Onthispremise,carbonexchangescandeliverotherkindsoffuturescontractsbasedoncarbon-reductiontechnologies,yearsandlocationsofcarboncredits.ThisisalsoconducivetothedevelopmentofOTCtransactionswherecontractpricescanbesetaccordingtothepriceslistedbycarbonexchanges.
Consideringthehugediscrepancyincarboncreditsinthemarket,HongKongcouldlaunchataxonomybyreferencingforeigncarbonratingagenciestocategorizeandratecarboncreditsindetailbasedonthetypes,sources,locations,scopesoftime,qualityofreduction,etc.Thiswouldenablebuyerstounderstandthedistinctionsamongvariouskindsofcarboncredits,helpingthemtofindthemostsuitableorthemostlegally-compliantproducts.
First,thereisawidevarietyofcarboncreditsinVCMs.Nevertheless,cheapercarboncreditsareweakerintermsofcarbon-reductioneffectivenessandpermanence,andtheirpayoffwillbelimited.Carboncreditsissuedbyvariousstandardsetters,e.,VerraandGoldStandard,canbecategorizedintotwotypesaccordingtocredits'carbon-reductionmethods:removingcarbonfromtheatmosphere(carbonremoval);andavoidingorreducingcarbonemissions(carbonavoidanceorreduction).Theformercanbeachievedbyafforestationandcarboncaptureandstorage;thelatterinvolvesmorecontentiousattempts,suchasminimizingloggingactivitiesandprotectingmangroves.7perton.Asthetechnologiesandmeansofreductionvary,thecostsofcarbonremovalandemissioncontroldiffervastly.In2021,theaveragecostofcarbonremovalwas$8pertonwhilethatofcarbonavoidanceorreductionwas$1.Buyersmayinclinetowardscreditswithlowerpricetagsfordifferentreasons,suchaslackofrelevantregulationsandinadequateunderstandingofthedifferencesincarboncredits.
Nationsworldwideareearnestlydevelopingtheircarbonmarkets.WhileHongKongisatinymarketanditssmallpoolofparticipantscannotsupportalocalETS,therecentestablishmentofalocalVCMbyHongKongExchangesandClearing(HKEX)servestocomplementthenationalETS,completingChina'sentirecarbonmarket.5billiontonsofcarbondioxideemissions.Generallyspeaking,carbonmarketsareclassifiedintotwosystems-mandatory(EmissionsTradingSystems,orETS)andvoluntary(VoluntaryCarbonMarkets,orVCM).Researchresultsshowthatamongcountrieswhichhavesettheiremissionreductiontargets,83percentintendtousetheircarbonmarketstomeetthosetargets.ThenationwideETSoftheChinesemainlandisthelargestofitskindaroundtheglobeintermsofcarbonemissionscoverage,coveringapproximately4.So,whatshouldbeconsideredforHongKongtorunalocalVCM?.
CanvoluntarycarbonmarketbeestablishedinSAR?
Carbonfuturescontracts
Worsestill,thepurchaseofcheapercarboncreditsmaygiverisetothephenomenonof"badmoneydrivingoutgoodmoney",pushingdownthepricesofcarboncredits.Lowpricesofcarboncreditsareunfavorabletogalvanizingenterprisesintoconductingworthwhilecarbon-reductionactsassomemaydisplaytheirconcernfortheenvironmentbybuyingcarboncreditsinsteadofcuttingdownontheircarbonemissions.
Second,exchangesofVCMsarecurrentlyfragmentedandsmallinscale.Forinstance,theCBLExchangeintheUSandChicagoMercantileExchangecollaboratetoinstituteGlobalEmissionsOffsetFutures,whichentailsphysicaldelivery.Totackletheseproblems,someoverseasexchangesofferspotquotesanddesignaseriesofcorecarboncontractstoguidethemarketinexploringequilibriumprices.ThecontractonlyallowsthetransactionofcarboncreditsthatareissuedbyinternationallyrecognizedstandardsettersandcreditsthatmeettherequirementsoftheCarbonOffsettingandReductionSchemeforInternationalAviation.Likeothercommoditieswiththeirrelevantfuturesmarkets,corecarboncontractsallowmarketparticipantstoobtaindailyquotesfordifferentcarbonproductsandoffsetthepricefluctuationsoffuturecarboncredits.Theirpricingisopaque,indirectlyelevatingtransactionrisksforbuyersandsellersalike.Manytransactionsareconductedoverthecounter(OTC).Astherisksaremitigated,morebuyersandsellerslikelywillpartakeinthemarket.
Certainly,therestillexistotherconcernstobeaddressedforHongKongtorunaVCM.OtherconsiderationsincludeHongKong'sroleinfosteringtheestablishmentofaGuangdong-HongKong-MacaoGreaterBayAreaUnifiedCarbonMarket,theinteroperabilityofcarboncreditsbetweentheVCMandETS,thetransactioncurrencyandtheinfrastructureofthecarbonmarket.
Itishopedthatthisarticlecanshedsomelightonthishottopic.WebelievethatVCMisjustoneofthechannelstoachievecarbonneutrality.Enterprisesshouldfirstenactviableemission-reductionmeasuresandthenutilizeVCMasasupplementarymeanstooffsetresidualemissions.SuchamultiprongedapproachcanhelpHongKongandthenationtoattaincarbonneutralityby2050and2060respectively.