To meet the growing demand from businesses to hedge their risks from greenhouse gas emissions, AirCarbon, a Singaporean carbon exchange, is collaborating with Germany’s main bourse, Deutsche Boerse AG, to create futures trading for carbon offsets as early as this year.
Deutsche Boerse AG will establish the futures contracts with carbon credits obtained by AirCarbon. The plan would be to trade the contracts on the European Energy Exchange, said Thomas McMahon, co-founder and CEO of AirCarbon.
As demand for carbon offsets increases despite concerns over their effectiveness, AirCarbon is hoping to join the CME Group in offering futures trading. According to research group BloombergNEF, the market for carbon offsets may either surge above $100 billion or collapse if quality does not improve.
McMahon stated that the new contracts will adhere to the International Civil Aviation Organization’s carbon offset mechanism to help airlines reduce emissions.
However, demand is expanding beyond carriers, he added.
“Logically, it should be the airlines, but we’re seeing the shipping business, ground transportation, and trucking industry adopting and using it more proactively than aviation," he said in an interview from his Singapore headquarters.
Companies use offsets to balance their emissions as they attempt to achieve net-zero or other carbon-reduction goals, and the rising demand has resulted in significant price increases. As a result, futures contracts will be introduced to help corporations and investors reduce future price risk for carbon offsets.
The AirCarbon Exchange was founded in 2019 and began trading in 2021. The exchange, which is aimed at enterprises and accredited investors, has more than 120 active entities and more than 200 more in various stages of joining, according to McMahon.
Since its launch, the exchange has transacted over 10 million carbon credits, with around 1 million swapped in the last two months, according to McMahon. He anticipates that trading volume will triple by the end of the year.