Singapore Carbon Exchange Targets Futures Trade With German Exchange

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SINGAPORE (BLOOMBERG) – A Singapore carbon exchange is partnering with Germany’s leading exchange to launch carbon offset futures trading this year to meet growing demand from companies to hedge their emissions risk of greenhouse gases.

The futures contracts would be created by Deutsche Boerse using carbon credits from Singapore-based AirCarbon. The plan would be to trade the contracts on the European energy exchange, according to AirCarbon co-founder and chief executive Thomas McMahon. The German stock exchange did not immediately respond to a request for comment.

AirCarbon is seeking to join the CME Group in offering futures trading as demand for offsets soars even as questions arise over their benefits.

BloombergNEF, a clean energy research group, estimates that the offset market could either skyrocket past US$100 billion (S$138.7 billion) or crash if there is has few quality improvements.

Mr McMahon said the new contracts will be in line with the carbon offset scheme set up by the International Civil Aviation Organization to help airlines reduce their emissions.

Still, the demand extends beyond carriers, he said.

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

Companies use offsets to balance their emissions as they strive to meet net zero or other carbon reduction goals. Futures contracts allow these companies and investors to mitigate future price risk for offsets.

“These projects have now moved from marketing budget and sustainability director — warm and fuzzy — to cash and compliance,” he said. “It’s an audit risk.”

The AirCarbon Exchange was established in 2019 and started operations last year. Targeting companies and accredited investors, the exchange has more than 120 active companies and more than 200 more in various stages of membership, McMahon said.

Since its launch, more than 10 million carbon credits have been traded, including around one million traded in the past two months, McMahon said. He expects trading volume to triple by the end of the year.

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