a statement.

The regulatory framework will allow corporates to trade and finance carbon credits like conventional financial assets, enabling investment in global carbon reduction and offset programmes.

ACX, a global carbon exchange which uses blockchain architecture, will be established as a recognised investment exchange (RIE) and regulated by ADGM.

To be launched this year, it will offer market participants a “regulated transparent price discovery mechanism”, the statement said.

ACX also plans to set up a regulated recognised clearing house – which will be known as ACX Clearing Corporation – for clearing and settling commodities and commodity derivatives.

“This is a significant global milestone and another world first for Abu Dhabi,” said Ahmed Jasim Al Zaabi, chairman of ADGM.

“We are excited to be partnering with ACX to enable and facilitate trading of high-quality carbon credits, and in that aspect, encourage more companies to reach their decarbonisation goals.

“As the first country in the Gulf to commit to net zero by 2050, this new trading platform is a further extension of Abu Dhabi’s drive to support sustainability ambitions and underlines ADGM’s focus on carbon neutrality as an international financial centre.”

While governments globally are pursuing carbon neutral goals, significant investment is required to achieve those targets. About $50 trillion in incremental investments is required by 2050 to achieve net-zero goals and cut greenhouse emissions by about 51 billion tonnes a year, according to officials.

In October, the International Monetary Fund also urged the $50tn global investment funds industry to step up efforts to finance the transition to a greener economy and help mitigate the effects of climate change.

There is also an increased drive in the broader Middle East and Africa region to achieve carbon neutrality goals.

Last year, the UAE, the Arab world’s second-biggest economy, became the first country in the Middle East to set a net-zero target, which it seeks to achieve by 2050. It plans to invest $160 billion in clean and renewable energy sources over the next three decades.

Through the initiative, the UAE aims to attract inflows from global capital markets as investors increasingly seek environmental, social, and governance-compliant products.

The country has also urged public and private companies to adopt carbon neutral measures. In January, ADGM announced that it had achieved carbon-neutrality status by offsetting its carbon emissions in 2021, becoming the “world’s first international financial centre to become carbon neutral".

Following its local launch, ACX intends to initially use its distributed ledger technology within a traditional commodity trading construct to create tokenised carbon credits for spot trading.

At a later stage, it plans to offer carbon credit futures as commodity derivatives for trading. All digital tokens will be custodised by the recognised clearing house, and settled and cleared using its blockchain smart contracts.

The recognised clearing house, once established and operating within ADGM, is also hoped to support other markets and financial instruments, including virtual asset markets, adding vital market infrastructure to the digital trading ecosystem.

ACX also 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 certified emission reductions (CERs) to allow its clients to purchase and retire CERs for their carbon offsetting purposes.

It will be the second exchange in the world, and the first in the Mena region, to list CERs held in the UNFCCC Clean Development Mechanism registry, the statement said.