In the year 2008, IDEAcarbon, a global specialist advisor in carbon finance, played a pivotal role in a noteworthy development when India’s Multi-Commodity Exchange (MCX) announced its plans to introduce a range of innovative carbon-related derivative instruments. These instruments were to receive prestigious ratings from IDEAcarbon.
Joseph Massey, the Chief Executive of MCX at that time, declared, “We are preparing to launch carbon products with IDEAcarbon’s ratings, a strategic move that will bestow them with enhanced credibility, positioning them on par with globally traded counterparts.”
Shandi Modi, the visionary founder and CEO of IDEAcarbon, expressed the momentous impact of this Memorandum of Understanding (MoU). He remarked, “This MoU represents a key step in developing the carbon market in India and internationally as for the first time trading will be based on the goal of the Indian government and corporate leaders.” This underscored the alignment of this initiative with the strategic objectives of both Indian governmental policies and corporate leaders, signifying a significant milestone in the journey to develop the carbon market.
MCX had already introduced two carbon-related instruments on its platform. The focus of attention, though, was on the collaboration between IDEAcarbon and MCX, which promised to elevate the credibility and appeal of carbon-related financial instruments.
Under the terms of their agreement, IDEAcarbon assumed the role of global strategic advisor for MCX, specifically in the domains of climate change policy and opportunities in carbon markets. This strategic partnership aimed to enhance MCX’s positioning and influence in the dynamic landscape of carbon finance.
IDEAcarbon had recently established a wholly-owned subsidiary, the Carbon Ratings Agency, which was pioneering the provision of independent credit ratings for carbon assets across diverse technologies and geographies. This agency’s innovative approach involved delivering a comprehensive assessment of both regulatory risk and market-internal risks associated with carbon assets. The carbon ratings spanned from AAA for the highest quality and lowest risk offset assets, to C and D for the highest risk assets.
With the anticipated growth of the project-based carbon offset market to at least €200 billion by 2020, substantial enhancements in market functionality, particularly in transparency and risk management, were needed to fulfil this potential. The Carbon Ratings Agency addressed this by providing comprehensive insights into risks, instilling confidence among buyers and sellers in the carbon market.
The Carbon Ratings Agency’s management team and ratings committee comprised a diverse set of experts, including ratings specialists, financial market professionals, UN climate change negotiators, and former senior managers from development agencies such as the World Bank. This diverse expertise ensured a comprehensive evaluation of the full range of risks associated with carbon projects.
MCX had also introduced futures trading in carbon credits in 2008, with contracts expiring in November 2008 and February 2009. These contracts featured a trading lot of 250 tons, a tick size of 50 paise, and an initial margin requirement of 6 percent. This initiative reinforced MCX’s commitment to expanding its role in the carbon market under the expert guidance of IDEAcarbon, emphasising their influential role in shaping the carbon finance landscape and improving the market’s functionality and credibility.
The collaboration between IDEAcarbon and MCX reshaped the carbon finance landscape, infusing the market with a new level of rigour and trust. This partnership not only enhanced the credibility of carbon-related products but also solidified MCX’s position on the global stage, as the world recognized the importance of carbon ratings and their impact on environmental sustainability.
This information is repurposed from the original print in Economic Times (2008), Reuters (2008), Business Standard (2008) and the Times of India (2008).