Abu Dhabi Global Market (ADGM), the International Financial Centre in Abu Dhabi, has partnered with AirCarbon Exchange (ACX) to create the world’s first fully regulated carbon trading exchange and carbon clearing house which will be established in Abu Dhabi, the capital of the UAE.

Pursuant to its recently released consultation paper, ADGM is set to become the first jurisdiction globally to regulate carbon credits and offsets as emission instruments, and to issue licenses for exchanges to operate both spot and derivative markets.

The regulatory framework will allow corporates to trade and finance carbon credits like conventional financial assets, thus increasing participation and investment in global carbon reduction and offset programmes.

Expected to launch in 2022, ACX will be established as a Recognised Investment Exchange (RIE) and regulated by ADGM. As a regulated RIE, ACX aims to offer its market participants and customers efficient trading and a regulated transparent price discovery mechanism.

In addition, ACX aims to set up a regulated Recognised Clearing House (RCH) - which will be known as ACX Clearing Corporation - for the purposes of custodising, clearing and settling commodities and commodity derivatives.

ACX intends to initially use its distributed ledger technology within a traditional commodity trading construct to create tokenised carbon credits for spot trading. At a later stage, ACX plans to offer carbon credit futures as commodity derivatives for trading. All digital tokens will be custodised by the RCH, settled and cleared using the RCH’s blockchain smart contracts providing efficient settlement for all spot transactions.

It is intended that the RCH, once established and operating within ADGM, will play a pivotal role in other markets and financial instruments, including virtual asset markets, adding vital market infrastructure to the digital trading ecosystem. ACX intends to extend its trading platform offering to include clean energy products, in addition to carbon credits.

Ahmed Jasim Al Zaabi, Chairman of ADGM, said, “This is a significant global milestone and another world’s first for Abu Dhabi. This initiative reinforces ADGM’s commitment and ongoing efforts to cement its position as a leading international financial centre and world-class global commodities and carbon trading hub. We are excited to be partnering with ACX to enable and facilitate trading of high-quality carbon credits, and in that aspect, encourage more companies to reach their decarbonisation goals. As the first country in the Gulf to commit to net zero by 2050, this new trading platform is a further extension of Abu Dhabi’s drive to support sustainability ambitions and underlines ADGM’s focus on carbon neutrality as an international financial centre.” William Pazos, Managing Director and Co-Founder of ACX & Kevin Iwanaga, COO Mena Region, said, “Abu Dhabi and by extension ADGM, are an integral part of ACX’s global expansion.”

WAM