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Carbon Credit Losers

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Combine regulatory carbon credits and voluntary carbon offsets, and you’ve got a brand-new market with explosive potential. But not everyone can, or will, profit from the new markets.

The irony is that many of the carbon credit losers are entities that should seem like a perfect fit for any planet-friendly initiative. Instead, these seemingly-obvious carbon winners are actually losers. Let’s look at the list.

Farmers (small ones)

In the last article, I told you about a farmer who won big due to carbon credits – $150,000 big. But that farmer had a secret ingredient that the vast majority of American farmers simply don’t have.

His farm was a 10,000 acre farm.

The trick is that carbon credits aren’t actually that expensive right now on the voluntary market. His credits sold for a little over $15 a ton, and he sequestered about 8,000 tons of carbon.

The math simply doesn’t work for smaller farms. That means that one prime candidate for the carbon credit movement will likely get bypassed entirely – organic farms.

That’s right. Organic, carbon-conscious farms that go out of their way to be planet-friendly will likely miss out on carbon credits . . . which are designed to reward carbon-conscious companies that are planet-friendly.

Most organic farms simply aren’t big enough to compete for carbon credits at scale. They don’t have enough acreage to hold much interest for the third-party exchanges who coordinate carbon sales. The average size of an organic farm in the US is 285 acres. That’s even less than the average size of a regular farm, at 444 acres.

And it’s less than 0.03% of that 10,000-acre farm that won big. Apply the same percentages to the original $115,000 amount, and your average organic farm in the USA would be eligible to receive roughly $3500 in carbon credits for projects that are often multi-year undertakings.

Those small farms stand to gain pennies, if anything, while larger corporate farms gobble up the credits. That makes small, organic, low-carbon-emissions farms into carbon credit losers.

Nuclear power plants

Nuclear is the obvious answer to so many emissions problems. Need something that will efficiently replace all your natural gas and coal power plants? Go nuclear. Want to provide lots of both blue-collar and white-collar jobs? Go nuclear.

And yeah, want an energy source that is nearly greenhouse gas free? Go nuclear.

But nuclear power suffers from heavy regulations and an incredibly lengthy construction time – from 7-8 years to well over a decade, depending on the country and size of plant.

And with all the emphasis on cutting emissions NOW, nuclear plants will lose out.

Who will buy nuclear carbon credits when they can buy credits from a wind farm or a water reclamation project? Especially when those projects can be ready in a matter of months or a couple of years.

Large nuclear energy plants are a carbon credit loser.

Oil and natural gas companies

Media tends to focus on the continuing massive demand for oil, and then panic that the global economy will never wean itself off fossil fuels.

The fact is, oil and natural gas is already suffering a slow death by a thousand cuts, and carbon credits are one of them.

On the voluntary market, carbon credits are a way for consumers to directly reward renewable energy companies. Think of them as a free-market subsidy, providing an extra income stream for green energy producers. Fossil fuel companies will have to compete with green energy companies that are increasingly profitable and can scale up quickly.

And it isn’t just the carbon credit issue. Automobile companies, under both market and government pressure, are building more electric vehicles and fewer internal combustion engines. Governments like the EU and the UK are taking steps to ban the sale of new internal combustion engine cars as early as 2030, forcing companies to make the shift to electric.

Electric cars are just the tip of the iceberg. Electric cars paved the way for the same technology to be used in boats. As that technology scales up, the demand for fossil fuels will slowly but steadily decrease.

And all along the way, carbon credits will go to green energy initiatives and emissions-reducing projects. Fossil fuel companies will largely lose out on the carbon credit bonanza.

Transparency (at first)

Carbon credits are a new frontier for investors and startups alike. The voluntary carbon offset market is especially wide-open. Right now, nearly any earth-friendly project can start to look like a legitimate offset.

But not all carbon offsets are created equal. Without an external regulator to weigh the impact of one project against another, entities purchasing carbon offsets rely on the trustworthiness of the third-party vendor.

In these early days of the carbon offset markets, there’s less transparency, and less of a chance to accurately determine good projects from bad ones.

As entities develop better metrics to track the effectiveness of carbon offsets, transparency will improve. But for the short term, until the markets adjust, transparency is a carbon credit loser.

Every emerging market opens new vistas to investors.

Find the peaks.

Avoid the valleys – don’t be a carbon credit loser.