Nasdaq has unveiled the world’s first indices linked to the performance of Carbon Removal Certificates, a type of commodity contract referencing the price of removing carbon dioxide from the atmosphere.
Carbon capture technologies remove carbon directly from the atmosphere.
The new indices have been developed in collaboration with Puro.earth, a marketplace for carbon removal in which Nasdaq acquired a majority stake in June 2021.
Puro.earth provides carbon removal as a service, helping corporate buyers create a long-term procurement portfolio to neutralize their carbon footprint and reach net zero.
The firm has partnered with a network of suppliers globally that have developed carbon net-negative processes or products.
Carbon removal suppliers are verified by an independent third-party and issued CO2 Removal Certificates (CORCs) which are placed into the Puro.earth registry. A CORC represents that supplier’s cost in euros for sequestering one metric ton of carbon dioxide from the atmosphere. Corporate buyers may then purchase and retire CORCs to fulfill their sustainability claims.
CORCs currently trading on the Puro-earth registry primarily reflect carbon sequestration through two means – ‘biochar’ and ‘bio-based construction materials’ – although other engineered methods will be added as they become more widely operational.
Biochar is a very stable, solid form of carbon produced from biowaste through pyrolysis (heated in the absence of oxygen). It can endure in soil for thousands of years, making it an ideal technology for scalable carbon removal, and has multiple commercial uses at potentially industrial volumes.
Bio-based construction materials, meanwhile, refers to the use of sustainable forestry for making wooden building elements or the creation CO2-negative cement using specialized processes that add carbon during development.
Nasdaq has unveiled three indices as part of the initial Carbon Removal suite.
The headline index, the CORC Carbon Removal Price Index, reflects the cost of sequestering one metric ton of CO2 based on a volume-weighted aggregation of all CORC transactions conducted over the past six months.
The CORC Biochar Price Index and CORC Bio-based Construction Materials Price Index, meanwhile, reflect the cost of sequestering one metric ton of CO2 based on a volume-weighted aggregation of all CORC transactions specific to biochar or bio-based construction materials, respectively, over the past six months.
The depth and liquidity of carbon removal contracts are not yet nearly sufficient to provide the foundation for investment products such as ETFs. However, by providing access to reference prices for carbon removal, Nasdaq is facilitating greater transparency that will ultimately encourage more participation and investment in these markets.
For example, the indices offer an opportunity for risk hedging for buyers of pre-purchase CORC agreements and may also ultimately lead to the introduction of standardized, tradeable carbon removal contracts.
Fredrik Ekström, Head of European Fixed Income and ESG at Nasdaq, said: “This new family of indices represents another step forward in Nasdaq´s journey to create a transparent and robust market for carbon removal. The indices will create a price benchmark to help our clients better understand the true cost of neutralizing their emissions. They will also serve to stimulate the growth of carbon removal ecosystems by supporting the business case for new carbon removal projects and helping potential investors make better-informed decisions.”
Antti Vihavainen, CEO of Puro.earth, added: “This launch marks an exciting moment for the voluntary carbon market. The indices give visibility into the trends of carbon removal credit pricing to climate finance stakeholders and have the potential to pave the way for the commoditization of CORCs. Over time, as the voluntary market for carbon removal becomes more liquid, the reference price index family will serve as a platform to create innovative new financial products that support our journey towards a net-zero economy.”