Carbon Forwards & Futures

Subtype

Definition: Agreement between two parties to buy or sell a specified number of carbon credit at a predetermined price in the future. Unlike forwards, which gravitate towards the bespoke, futures contracts are standardized products, helping mitigate counterparty risk and bring additional liquidity to the market.

Description

A carbon forward is an agreement between two parties to deliver a specified number of carbon assets at a predetermined price in the future. In traditional climate finance, these contracts are typically over-the-counter (OTC), and are customized to suit the specific needs and requirements of both parties. In Web3, new mechanisms are being used to accelerate forward carbon finance.

Unlike forwards which gravitate towards the bespoke, futures contracts are standardized products, helping mitigate counterparty risk and bring additional liquidity to the market. Carbon futures have long been used in traditional finance to speculate or hedge against the future prices of carbon allowances. For instance, a deal between Boston Consulting Group (BCG) and CarbonCapture procured 40,000 tons of atmospheric carbon dioxide removal services over five years.

Example

Platforms like SolidWorld are tokenizing carbon forwards in the form of CRISP tokens, which are directly tied on a 1:1 basis with premium prepaid forward carbon credit. In 2023, this marketplace offered an attractive return of 13.6%, split into 9.5% in USDC and 4.1% in CRISP-M, the flagship mangrove restoration pool.

Solid World - Real World Yield. Real World Impact.