Transforming Carbon Markets – One Project At a Time

The urgency for addressing climate change has never been greater. As the world grapples with continuing and devastating climate-related challenges, more, faster and better solutions are needed to meet net Zero ambitions and protect environments, economies and social communities from climate impacts. 

That’s where companies like ZERO13 come in. Created by Hirander Misra on the back of the innovative GMEX Group value proposition – GMEX is a provider of sustainable technology solutions that enable global multi-asset digitisation, tokenization, trading and settlement, bridging the gap between traditional and digital assets and markets – ZERO13’s focus is on reshaping how carbon markets work.  

What’s in a name?  ZERO is a reference to Net Zero targets and ‘13’ reflects the UN’s 13 Sustainable Development Goals (SGDs). Essentially, ZERO13 aims to bring high-integrity – and high value – climate finance solutions to the financial markets sector and to facilitate the more equitable flow of capital into global climate and environmentally-positive projects.

Fragmented, decentralised global marketplace

Today’s carbon markets ecosystem is highly fragmented; this has hampered progress in the effective reduction of carbon emissions and achieving net Zero targets. Carbon markets are inherently decentralised: climate-protection projects are predominantly in the (hotter) Global South, whereas demand for carbon credits often comes from regions like Singapore and the Middle East. This disconnection leads to challenges across the supply chain, including lack of transparency, inconsistent pricing mechanisms and difficulty accessing financing all of which have impeded the flow of capital into critical carbon reduction initiatives.

Article 6 ratification…..finally!

The shift toward a more organised and transparent carbon market gained significant momentum with the pivotal decision at the recent COP29 to adopt Article 6 of the Paris Agreement – after some 10 years of debate.  Article 6 is all about establishing a robust framework for global carbon markets.  Specifically:

• Article 6.2 focuses on trading of high-standard carbon credits between governments, known as Internationally Transferred Mitigation Outcomes (ITMOs). This opens new pathways for countries like Ghana to align credits with demand nations such as Singapore.
• Article 6.4 establishes a global framework to provide consistent governance across carbon markets, enhancing the credibility and stability of these systems.

These agreements – alongside the decision to provide $300 billion of funding annually to bridge the climate financing gap between the global North and South – are critical to ensuring greater integrity and transparency in carbon markets,in turn supporting more consistent and reliable pricing, and paving the way for increased capital investment in carbon reduction projects.

Challenges for Global South projects

Project developers in the Global South, particularly in countries like Ghana and Kenya, have faced significant challenges in monetising carbon credits. Without clear price signals or well-defined pricing mechanisms, financing renewable energy, agroforestry and other carbon-reduction projects has created the perception that these projects are too ‘high risk’.  

Greater standardisation enabled by Article 6 will enable countries like Ghana to be more closely aligned with global carbon market financing and credit opportunities.  Other standardisation initiatives – in country, regional and ultimately international, such as Singapore’s $25 per ton carbon tax, will also result in greater price consistency and clarity,  essential for project developers, unlocking financing opportunities and giving confidence in investors that projects are ‘high integrity’ (and high value) with respect to the tangible and measurable benefits to climate goals, economic development and local communities.

Disconnect between key players

While the global carbon market continues to grow, and is predicted to accelerate rapidly in the run up to 2030 and 2050 net zero targets – market efficiency continues to be impacted by the disconnect between key players in the climate finance value chain: project developers, carbon credit buyers (such as corporate emitters) and financial intermediaries. Each has a different understanding of the market, which often leads to inefficiencies and misunderstanding:

• Project developers may (understandably) lack knowledge of capital markets, making it difficult to navigate the complexities of funding.
• Corporate buyers tend to rely heavily on intermediaries, not fully understanding the intricacies of the carbon supply chain.
• Banks and financial institutions, although well-versed in traditional markets, often struggle to assess the integrity and potential of carbon projects, particularly in the developing world.

Modernising market infrastructure, industry collaboration

Old-school manual processes are another hindrance to market efficiency. There are positive signs of change, however, with a growing openness towards embracing newer, more modern solutions such as digital infrastructure and blockchain technology.

ZERO13 seeks to play a critical role in this modernisation, with proven, digital infrastructure that connects national registries – like Ghana’s – with international demand centres, such as Singapore. Further, digital technologies like blockchain go a long way to ensuring transparency, traceability, and price consistency, all essentials for attracting investment and capital flows into high-integrity projects, and ultimately creating a more efficient market and making a much greater impact on global carbon reduction and environmental protection and preservation.

Unlocking capital and ensuring integrity

In no small part due to new regulatory, policy and corporate governance frameworks, including those outlined in Article 6, the market is shifting toward high-integrity projects.   This will push out low-value credits and align investments with meaningful climate goals. As transparency and pricing clarity increase, more capital will find itself directed toward climate projects and other climate financing opportunities in regions like Africa, in areas including agroforestry, renewable energy and clean cookstove initiatives.

Power of interoperability in Carbon Credit markets

One of the key innovations driving the success of Zero13 is the focus on interoperability. In carbon markets, interoperability allows different systems—whether blockchain-based or traditional— to communicate and work together seamlessly. This enhances the fungibility of carbon credits, making them more accessible and reducing the risks associated with inconsistent tracking and reporting. By integrating international and national registries, interoperability has increased the credibility and value of carbon credits, especially in emerging markets like South Africa.

Digital measurement, reporting and verification (dMRV)

The use of Internet of Things (IoT) and blockchain technologies to automate measurement, reporting, and verification (MRV) processes is revolutionizing the carbon markets. By automating data collection and verification, carbon credit projects can now track their full lifecycle, ensuring accuracy and authenticity. This is essential for distinguishing high-quality credits from low-impact ones, combating issues like greenwashing, and providing investors with the confidence they need to commit capital.

Role of finance in scaling sustainability efforts

Finance is crucial to the scalability of carbon markets. Financial products like sovereign bonds and structured investment products are becoming increasingly popular as mechanisms to fund large-scale sustainability projects. Exchanges like the London Stock Exchange are already listing project special purpose vehicles (SPVs) backed by carbon credits, allowing investors to participate in sustainability initiatives through structured products. These innovations are helping bridge the financing gap that has traditionally hampered carbon market growth.

Emerging role of developing economies in global carbon markets

Developing countries, especially in Africa and Southeast Asia, stand to benefit significantly from participation in carbon markets. For example, nations like Ghana and Seychelles are exploring how carbon credits can boost their economies. Projections suggest that countries like Seychelles could see a 25-33% increase in GDP by tapping into the carbon market. This growth could create new economic opportunities, improve living standards, and contribute to broader sustainable development goals.

What next for a sustainable and scalable future

Achieving the degree of acceleration needed in impactful carbon reduction to meet global sustainability ambitions means establishing a more transparent, efficient and measurably valuable global carbon market. This requires greater technology innovation and integration, improved interoperability between multiple and disparate moving parts and increased stakeholder collaboration between project owners, service providers, financiers and investors.  Collectively these activities will support the flow of capital to high integrity projects, ensure and assure accountability across the value chain and pave the way for a more sustainable and equitable solution that generates significant climate, environmental, economic and social benefits, particularly in developing countries.