Singapore Exchange targets futures trading for carbon offsets

Singapore Exchange targets futures trading for carbon offsets
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(May 9): A Singapore carbon exchange is teaming up with Germany’s main bourse to launch futures trading for carbon offsets as early as this year to meet the growing demand from companies to hedge their risks from greenhouse gas emissions.

The futures contracts would be created by Deutsche Boerse AG using carbon credits sourced by Singapore-based AirCarbon Pte. The plan would be to trade the contracts on the European Energy Exchange, according to AirCarbon co-founder and chief executive officer Thomas McMahon. The German exchange didn’t immediately respond to a request for comment.

AirCarbon is looking to join the CME Group Inc in offering futures trading as demand for offsets soars even as questions arise about their benefits. BloombergNEF, a clean energy research group, estimates the market for offsets could either skyrocket past US$100 billion or crumble if there are little improvements in quality.

McMahon said the new contracts will comply with the carbon offset scheme set up by the International Civil Aviation Organization to help airlines mitigate emissions. Yet demand is extending beyond carriers, he said.

BNEF projections for value of voluntary carbon markets over time. Scenarios are based on intersection of price, supply and demand, and are not necessarily representative of how the market will evolve.

“Logically, it should be the airlines, but we’re seeing the shipping industry, the ground transport and trucking industry adopting it and using it more proactively than aviation,” McMahon said in an interview from his Singapore office.

Companies are using offsets to balance their emissions as they strive to meet net-zero or other carbon-reduction targets. The futures contracts allow these companies and investors to mitigate future price risk for the offsets.

“These projects have now gone from marketing budget and chief sustainability officer — warm and fuzzy — to treasury and compliance,” he said. “This is an audit risk.”

The AirCarbon Exchange was set up in 2019 and began trading last year. Targeted at companies and accredited investors, the exchange has more than 120 active firms with more than 200 others in various stages of joining, McMahon said.

Since its launch, it has seen more than 10 million carbon credits transacted, with about 1 million swapped over the last two months, McMahon said. He expects trading volume to triple by year end.