Carbon Market 2.0

Quality Principles

The matching of buyers and suppliers would be more efficient if all credits could be described through common features. The first set of features has to do with quality. Quality criteria, set out in “core carbon principles,” would provide a basis for verifying that carbon credits represent genuine emissions reductions. The second set of features would cover the additional attributes of the carbon credit. Standardizing those attributes in a common taxonomy would help sellers to market credits and buyers to find credits that meet their needs.

Homogeneous Attributes

Making carbon credits more uniform would consolidate trading activity around a few types of credits and also promote liquidity on exchanges.

After the establishment of the core carbon principles and standard attributes described above, exchanges could create “reference contracts” for carbon trading. Reference contracts would combine a core contract, based on the core carbon principles, with additional attributes that are defined according to a standard taxonomy and priced separately. Core contracts would make it easier for companies to do things such as purchasing large quantities of carbon credits at once: they could make bids for credits that meet certain criteria, and the market would aggregate smaller quantities of credits to match their bids.

Demand Forecasting

[Finding effective ways for buyers of carbon credits to signal their future demand?] would help encourage project developers to increase the supply of carbon credits. Long-term demand signals might arrive in the form of commitments to reduce greenhouse-gas emissions or as up-front agreements with project developers to buy carbon credits from future projects. Medium-term demand might be recorded in a registry of commitments to purchase carbon credits.

Clearer demand signals would help give suppliers more confidence in their project plans and encourage investors and lenders to provide with financing.