The Trillion-Dollar Trade: Exchanges are Key to Scaling Environmental Commodity Markets

The multi-trillion-dollar global energy transition is creating significant trading, data and new product opportunities for exchanges to channel investment into mitigation projects, new technologies and alternative fuels as well as related environmental commodities and carbon-price mechanisms. Stock and futures exchanges from Brazil to South Africa, Singapore and beyond, are facilitating environmental commodity-linked markets to drive the massive capital flows from institutional investors, banks and companies needed to meet this worldwide imperative.  

As private enterprises and governments come together to achieve ambitious global energy transition targets, the scale cannot be overstated. Climate risk is economic, business and investment risk and the world is searching for transparent, investable market signals that facilitate solutions, differentiate performance and direct capital to transition assets.  

The energy transition is not the job of governments alone. Institutional investors, regulators, companies and exchanges that connect capital flows all have roles to play. Exchanges are uniquely positioned to drive solutions by delivering transparent price discovery, facilitating capital formation, risk management and efficient post-trade settlement. Extending these inherent exchange capabilities to environmental commodity markets will be critical to harmonise, streamline and scale them to the size that the transition demands. 

Whether it’s one metric tonne of CO₂ avoided or removed, a megawatt-hour of renewable electricity generated or a kilogramme of plastic recycled, environmental commodity markets create tradeable instruments while helping facilitate climate finance and incentivising practices that can reduce environmental impacts. They convert environmental outcomes into measurable units that companies and investors can price, buy and sell, hedge and settle. 

For exchanges, environmental commodities represent a significant growth opportunity in their core transaction and data businesses. Exchange spot and futures markets give companies price certainty, facilitate hedging strategies and provide lenders and investors metrics for key benchmarks that can shift capital allocation, rewarding those companies focused on energy transition, climate risk mitigation and lower carbon intensity. 

(Institutional investors, regulators, companies and exchanges connect capital flows to provide transparent price signals, investment-grade data and efficient capital flows that fuel the net-zero transition.)

Exchanges are seizing this opportunity 

The environmental commodity market infrastructure resembles that of established commodity and financial markets. It is comprised of registries, where credits are issued, and managed over their full lifecycle; portfolio management systems, which enable end-users to transfer credits, and, ultimately, retire them to claim a one-time benefit while permanently removing the credits from circulation. It also includes spot and futures exchanges and settlement mechanisms, which are integrated with registries and settlement banks to facilitate delivery of the physical instruments and payment.  

These market infrastructure platforms are increasingly available to exchanges through direct Application Programming Interface (API) connections as well as through turn-key infrastructure platforms, which provide a single point of integration to the full market technology stack.  

Last year, the Johannesburg Stock Exchange launched its JSEV Carbon Market, a spot exchange designed to serve the exchange’s issuer companies and other market participants that want to use carbon credits in their net-zero programs, as well as to meet obligations under the South African carbon-tax program. It plans to use the market to channel funding to carbon offset projects in the region and is considering the addition of renewable energy certificate (REC) trading for companies to address Scope 2 emissions from the power they consume.  

The market is essentially a JSE-branded version of Xpansiv’s CBL spot exchange, which enabled the JSE to provide access to a live order book with hundreds of active global participants and listed credits on launch day. The new market is underpinned by Xpansiv Connect infrastructure, which links the exchange to 15 carbon, renewable energy and plastics registries, a designated settlement bank, and provides users with a multi-registry, multi-asset portfolio management system to manage their positions and retire credits.  

Xpansiv Connect infrastructure has been deployed by other exchanges, including the new Regional Voluntary Carbon Market Company exchange in the Kingdom of Saudi Arabia and the International Air Transport Association’s (IATA) Aviation Carbon Exchange, to serve their respective regional and industry sectors.   

Each exchange used a different configuration to support its strategies. They all leverage Xpansiv Connect infrastructure to speed time to market, to outsource integration with registries as well as ongoing operational support and system maintenance, and to link into Xpansiv’s network of market participants, which numbers in the thousands worldwide.  

Tailwinds Driving Growth 

A diverse and intertwined set of public and private sector policies and initiatives is driving the expansion of environmental commodity markets.  

