Hong Kong can be ‘super connector’ for Chinese and global carbon markets

Jeff Huang, founder and chief executive of AEX Holdings (Hong Kong), believes that Hong Kong has the opportunity to play a key role as the “super connector” between Chinese and global commodity markets.

From compliance carbon markets to green maritime fuels like hydrogen, ammonia and methanol, Hong Kong can use its market infrastructure to better price commodities out of China.

The opportunity is being sharpened by regulatory tailwinds on both sides. Europe's Carbon Border Adjustment Mechanism, phasing in from 2026, will impose carbon costs on Chinese exports of steel, cement and aluminium, creating urgent demand for hedging tools.

At the same time, China's national Emissions Trading System — already the world's largest by volume — is expanding to cover heavy industry, while the country's voluntary carbon offset market was relaunched in 2024 after a six-year suspension.

Last year, through a grant from Hong Kong digital tech hub Cyberport, AEX tested a three-week carbon forwards trading simulation with more than 15 participants across the carbon and commodities sectors and financial institutions.

The electronic over-the-counter trading platform tested the waters in terms of trading software and risk management, and aims to build momentum to eventually do live trading. It also aims to incorporate international best practices in trading and central clearing through a Securities and Futures Commission regulated marketplace.

By building a transparent and robust financial market for carbon, the goal is to lower the cost of decarbonisation and energy transition but a key challenge is to attract liquidity.

Huang believes that using a regulated market to promote competition and best practice while enabling international access will be key.

“At the end of the day, broad stakeholder education as well as understanding the political and market dynamics will determine whether such a market will succeed,” he said.

Looking ahead, Huang sees Hong Kong playing an important role as super connector for a potential carbon derivatives system bridging China and the world.

“By using the same ‘Stock Connect’-like plumbing system and infrastructure already in Hong Kong, this system could create onshore and offshore synergy that will drive liquidity and international participation,” he said.

Nodal Exchange in March launched financially settled California Carbon Allowance futures and corresponding options on futures, expanding its suite of carbon products.

Archax in May said it has partnered with UK Carbon Registry for the launch of a new regulated note structure providing institutional access to carbon-linked digital assets, enabling institutional and professional investors to access the product via established market frameworks.