As carbon markets have developed, forward transactions have become common place, but have lacked transparency, until now. Markit's role as a global financial markets registry is to ensure transparency and traceability to all participants. We have further extended our offering to the carbon market to enable the listing of contractual rights to the future delivery of credits.

Upon reviewed validation documentation, the Markit Environmental Registry lists those units that are pending issuance into the Pending Issuance Unit Registry, attaches a tracking number to them, and provides visibility to the market of each unit throughout its lifecycle. This is a world first for carbon and has the potential to unlock funding, transaction visibility and real value for the carbon market and other environmental markets.

A Pending Issuance Unit is a unit that represents a contractual right to an anticipated delivery of an emission reduction credit. These units can now be listed, held and tracked on the Markit Environmental Registry.

About Future Carbon Assets

For some time in the voluntary carbon market, there have been increasing volumes of forward contracts being traded between sellers and buyers. These forward contracts usually involve initial payments that help cover up-front project costs in consideration for the subsequent delivery of credits when they are verified. There has been no tool to record these transactions or bring traceability or transparency to them, until now. Markit Environmental Registry has recently announced that these forward transactions can now be represented through the listing of rights to these anticipated credits. In the Markit Environmental Registry these units are called Pending Issuance Units (PIUs) and can now be listed and tracked through the registry infrastructure.

In other financial markets, forward trades have been listed and transacted on exchanges and Over-The-Counter (off exchange) for many years. Examples of other types of derivatives listed and traded in this way include options and deferred purchase agreements. In most instances the asset being listed will be a right to delivery of the underlying issued asset that is being traded. However, there are limited examples where an option may be created over shares that have not yet been issued. Similarly, where deferred purchase agreements are listed it is not uncommon for the asset which is ultimately delivered to be different to the asset referenced in the agreement (but that nevertheless has the same value as the referenced asset).

The PIU Registry provides users of the Markit Environmental Registry with comfort about the transparency and traceability of contractual rights to the anticipated delivery of emission reduction credits.

When the potential emission reductions or removals represented by the PIUs are subsequently verified, then under authorisation from the relevant Standard, Markit Environmental Registry will issue the corresponding credits. However, to avoid double counting, the PIUs that previously reflected the contractual rights to the anticipated emission reductions or removals are cancelled before the new verified credits are issued.

Until now it has been a matter for the project developer to manage that process, but Markit can now manage the interface between the project developer and the Registry user and help facilitate ultimate delivery of the credits for all parties.

PIU Public View

The Markit PIU Public View is a facility whereby anyone can view the PIUs listed with Markit. The PIU Registry is distinct from the issued credit Registry in that it reflects the units pending issuance in the Registry and therefore represents the future rights to a credit once the project achieves the anticipated emission reductions or removals in accordance with the Standard.

Markit Environmental Registry will list and manage PIUs as set out below:

Listing of PIUs:

• The Project Proponent requests that the Markit Environmental Registry lists PIUs for the credits it anticipates will be issued from a project activity being implemented (i.e. emission reductions or removals). This request must be accompanied by corresponding validation documentation (as required by the relevant Standard and the Markit Environmental Registry).

• The validation documentation must clearly identify when the actual emission reductions or removals are expected in each future year up to 10 years in advance of the request date (i.e. by future vintage);

• Upon acceptance and review of the documentation provided, the Markit Environmental Registry lists one unit for every anticipated credit that is pending issuance, namely PIUs, to the project developer's account with a unique tracking number and volume information.

• PIUs therefore represent contractual rights to the anticipated delivery of the relevant credits that will be issued once the environmental benefits under the Standard have been verified in accordance with that Standard;

Sunset dates:

• Each PIU is allocated a sunset date that is up to six months after the expiry its vintage.

• If it becomes clear that credits for that project will not be verified and issued by the sunset date, then the PIUs for that vintage will be cancelled (arrangements can be implemented to extend the PIUs beyond the sunset date if there is evidence to justify the delay in the project).

• The concept of a sunset date manages the likelihood that a project may not achieve the verification volumes estimated.

Transfer of PIUs:

• PIUs may be transferred within the Registry just like credits, on the basis that they are already the subject of a private forward sale arrangement between the project developer and a third party buyer.

Cancellation of PIUs and issuance of credits:

• When the relevant verification report is submitted prior to the sunset date of the PIUs, the relevant PIUs will be cancelled and the corresponding credits will be issued into the account of the project developer with usual credit-tracking serial numbers.

• The Registry will work closely with the project developer to transfer the newly issued credits into the registry account of the person who has purchased the credits anticipated by the PIUs in accordance with the terms of the emission reduction purchase agreement for that project;

• If there is a discrepancy between the volume stated in the PIU listing and the actual credits issued, the Registry will deliver the credits in the same order in time in which the PIUs were listed;

• If no verification report is submitted by the expiry of the sunset date for the relevant PIUs, they will automatically be cancelled on that date.

Pending Issuance Units can also be listed on the RFI Platform.