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An Investor's Guide to Voluntary Carbon Markets: Navigating Bursa Carbon Exchange


An Investor's Guide to Voluntary Carbon Markets: Navigating Bursa Carbon Exchange

  • An Investor's Guide to Voluntary Carbon Markets: Navigating Bursa Carbon Exchange As governments and organisations race to net zero, the voluntary carbon market (VCM) has emerged as a crucial tool to spur climate action and allow firms to account for hard-to-abate emissions by supporting emissions avoidance,
  • Date: Oct 09, 2023
  • Category: Sustainability
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As governments and organisations race to net zero, the voluntary carbon market (VCM) has emerged as a crucial tool to spur climate action and allow firms to account for hard-to-abate emissions by supporting emissions avoidance, reduction or removal activities. This article is the first of a two-part series introducing buyers and sellers to Bursa Carbon Exchange (BCX), the world’s first Shariah-compliant carbon exchange for voluntary carbon market. The first part focuses on how potential investors and buyers can leverage on BCX to meet their climate and sustainability related goals.

Carbon credits are becoming an increasingly popular tool for governments and corporations striving to decarbonise and meet their net zero goals. In recent years, there has been a surge in activity in global carbon markets, with the increase in demand for carbon products reflected by revenues from carbon taxes and emissions trading systems hitting a record high of about US$23 billion in 2022, according to World Bank data. VCMs are making up a growing portion of global carbon markets and are expected to continue expanding, with estimates of reaching US$1 trillion as early as 2037. Almost a quarter of global emissions are covered by carbon pricing mechanisms to support the reduction of GHG emissions.

Asia is poised to see significant growth in its carbon markets, as the energy transition gains momentum and national climate targets are set. One study shows that more than half of the region’s threatened forests could be protected through financially viable carbon credit projects, which would avoid emissions of up to 835 million tonnes of carbon dioxide equivalent. 2 As carbon markets grow in size, there is also an increasing demand for complementary services such as external assurance, independent research and insurance, which play a crucial role in supporting interactions in the carbon market.

Bursa Carbon Exchange (BCX), launched on 9 December 2022, aims to support the burgeoning activity in the VCMs by facilitating the trade of carbon credits and to aid Malaysia in meeting its commitment to achieve net zero greenhouse gas (GHG) emissions by 2050. Owned and operated by Bursa Malaysia, the Exchange is designed to enable trading of high-quality carbon credits via standardised carbon contracts. As the world’s first Shariah-compliant VCM exchange, BCX leverages on the ethical principles embedded in Islamic finance in its operations.

Tailored Mechanisms for Different Needs

Buyers have access to a variety of carbon credit projects on BCX, which are categorised based on geography (global or local) and project type (Nature-Based Contracts or Technology-Based Contracts). Different market mechanisms have also been tailored to fit the needs of various investor types, with three modes of trading available to buyers. These are continuous trading , off-market transactions and on certain occasions, auctions.

The continuous trading mechanism caters for participants who seek standardised contracts based on a range of characteristics or attributes, such as project type, geography, vintage, and co-benefits. These standardised contracts allow buyers to purchase carbon credits such as the Global Technology-based Carbon Contracts (GTC) or the Global
Nature-based Plus Carbon Contracts (GNC+)
that have been aggregated and verified by BCX, simplifying the selection process for corporate buyers.

Meanwhile, in situations where participants want to invest directly in specific projects via standardised contracts, they can leverage on BCX's off-market transaction services to facilitate exchange-cleared settlements.

Auctions on BCX serve to enable price discovery for new standardised carbon credit products that are offered via the platform. The Exchange’s inaugural auction was held on 16 March 2023 for projects offered under the GTC and the GNC+
standardised contracts
. The auction, which was conducted electronically, witnessed encouraging participation with buyers from various industries, clearing a total of 150,000 units of voluntary carbon credits.

The table below details the different characteristics of each transaction mode:

Transaction Type Description
Auctions Held from time to time and facilitates price discovery when a new standardised contract is introduced.
Continuous Trading Market Facilitates the continuous trading of standardised carbon contracts based on central order book. Buyers and sellers remain anonymous.
Off-Market Transactions Facilitates bilateral deals between participants and has the transactions cleared and settled by the exchange.

With the availability of continuous trading from October 2023, BCX will be introducing different standardised contracts via auctions for trading on the BCX platform in stages, with Malaysia-based carbon contracts expected to be next in line. This provides buyers an exciting opportunity to support local carbon offset projects from Malaysia.

BCX is also the first Shariah-compliant carbon exchange in the world, diversifying the array of ESG and Shariah compliant offerings. As a Shariah-compliant platform, BCX ensures that all offered carbon credits and trading outcomes comply with Islamic finance principles.

Strengthening Integrity

To ensure the integrity of the voluntary carbon credits traded on BCX, all carbon credits offered are required to adhere to international standards adopted by BCX. Currently, BCX accepts carbon credits from projects that are registered with Verra. Verra is currently the world’s most widely used GHG crediting program. Projects under Verra undergo rigorous assessment
and auditing
to ensure compliance with its standards and methodologies. 4 This means that all carbon projects listed on BCX can also be found in the Verra Registry.

The Verra Registry is the central repository for all information and documentation relating to carbon projects and credits, facilitating the transparent listing of information on projects. As BCX continues to engage carbon project developers in Malaysia, participants can look forward to seeing more Malaysian-based carbon projects in the registry in coming months.

With enhanced scrutiny over the past few years, international standards are also evolving. To ensure that projects meet the current scope of eligible Verified Carbon Standard (VCS) projects, Bursa Malaysia requires voluntary carbon credits traded on BCX to be of vintages that date from 2016 onwards. . Projects that were previously registered under the Clean Development Mechanism (CDM) can potentially supply carbon credits on BCX as well, provided their Certified Emission Reductions are converted into Verified Carbon Units (VCUs) based on the VCS standard.6

Getting on Board

BCX welcomes all local and international participants to trade on its platforms, as long as they meet the eligibility criteria under the BCX Rules. Both foreign and local incorporated entities, are currently permitted to register as participants. BCX is currently waiving the onboarding fee until the end of 2023, opening up a broader opportunity for interested participants to engage in carbon trading on BCX.

In addition, BCX is expected to offer its first Malaysian-based carbon credit project, the Kuamut Rainforest Conservation Project, by early 2024 at a special auction, which will be offered in the form of a Malaysia Nature-Based Plus Carbon Credit (MNC+). The Kuamut Rainforest Conservation Project is managed through a public-private partnership between Permian Malaysia, Sabah Forestry Department, Yayasan Sabah and Rakyat Berjaya Sdn. Bhd., with operational support from PACOS Trust and South East Asia Rainforest Research Partnership (SEARRP).

Photo credit: Permian Global

The project protects and restores 83,381 hectares of tropical forest in Sabah, which is home to 29 mammal and 12 bird species that are considered Rare, Threatened or Endangered (RTE) such as the clouded leopard, Bornean orangutan, Bornean elephants and helmeted hornbills; alongside 44 plant species out of the 892 recorded that are Critically Endangered, Endangered or Vulnerable in the IUCN Red List. Many of these species are also endemic to Borneo, underscoring how the project safeguards both flora and fauna biodiversity alongside carbon sequestration.

Interested participants can download the necessary application form and related documents on the BCX website. Onboarding fees are waived until the end of 2023, so early application is recommended. For more information,
visit https://bcx.bursamalaysia.com.

  • Tags : Sustainability

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