CORSIA 

A glimpse of what scale can look like is unfolding in aviation. In 2024, the aviation sector entered the first compliance phase of CORSIA, a UN-organised program that will require a projected 100–150 million tonnes of eligible credits by 2026. A standardised spot contract, the GEO CP1, now trades on Xpansiv’s CBL exchange and is mirrored on IATA Aviation Carbon Exchange as well as the JSE Ventures Carbon Market. A number of futures exchanges have launched CP1 contracts as well. The contracts provide airlines and others with a transparent price signal and organised markets on which to trade. CORSIA, which specifies the use of select voluntary carbon credits for compliance, illustrates the convergence of voluntary and compliance carbon markets. This emerging trend is widely expected to expand the adoption and use of carbon credits.

Article 6 Markets 

That convergence is gathering momentum. Australia’s Safeguard Mechanism is already exploring the use of international credits, while Article 6 of the Paris Agreement lays the foundation for cross-border trading with corresponding adjustments to national inventories and nationally determined contributions (NDCs). This new market will enable countries to buy and sell credits to meet their NDC goals. It is projected to reach USD100 billion in 2030 and top USD1 trillion by 2050. 

Carbon Tax Schemes 

As emissions are essentially an economic externality, governments are implementing carbon taxes on emitters to put a price on emissions and drive physical reductions. The World Bank tracked 43 carbon-tax schemes in 2024, which took in an estimated USD33 billion. The tax schemes often allow emitters to meet a portion of their obligation by purchasing carbon credits.   

Data-centre Proliferation 

The technology firms competing for AI dominance are also leaders in net-zero programs. Microsoft is on track to reach net-negative carbon emissions by 2030. To pursue their twin and highly ambitious AI and emissions goals, these companies are often heavy buyers of RECs. These instruments represent the environmental benefits of generating one megawatt-hour of renewable energy. Companies use RECs to offset their use of non-renewable electricity at facilities where renewable energy isn't available, enabling them to support clean energy production indirectly. 

REC markets were developed in the 1990s to support the growth of renewable energy when they were unprofitable to build and operate. These compliance REC markets have grown and spawned voluntary REC markets in more than 60 countries.   

Standardisation is Necessary to Drive Greater Scale  

Product innovation must be matched by standardisation if markets are to scale to the needed size. Exchanges can help set those standards based on common taxonomies, measurement, verification, disclosure and contract design, just as they have for other commodity markets, including crude oil, copper and soybeans. 

Why Exchanges Matter 

Environmental commodity trading on exchanges can deliver fundamental benefits. Collaboration through the World Federation of Exchanges and efforts, such as the UN Sustainable Stock Exchanges initiative, can align contract specifications and prevent a patchwork of fragmented or incompatible micro-markets. 

Like Australia’s Treasury climate disclosure standards, the International Sustainability Standards Board (ISSB) - IFRS S2 framework are being adopted in Singapore, Japan, South Korea, the EU and many other key markets.  These mandatory climate disclosures, arriving over the next two years, will expose vast data gaps.  

Rather than viewing these rules as a reporting burden, exchanges and issuers should treat them as motivation to innovate. Housing verified environmental commodity data within exchange-grade ecosystems allows auditors to trace environmental claims back to registry serial numbers, while index providers can build transition benchmarks that reward genuine decarbonisation and lower carbon intensity. New rules are therefore not a burden, rather the feedstock for climate indices, energy-transition ETFs and performance-linked derivatives that can channel capital to solutions. 

(Funnelling the wider market into climate leaders: progressive carbon screens narrow thousands of stocks to a concentrated Low-Carbon Transition Index.)

The Road to 1.5°C Runs Through Transparent Markets 

Achieving a 1.5°C world will be possible only if environmental outcomes and energy transition become as investable as any other asset class. By applying their proven playbook to environmental commodities, exchanges can transform and accelerate a range of initiatives into a coherent global market infrastructure. 

The payoff is twofold. First, exchanges unlock a new revenue stream that grows in lockstep with the energy transition. Second, they provide the transparent price signals, investment-grade data and risk-management tools that market participants, from company C-Suites and Boards to banks and pension-fund trustees, need to steer trillions of dollars toward building a resilient, net-zero economy.  

This is a growth story for capital markets, not to be missed.