Carbon Credit Brokers Bring in More Revenues and Critics

Jennifer L
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Carbon Credit Brokers Bring in More Revenues and Critics

All the money flowing into the carbon credits market has been a windfall for brokers.

Carbon credit schemes are an integral part of the Paris Agreement serving a vital role in cutting emissions.

In fact, carbon credits have blasted in the past year as companies seek to offset their emissions. Billions of dollars are pumped into this space to mitigate the climate crisis.

Carbon credits within the voluntary market can grow to around $150 billion. This sum will go to emerging and developing nations where most climate projects are.

Investing in Offset Project that Brokers Carbon Credits

A carbon offset project refers to any undertaking that removes or avoids emissions. Common ones are renewable energy, energy efficiency, reforestation, and other nature protection efforts.

Those projects undergo verification processes to ensure the quality of carbon credits issued.

There are a couple of carbon project certification and verification standards. The most popular one is the Verra or Verified Carbon Standard. While others are the Gold Standard, the American Carbon Registry, and the Climate Action Reserve.

Carbon credits generated by the projects represent a certain amount of emissions reduction or removal. Each credit equals one ton of CO2 avoided or removed from the air.

Money from sales of the credits allows developers and brokers to pay for project verification and monitoring. This is to make sure that projects bring the climate impacts they promise through the offset.

More importantly, they help grow the market by enabling the flow of funds to more carbon projects. They also play a crucial role in reaching climate goals of halving emissions by 2030 and net zero by 2050.

Brokers’ Role in Generating Carbon Credits

Investments in this market had soared as prices rise fast which led to more CO2 reduction or removal. And brokers play an essential role in connecting buyers and sellers in this space.

Brokers help get carbon offset projects off the ground by providing financing and marketing expertise. Those projects can be very costly and take a lengthy process to verify. This is where brokers come in and offer help to project developers.

As one forest project developer puts it,

“Brokers are important, particularly in the early days when demand was limited and prices were low… It was about trying to attract a reseller that could make your project attractive.”

Also, brokers of carbon credits are also taking risks in the projects. For instance, they agree to take upfront or fixed prices for the carbon credits.

One broker group also said that 80% of the revenues from the sales of carbon credits was for buying offsets and developing more projects. Other portions were for paying marketing, admin, and contingency costs.

Other costs include long-term monitoring, reporting, and verification (MRV) of the project. Some retailers are covering these costs if they’re also the ones creating the project.

Other brokers are also directing profits from carbon credits to back new projects like South Pole. They said that it’s better to fund projects than draw investors who may ask for higher returns. They’re retaining around 10%-20% of the carbon credit sale price.

Apparently, carbon credit brokers face several challenges and risks that project developers undergo.

But, a couple of critics are also thrown at them in today’s booming market for carbon credits.

The Need for Brokers’ Transparency in Pricing Carbon Credits

As one carbon project developer said,

“Transparency is enormously important for carbon finance to work effectively.”

This pertains to showing costs by brokers who resell carbon credits to developers.

Transparent transactions involving carbon credits are critical same as other crediting schemes.

Typically, developers get a percentage of the price the broker sells the credits for. Or they receive a fixed amount per credit regardless of the sale price.

But some developers question whether brokers offer value for money.

One developer claimed that some credit retailers are having big mark-ups for “not a lot of value”. They also said that the amount of money that went to them was “completely non-standardized” while noting that,

“Difficult to get information on where the cash went. . . there’s a need for increased transparency”.

While transparency is critical, suggesting that brokers get large and unfair profits at the expense of developers is false.

As mentioned, there are several factors affecting the final price of carbon credits. These include the costs of setting up the project, verification, and monitoring.

Other major price considerations are market dynamics (supply and demand) and services provided by the broker.

Moreover, brokers of carbon credits may also cover costs related to the following activities:

  • Conduct enhanced due diligence and ensure the quality of carbon credits,
  • Consult with clients to build portfolios that deliver business value to secure private sector finance,
  • Run processes and systems that fulfill carbon credit purchases and retirement,
  • Ensure corporate claims based on offsetting are robust, and
  • Research and innovate to improve operations.

Ultimately, the recent price increases in carbon credits can help fund new projects that were not possible before. A lot of investments were made in innovative carbon removal projects. They offer technological solutions to draw CO2 from the air.

This trend makes business cases valid both for developers and brokers alike.

Best of all, it allows for more carbon credit investments to flow where they’re needed. And that’s to carbon offset projects that contribute to reaching climate goals.

Carbon Credit Platform Pachama Secures $55 Million Funding

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Carbon Credit Platform Pachama Secures $55 Million Funding

Nature-based carbon credit platform Pachama raised $55 million in its latest funding round.

The venture capital firm Future Positive led Pachama’s Series B round. It’s also backed by several investors including the talk-show host Ellen Degeneres.

Pachama is focusing on saving and expanding forests across the world. It uses remote sensing and artificial intelligence to capture carbon and verify carbon credits.

Pachama’s Funding for Carbon Credit

The $55 million that Pachama raised will be for hiring new staff and driving research and development. It will also be for launching more projects.

This Series B round brings its total funds to $79 million. This funding will help speed up Pachama’s platform in bringing integrity and transparency to carbon credit markets.

Corporations are seeking to buy carbon credits to help offset their emissions. This is largely due to the urgent need for the world to decarbonize.

But critics said that it’s tough to assess with accuracy the amount of CO2 that forestry projects are sequestering. They believe that forest carbon capture is not scalable due to the absence of reliable data.

This is where Pachama comes in and offers a solution. For instance, its technology provides more accurate data that are credible and transparent.

Moreover, Pachama’s AI gives more assurance to buyers of carbon credits to reach their net zero goals.

The platform has been serving over 800 customers worldwide. And among them are the major companies like Salesforce, Microsoft, Airbnb, Netflix, and Shopify.

For three years, Pachama has been working with 46 project developers in 14 countries. It has also reviewed over 150 forest projects around the globe.

Currently, carbon offset projects involving forests are the most popular in reducing emissions.

They’re recognized under the REDD+ framework. It guides activities in the forest sector that avoid emissions from deforestation/degradation. It also helps enhance forest carbon stocks.

Within the voluntary carbon market, these projects get the highest prices and represent the biggest market share.

Major Investors of Pachama

Pachama’s Series B funding round was led by Future Positive. Its founder, Fred Blackford, said that scaling carbon credit markets have a vital role in the collective action to decarbonize.

He added that,

“Pachama is building the infrastructure to support functioning carbon markets… Plus, it provides transparency and accountability around how carbon credits are issued and transacted.”

Pachama’s previous investors are Bill Gates’ Breakthrough Energy Ventures and LowerCarbon Capital. While the new ones apart from Degeneres include:

  • actress Portia De Rossi,
  • PLUS Capital,
  • Reddit co-founder Alexis Ohanian,
  • ReGen Ventures, and
  • 20VC

Forests are a proven and cost-effective means of removing carbon from the atmosphere. But the present afforestation market is costly and fragmented.

Pachama’s technology addresses this concern by making carbon removal accessible for firms of any size. And so, the carbon credit platform enables afforestation to scale.

As per Carmichael Roberts of Breakthrough Energy Ventures,

“It would be key to documenting carbon removal and accelerating carbon neutrality and negativity”.

What Does “Net Zero Emissions” Really Mean?

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What Does “Net Zero Emissions” Really Mean?

The recent report from climate scientists is crystal clear: the world must act now. That means limiting global warming to 2 or 1.5 degrees Celsius.

But what does this entail?

Cutting a lot of emissions and reaching net zero. And this is urgent.

Embracing the urgency of this matter, more and more entities are pledging their net zero targets. There are now over 80 nations and hundreds of businesses that laid out their net zero roadmaps. These include the world’s supper emitters – China, the United States, the European Union, and India.

But what does achieving net zero emissions really mean?

This guide will explain the key facts and insights about this world-saving concept.

What Does Hitting Net Zero Emissions Mean?

Being at net zero emissions refers to a point where the GHG emissions released by humans into the air are balanced by the emissions removed from the air.

Think of it as a weighing scale. Emitting carbon and other GHG tips the scale and the net zero aim is to get the scale back into balance.

Reaching this balance requires two things.

  1. Reducing the emissions released from human activities closest to zero.
  2. Removing the emissions that are hard to reduce.

Getting to net zero means we can still generate some emissions. But as long as they are offset by initiatives that reduce GHG already in the atmosphere.

There are plenty of carbon removal solutions and technologies being developed to suck in CO2 from the air and store it.

So, emission reductions and removals go together in the world’s race to net zero.

When Must The World Get to Net Zero?

Every new ton of carbon emitted into the atmosphere is heating the planet more. The sooner the world stops adding CO2 and other GHG to the air, the better. But what’s the timeline for this?

As per IPCC’s latest report, to honor the Paris Agreement and limit temperature rise at 1.5°C, global emissions should be at net zero by 2050.

Still, hitting net zero in 2050 is too far distant away. Short-term emissions reduction targets are necessary. The Paris accord requires countries to reduce emissions by 7% each year this decade (from 2020 to 2030).

Climate science suggests a global timeline to be at net zero under two scenarios: limiting warming to 1.5°C and to 2°C.

The figure below shows this timeline. It separates two significant emissions – carbon dioxide and total GHG.

net zero emissions timeline

What the picture depicts is that achieving net zero CO2 emissions must be by 2050 (1.5°C) or by 2070 (2°C) at the latest. Whereas for non-CO2 emissions, it means by 2060 and by the end of the century.

The sooner emissions peak, the more realistic hitting net zero becomes.

This scenario results in less dependence on removing carbon beyond 2050.

But this timeline doesn’t say that all countries need to be at net zero at the same time. There are a lot of factors to consider here including:

  • Responsibility for past GHG emissions
  • Per-capita emissions
  • Capacity to act

This suggests that the deadline for the wealthier, higher emitters could be earlier. The opposite holds true for poorer emitters.

For instance, India has net zero targets by 2070 while Saudi Arabia and China both pledged to be at net zero by 2060.

Whereas the US, EU, UK, and Japan have all committed to hitting it by 2050.

But it’s crucial not just for countries but also for companies to have net zero targets. More so, their near-term emissions reduction goals must align with their net zero pledges.

Why It’s Vital to Align Interim CO2 Reduction Targets with Net Zero Plans?

Entities often set their net zero targets by 2050.

But to ensure that they’re on track toward their net zero pledge, their long-term goals must inform their interim targets.

This is critical to prevent locking in carbon-intensive and non-resilient infrastructure and technologies. It can also help them align the costs by investing in projects that can cut emissions now and still do so years later.

This is more vital for countries to design consistent policies that support reduction efforts in the long run. Also, countries party to Paris Agreement and COP26 agreed to submit their climate plans.

Such plans form part of their NDCs or nationally determined contributions. The NDCs outline interim emissions targets by 2030 and align governments’ climate plans with their near-term goals.

Most countries with net zero targets are starting to incorporate them into their interim NDCs. Here’s the current global map of countries that have net zero ambitions and their status.

net zero emissions
Source: ClimateWatch Net Zero Tracker

More importantly, the corporate world had also paved its path toward net zero emissions.

World’s Heaviest Emitting Companies With Net Zero Targets And Strategies

According to BloombergNEF (BNEF) analysis, 2/3 of the world’s heaviest emitters set their net zero goals. These focus companies (100+) represent over 80% of global industrial GHG emissions.
 
BNEF estimates that the net zero targets of those companies will cut emissions by 3.7 billion metric tons of CO2 equivalents in 2030. And by 2050, reductions will become 9.8 billion Mt. This is equal to over a quarter of global GHG emissions today.
 
The chart below shows the emission reductions for those companies per sector.
 
companies net zero emissions targets

The oil and gas sector accounts for over a third (3.4 GtCO2e) of targeted reductions, more than any other sector.

European oil majors have set net zero emissions targets by 2050 last year like Shell and Total. They already made some progress by investing in low-carbon initiatives.
 
The same goes with some US oil majors ExxonMobil, Occidental Petroleum, and Chevron.
 
In particular, Exxon pledges to reach net zero global operations by 2050. Part of this climate goal is a couple of key promises such as:
  • $15 billion towards reducing GHG emissions over the next six years
  • Better processes to reduce methane gas leakage

  • To reach net zero within the U.S. Permian Basin shale field by 2030

Exxon also bid the highest to get offshore properties to use for carbon sequestration.

Likewise, Chevron also announced a $10 billion dollar investment into low carbon initiatives as part of its net zero targets.

Half of that budget will be for reducing emissions from fossil fuel initiatives. The remaining half will be for hydrogen energy and renewable fuels.

Specifically, Chevron will increase:

  • Renewable fuels production to 100,000 barrels per day
  • Renewable natural gas output to 40 billion British thermal units (BTUs) per day.
  • Hydrogen production to 150,000 tonnes per year
  • Carbon capture and offsets to 25 million tonnes per year.

Meanwhile, Occidental Petroleum has also set its net-zero ambition by 2050. Like other oil majors, Occidental also invests in direct air capture (DAC) technology as one of its net zero strategies.

The firm expects to pull as much as 1 million metric tons/year of CO2 emissions via DAC.

The second heaviest emitting sector is the utilities with 2.3GtCO2e.

Italy-based Enel, one of the world’s biggest utility firms, has an initial net-zero emissions target by 2050 but moved it to 2040 instead. The firm also expressed to exit coal generation by 2027 and gas by 2040.

Enel plans to invest $160 billion to fund its net zero strategies to reach its ambitious goal. Part of that is to install around 154GW of renewable capacity by 2030.

Duke Energy also set ambitious climate goals. That’s to have at least a 50% reduction in CO2 emissions from electricity generation in 2030 on its way to net zero by 2050. They’re also targeting net zero methane emissions for their natural gas distribution by 2030.

The third sector with high emissions is manufacturing (1.4GtCO2e) which includes automakers.

While the utility companies are turning to renewables, car manufacturers are becoming electric.

Tesla led the way in its all-electric lineup and amassed huge carbon credit sales for it. It also produces green products that further add to its credit generation. Yet, it still hasn’t revealed its net zero goals.

Stellantis, on the other hand, has pledged to hit net zero emissions the soonest time by 2038.

While it used to rely on Tesla to meet its regulatory emissions, the European carmaker managed to cut down its emissions.

It was through its electrification ramp-up and technical improvements. This includes its battery electric vehicles (BEVs) and low-emission vehicles (LEVs) production.

To become carbon net zero in 2038, the carmaker focuses on these main levers:

  • Energy-efficient projects and energy management in all plants
  • Site compression and improvement of industrial footprint
  • Use and production of renewable energies
  • Technical innovations (e.g. Hydrogen, Power to gas)
  • CO2 capture and storage

Other manufacturers also made significant strides in their way toward decarbonization. Take for example the case of Del Monte Foods.

Del Monte Foods has invested significantly in renewable energy and reduced food waste. It also doubled capital investment in energy-efficient production operations.

The company’s strategy to reach net zero emissions by 2050 is to invest more in:

  • Renewable energy,
  • Automation,
  • Transportation efficiency,
  • Regenerative agricultural practices, and
  • Eco-friendly packaging innovation

Though they’re not directly specified as a sector in the chart above, the airlines are also one of the big emitters.

In fact, the global aviation industry generates around 2.1% of all CO2 emitted by humans. Within the transport sector, it accounts for 12% of emissions compared to 75% from road transport. 

Here’s how the major US airlines are dealing with their net zero targets.

airlines carbon net zero plan

The Way to Net Zero 

It is certain that the world needs to take action and treat climate change as an emergency.

And the only means to face this emergency heads on is for countries and companies to hit their net zero emissions.  

There’s no single approach to how the world reaches net zero by 2050 or earlier. It requires a combination of various initiatives or strategies as to how different companies are doing it.

Another major element of that is setting near-term climate targets that align with long-term goals.

This will help investors assess the climate ambitions of their portfolio companies. It will also help corporations to have a good benchmark as they go on their journey to net zero.

Stanford Receives $1.1 Billion Donation From John Doerr for Climate School

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Stanford Receives $1.1 Billion Donation From John Doerr for Climate School

John Doerr donated $1.1 billion to Stanford to build a new climate school.

Mr. Doerr’s gift is the highest ever given to a university for building a new school. It will be named the Stanford Doerr School of Sustainability.

The gift makes the Doerrs the lead donors of climate change research and scholarship. It also places Stanford at the center of public and private efforts to end fossil fuel reliance.

The Stanford New Climate School

The billionaire said the study of climate change and sustainability would be the “new computer science”.

Stanford’s new climate school will hold traditional academic departments on climate and sustainability. Related topics would be planetary science, energy technology, and food and water security.

It will also have several interdisciplinary institutes and a center on creating climate policy and technology solutions.

As per Stanford president Marc Tessier-Lavigne,

“The new school will focus on climate policy issues… And on asking what would it take to move the world toward more sustainable practices and better behaviors.”

Other big universities are also developing interdisciplinary schools focused on climate change. The Columbia climate school is an example. But the Doerr School of Sustainability will be among the biggest and best-funded.

It will launch with 90 faculty members on board already and will add 60 more over the next 10 years. It’s Stanford’s first climate school and new institute in 70 years.

Alongside Doerrs’ gift is another $590 million Stanford had raised to fund the construction of two new buildings.

The inspiration behind the Doerrs’ philanthropic act

The first inspiration for Mr. Doerr’s plight to address climate change was in 2006. It was after his family watched Al Gore’s film “An Inconvenient Truth”.

He said that after dinner, his daughter told him that it was his generation who created the climate crisis and that they better fix it. It all started there and Mr. Doerr, with his wife, give gifts to help fight climate change.

Kleiner Perkins, a venture capital firm owned by Mr. Doerr, made several investments in clean energy companies. Speaking of his family’s philanthropic acts, Mr. Doerr said,

“Climate and sustainability are the most important of our causes… We hope that the gift would inspire other wealthy individuals to spend their fortunes combating climate change.”

Mr. Doerr is part of a growing number of ultra-rich men donating huge sums of their fortune to tackle global warming.

Amazon founder Jeff Bezos said he was committing $10 billion of his own money to a new climate initiative. It’s called the Bezos Earth Fund.

Also, Mr. Bloomberg said he would spend $500 million to help close coal-fired power plants. Whereas Bill Gates had put billions to tackle climate-related issues through various means. These include the Breakthrough Energy and the Bill and Melinda Gates Foundation.

Stanford’s new climate school open for more gifts

The new climate school’s inaugural dean is Arun Majumdar. He’s the advisor for the Obama and Biden administrations on energy issues.

He said that the school will offer context and analysis around climate change issues. But it will not go into the political arena. He added that,

“We will work with and accept donations from fossil fuel companies… Those that want to diversify and be part of the solutions, and they want to engage with us, we are open to that.”

Prometheus to Supply Carbon Neutral Fuel in 2023 Despite Skeptics

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Prometheus to Supply Carbon Neutral Fuel in 2023 Despite Skeptics

Prometheus Fuels has made deals to deliver millions of gallons of carbon neutral fuel despite missed targets and skeptics.

Prometheus aims to remove CO2 from the air and turns it into zero net carbon fuel at a price as cheap as dirty gas. This fuel is “carbon neutral” because producing it uses only renewable energy sources.

This $1.5 billion startup develops direct air capture methods that filter CO2 to create commercially viable fuels.

The firm’s carbon capture method offers a great promise to replace oil and gas with zero net carbon fuels.

But many are skeptical if the energy startup can achieve its ambitious mission.

The Technology Behind Prometheus Carbon Neutral Fuel

The company calls its CO2 capture technology the Titan Fuel Forge. It’s a prototype that combines direct air capture and a novel nanotube membrane with a device that sucks CO2 from the air.

This unique system converts the captured CO2 into alcohol. Then it concentrates the alcohol to get rid of the energy-intensive distillation process.

In a year, a single Titan Fuel Forge can turn 900 tons of CO2 into 100,000 gallons of gas, diesel, and jet fuel. These fuels have identical molecules to the ones used in cars and planes.

Prometheus calls its final fuel electric fuels (e-fuels) with no agricultural inputs and no waste products. With this technology, the startup aims to reduce CO2 emissions by over 20 gigatons a year.

The image below shows the key processes involved in producing the firm’s e-fuels

Prometheus Titan Fuel Forge
Prometheus Titan Fuel Forge

A commercial-scale version of Prometheus carbon neutral fuel will use power from solar and wind energies.

Investors have poured money into the company. The firm says it has raised more than $50 million from various financing partners. The major ones are BMW’s investment arm, shipping giant Maersk, and Y Combinator.

It also made deals to sell millions of gallons of its fuels to American Airlines and other airlines. It was even specified by the Biden administration’s shift to sustainable aviation fuels.

Prometheus earned its Unicorn status with a $1.5 billion value after completing its venture round last year.

Yet, there are still many skeptics.

Prometheus Dubious Claims and Failed Promises

Last April, Prometheus said that it expects to have 500 carbon capture plants working by 2030. Together they can produce around 50 billion e-fuels a year and capture about 7 billion of CO2 by 2030.

If Prometheus carbon neutral fuels will be produced at the scale and cost ($3 a gallon) promised, it will indeed help address the climate crisis.

It will provide a cheap means to decarbonize the automobile and aviation industries. It can also help limit fossil fuel extractions and end oil refineries.

But a review from a team of experts is dubious of the company’s claims. Here’s a quick rundown of the major skeptical points of the company’s e-fuel claims.

Missed own targets.

Prometheus initially targeted to sell its carbon neutral fuels by 2020. But up until now, this hasn’t happened yet. And the firm still has to work on its device to produce fuels that can power cars today.

High costs of running the technology.

The unique carbon capture technology developed by Prometheus is straightforward chemistry. But the problem is that DAC equipment and electrolyzers are both expensive to make and run.

It needs considerable heat to separate the captured CO2 from the sorbents and concentrate the gas. Plus, it also takes a lot of electricity to power the electrolyzers.

A study on electrofuels found that with standard technologies, a gasoline equivalent would cost about $16.80 a gallon. And that’s even at a full commercial scale.

Such costs may fall to around $6.40 in the next decade and $3.60 by 2050. But this happens only with significant cost reductions in electricity and equipment used.

Solar and other clean energy costs.

Prometheus banks on its solar cost estimates: 2 cents per kilowatt-hour. This is due to the Los Angeles plan to buy renewable power for the said amount.

According to some, the unsubsidized cost of building and drawing power from a big solar project is around 3 cents/kWh.

Plus, relying fully on solar and wind power, which is the promise of Prometheus carbon neutral fuel, requires a couple of things.

The plants have to be very cheap, automated, and flexible to ramp up and down as electricity generation fluctuates.

Very aggressive process.

Lastly, the firm didn’t allow big venture capital firms with reputable carbon removal rigor to vet its scientific claims.

