Xpansiv launches Australian Carbon Credit Unit trading market

Xpansiv transaction services president Ben Stuart said the first day’s trading had gone largely without a hitch and the company expected trading volumes to grow.

Xpansiv transaction services president Ben Stuart. Picture: Britta Campion

Australia’s first public trading market for carbon credits has begun and its owner has predicted a shake-up of the nation’s $4.5bn carbon market as demand surges from big polluters offsetting their emissions.

Xpansiv – backed by Blackstone and Macquarie – launched its Australian Carbon Credit Unit (ACCU) trading and settlement market on Wednesday to a muted start, trading 27,449 carbon credits worth about $1.4m across eight trades.

Xpansiv transaction services president Ben Stuart said the first day’s trading had gone largely without a hitch, and the company expected trading volumes to grow after the federal government’s changes to the safeguard mechanism take effect next financial year.

Mr Stuart said the company expected the market to trade about three to four million ACCUs a year as interest in the platform rises. The spot market was primarily aimed at ACCU aggregators and brokers, institutional owners of carbon credits, along with energy companies and other corporate buyers looking for offsets.

“I think it’s something that’s really setting the groundwork to grow into an established market as the safeguard mechanism comes into play,” he said.

Xpansiv was formed in 2019 through the merger of Sydney-based CBL, a commodity spot exchange, and San Francisco-based Xpansiv, a data-led ESG commodities platform.

It has been one of the hottest properties around, with investment giant Blackstone putting about $600m into the company in mid-2022. The company also counts CBA, Macquarie, oil giant BP’s venture arm, and Caledonia Investments’ Will Vicars among its backers.

Despite regular talk that the company could seek an ASX listing, Mr Stuart said that although Xpansiv kept an active watch on the state of public markets, it had no immediate plans to launch an IPO.

But, while absolute volumes may stay “modest” by global standards, Mr Stuart said the open market would provide not just liquidity in the sale of ACCUs but a valuable price discovery mechanism for smaller players in the carbon credit sector, including farmers, indigenous groups and smaller market participants.

“We do anticipate that there will be price discovery on a daily basis, and a two-way market on a daily basis,” he said.

Mr Stuart said the first day’s trading resulted in a significant block trade of indigenous savanna-burning ACCUs traded at $52.50 – a $14.50 premium to the benchmark ACCU contract.

The trade saw Corporate Carbon sell 5000 ACCUs generated by the Batavia savanna-burning project in Queensland sold to the Commonwealth Bank.

Mr Stuart said that while direct and brokered exchanges were likely to make up a significant proportion of ACCU trading in Australia, Xpansiv hoped to eventually capture up to 80 per cent of spot trading in the carbon credits.

“You never get 100 per cent of the market. But what you generally find happens is that the 80-20 rule applies – 80 per cent of the market will gravitate to where the liquidity is, and 20 per cent will trade around the fringe,” he said.

Xpansiv’s CBL platform already handles other products such as Renewable Energy Certificates and Energy Efficiency Certificates, as well as a raft of other carbon, water, gas and renewable energy products.

Mr Stuart said he expected the carbon credit market eventually to extend to derivative produces such as futures contracts.

“The forwards market is active at the moment on an over-the-counter basis but it’s constrained by credit and counterparty risk, which is pretty high at the moment,” he said.

“A cleared futures model is very interesting. I could see that launching somewhere in between the back end of this year or early next year, pending volumes doing what we think they’ll do, and the market progressing.”