The Bursa Carbon Exchange (BCX) will hold its inaugural auction on 16 March 2023, offering carbon credits from two projects (Exhibit 1). Owned and operated by Bursa Malaysia, the BCX is a voluntary carbon market (VCM) set up to help achieve Malaysia’s aspiration to become net zero greenhouse gas (GHG) emissions by 2050. It is the world’s first shariah-compliant carbon exchange, leveraging Malaysia’s position as a leading global Islamic financial marketplace and exchange for Islamic fund raising and investment.

According to Bursa Malaysia, the auction will help shape the carbon market landscape by facilitating a price discovery for trading of new carbon products in the market. It will provide a reference price for carbon credit trading and set a tangible price signal for potential project developers to engage in carbon credit projects. The auction will also allow Bursa Malaysia to better understand and incorporate the needs of its stakeholders in the carbon market ecosystem into its operations.

How BCX works

• The BCX is global spot exchange that facilitates the trading of high-quality carbon credits via standardised carbon contracts. These carbon credits are generated by projects that remove or reduce GHG from the atmosphere. The BCX will ensure that the carbon credits meet the relevant contract specifications before they can be traded.

• Standardised carbon contracts comprise a collection of credits from various projects based on certain characteristics. Products can be standardized based on attributes that buyers use to assess carbon credits. Typical attributes include project type (such as nature-based solutions or tech-based, removal or avoidance), geography, co-benefits and standards.

• Each carbon credit has a specific “vintage”, which is the year an emission reduction occurred or the credit was issued. One (1) contract is equivalent to 1 carbon unit where each unit represents the removal, reduction, avoidance, sequestration or mitigation of one metric tonne of emissions of GHGs, measured in carbon dioxide equivalent (CO2e).

• Incorporated entities (local and foreign) may purchase these credits to offset their emissions (the carbon credits will then be retired i.e. taken off the market and no longer available for trade), keep the credits in the BCX trading account for future use or sell them to other entities via BCX to benefit from price appreciation. In return, the sale of carbon credits will help to finance and drive the development of domestic GHG emission reduction and removal projects (Exhibit 2).

• There are three modes of carbon trading i.e. (i) auction (when a new category of contract is introduced to facilitate price discovery), (ii) spot trading (as and when carbon credits are made available), and (iii) offmarket transactions.

• The BCX will offer four types of contracts for trading. However, only two (A & C) are available in the inaugural auction on 16 March 2023.

A. Global technology-based carbon contract (GTC)

B. Global nature-based carbon contract (GNC)

C. Global nature-based plus carbon contract (GNC+)

D. Malaysia nature-based plus carbon contract (MNC+)

Source: Kenanga Research - 8 Mar 2023