Experts in this field said that the costs and technical claims of Prometheus seem so unlikely. Making it a commercial reality will also take several years.

And most important, the firm has to be open in its processes and work under clear oversight and verification. This is to ensure that its fuels are carbon neutral indeed.

Investors Still Confident in Prometheus Carbon Neutral Fuel

Despite all those doubts and questions, Prometheus’ CEO and founder, McGinnis said that they’re all doing good. Delays are due to the pandemic and supply chain issues.

He further added that they’re not facing scientific challenges and responded that,

“There’s nothing between us and shipping fuel other than scaling… Skeptics that weren’t otherwise conflicted would be convinced if they had access to our data, models, and methods.”

The firm has also begun speaking with regulators about the steps they need to take to sell the fuel directly.

It will also use an impartial means of carbon neutral certification when it’s available. And that there will be more ways to verify how Prometheus carbon neutral fuels are produced, including a thorough analysis of the carbon.

Now that the firm has raised its Series B funding round, the CEO plans to hire quickly and move forward much faster. And Prometheus’ investors remain optimistic, too.

The chief executive at BMW i Ventures said that,

“If he (McGinnis) is successful, this is going to be a really big game-changer—and the odds aren’t against him.”

They’re confident that the firm is on track and that Prometheus carbon neutral fuel is “right around the corner.”

The firm plans to show its fuels later this year and may begin shipping them commercially in 2023.

Many other carbon removal startups are also in the same stage of perfecting and scaling up their carbon capture technologies.

Major Banks Favor Fossil Fuel Financing Over Climate Goals

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Major Banks Favor Fossil Fuel Financing Over Climate Goals

Most of the world’s largest banks and asset managers are failing to put into action their climate goals.

Three major banks recently rejected shareholders’ proposals to align lending practices with climate targets while three more will do the same.

Shareholders of Citigroup, Wells Fargo, and Bank of America passed resolutions to end support for fossil fuels. A specific resolution from Citigroup shareholders proposed that the bank,

“…adopt proactive measures to ensure that the company’s lending and underwriting do not contribute to new fossil fuel supplies.”

It was denied the same with similar resolutions from the two other banks.

Banks’ Climate Goals Versus Actions

Banks have been pumping about $4.1 trillion of financing to the oil, gas, and coal sector via loans and bond sales since the Paris Agreement in 2015. $656 billion of that was for last year only.

The three major banks named have poured a total of $789 billion into fossil fuels from 2016 to 2021. $199 billion of that accounted for 2021 financing alone.

Worse is that Wells Fargo has the biggest fossil fuel funding increase from 2020 to 2021 ($20B more).

The chart below shows the banks supporting fossil fuels, with JP Morgan topping the list.

Bank Fossil Fuels

Shareholders of those banks demanded that they act according to their climate goals. This means taking actions in line with the banking sector’s net zero commitments.

Banks have to mirror the International Energy Agency’s Net Zero Emissions by 2050 and the G20 Sustainable Finance Working Group.

Also, all these financiers have signed up to the Glasgow Financial Alliance for Net Zero, or GFANZ. This alliance works to align banks, insurers, and asset managers with the goal of hitting net zero by 2050.

GFANZ covers two important net zero alliances in the financing sector.

  1. The Net Zero Asset Managers alliance
  2. The Net-Zero Banking Alliance.

Both commit to aligning lending and investment portfolios with net zero emissions.

But what occurred during the banks’ Annual General Meetings tells a different story.

Banks Denied Shareholders’ Desire to Embrace Climate Goals

Only 12.3% voted for Citi to adopt lending practices that are consistent with climate goals.

The same pattern emerged in Wells Fargo and Bank of America, with about 11% of votes for each bank.

Research from InfluenceMap also revealed similar climate change responses from the financial sector. Only 11 out of 30 largest traded financiers and banks even have reliable climate goals to cut emissions.

Likewise, