ACX (AirCarbon Exchange) Group provides a trading platform and clearing for carbon and renewable energy credits. The company has developed its proprietary technology. Founded in Singapore in 2018, the exchange began operating in 2021 and was granted Recognition Orders by the Financial Services Regulatory Authority (FSRA) to operate as a Recognised Investment Exchange (RIE) and as a Recognised Clearing House (RCH) in the Abu Dhabi Global Market (ADGM) in November 2022. The Abu Dhabi sovereign wealth fund Mubadala has made a major investment.
Andrew Cullen is the Global Head of Business Development at ACX.
DN met with Andrew earlier this month to gain insights on voluntary carbon and renewable energy markets today.
DN What is ACX’s basic business?
AC We operate as a digital exchange platform focused on the trading of carbon credits. Each credit represents the reduction, removal, or avoidance of one metric ton of carbon dioxide or its equivalent in other greenhouse gases (GHG) and is used to offset carbon emissions.
The platform enhances transparency, liquidity, and accessibility in the carbon markets, helping companies meet their carbon reduction and Net-Zero goals.
DN It require projects?
AC Yes. The creation of the projects is doing the good work.
Carbon offset credits are generated by projects that reduce or remove greenhouse gas emissions, including renewable energy projects, reforestation, energy efficiency improvements, methane capture from landfills, and more.
Only when a credit is retired is the one tonne being used. It’s an accounting system.
DN How many companies are account holders at ACX?
AC We have over 200 companies onboarding from 33 different countries.
DN Is that list public?
AC No. I can say that we have some very large project developers, some large energy companies, hedge funds, family offices, commodity trading houses, banks, some shipping companies, and airlines.
DN What are your main products?
AC We have two forms of financial instrument, or two products, carbon credits that are traded, and International Renewable Energy Certificates (I-RECs).
DN The carbon credits are measured in tonnes of carbon. How are the I-RECs measured?
AC The I-RECs verify that electricity is produced from renewable sources like wind, solar, and geothermal. They’re measured in 1 MWh of green electricity.
DN Do you have any figures for transactions this year?
AC This year so far, it’s a good few million tonnes of carbon.
DN Is the exchange accessible to retail traders?
AC No, it’s a highly specialised market with over-the-counter and standardised contracts.
DN Are there speculators?
AC Yes. We’re trying to build that critical mass. Eventually, options will be available.
Corporates face risk
DN How many projects are we talking about?
AC One of the problems with carbon is there are so many choices, hundreds of different types of projects, different methodologies, and regions. Some corporates might prefer to buy credits from Asia or Africa. Some might want technology-based or nature-based. It’s very subjective.
So the buyers, the corporates, must perform their due diligence.
DN So it’s not like buying a commodity like a tonne of wheat?
AC Correct and that’s what we want to get to, where carbon credits are traded through standardised contracts.
DN What is the biggest challenge?
AC The current market faces a significant challenge: reputational risk. Companies can purchase millions of tonnes of carbon credits to achieve net zero status. However, if these credits are later criticised for being deficient or lacking credibility, the company’s well-intentioned efforts can backfire and become a liability. Meanwhile, competitors who haven’t invested in carbon credits face no such reputational damage.
This issue, exacerbated by negative media coverage, has led many corporations to hesitate and remain on the sidelines instead of actively participating in the carbon credit market.
DN How are you addressing this challenge?
AC From the thousands of different types of credits you could have, as an exchange, we try to standardise and commoditise carbon.
ACX establishes a framework and standards to simplify and streamline the process for buyers. For instance, you can choose nature-based credits from a specific year with a particular certification, mitigating risk and ensuring compliance.
So the buyer will be happy with any potential credits that can fit into this. That gives an indicative price for those types of credits.
Making carbon a commodity
DN You’re trying to make carbon into a commodity?
AC The concept was to commoditise, make it more liquid, and send a strong price signal to the market.
That’s how we originally set up the exchange. Our pilot contract was with CORSIA (the Carbon Offsetting and Reduction Scheme for International Aviation). Then we did renewables and nature-based.
The problem was the market wasn’t ready for this. People still wanted to know about the projects they were buying into. They wanted to do their due diligence.
DN They wanted to know if it’s from, for example, a forest in Indonesia.
AC Exactly. That’s because the projects are all so very different.
DN How did ACX respond?
AC When we realised the market wasn’t ready, we created more of an OTC, project-specific side of the business. We created a market board, which allows specific projects to be listed, and this is available to all our members.
The beauty of this is ACX in essence becomes the counterparty because they don’t know who the seller is, the seller sends us the credit, and the buyer sends us the cash.
DN A large part of the market wanted to know the specific underlying, so you created the OTC trading?
AC Yes it’s called the Market Board.
DN Has it been popular?
AC Yes it’s had some success. The market is quite fragmented and sporadic, it’s not a constant flow. It will see a lot of activity and then be quiet for a few days.
It’s a frustrating market in that way. But we have auction functionality on the exchange as well.
From voluntary to compliance
DN You’re at an interesting point where you’re a kind of hybrid between a traditional market where buyer meets seller and an actual commodity market. You have elements of both.
AC Yes. And that’s important because you’ve got to adapt to where the market is. There are two issues.
The first is that the problem with the voluntary carbon market is that it is voluntary. That doesn’t help to build demand.
For the market to really scale it has to be compliant. You need governments or industry bodies requiring participation. That creates the demand. And they will create the standard to say what is an acceptable credit.
DN You’re in the voluntary space now. You could have compliance credits on the exchange?
AC Yes.
DN What’s the second issue?
AC The second issue is that the market is so fragmented. There are different registries, platforms, and exchanges, and they’re not designed to connect. It’s a problem for corporates that need to join the exchanges to purchase credits. It’s very inefficient.
DN How are you confronting the fragmentation?
AC What we’re doing at the moment, with Abu Dhabi as our hub, we’re creating spokes. We have partnerships in Greece with Athex Exchange, in Brazil with B3, in Kenya with NIFC, and in Indonesia with IDX. We’re creating a carbon exchange for those exchanges so that eventually they are connected to our exchange and clearing in Abu Dhabi.
So if there’s an auction in Brazil, someone in Greece can take part in that auction. It creates a globally connected market. So if Brazil creates a domestic compliance market, a company in Greece can buy those credits and be involved in that market.
Not causing harm
DN Is your strategy to watch the compliance sector grow, or the voluntary, or both?
AC I believe the voluntary sector will gradually merge with the compliance sector. Many different schemes will help channel funds back into projects. At the end of the day, carbon projects are beneficial. Despite the negative press.
The quantification and monetisation of carbon often provoke an outcry. But protecting trees instead of cutting them down—essentially, not causing harm—should be financially rewarding. It’s counterintuitive to think otherwise.
DN What is the role of the voluntary sector?
AC I believe there will always be a role for the voluntary sector. Compliance markets will continue to incorporate project-specific credits and expand. However, there will always be corporations that aim to distinguish themselves by purchasing premium voluntary credits.
Here for the long haul
DN So you like being located in the Middle East?
AC Yes. We’re here for the long haul. Because these markets need to work. It gets money on the ground doing good things.
DN Will, there need to be a cap on carbon emissions to get a carbon market going in this region? Or can a solely voluntary market work here?
AC I think, globally, there needs to be compliance markets. And all these things are in the works.
First, you need a registry and you need to make corporates have a carbon audit every year, to know what their footprint is.
Then, governments have a choice. They can compel a certain level of reduction each year. And say that what can’t be reduced will require carbon offsets, and provide a standard required for the carbon offsets. That’s a very clean, simple way to do it.
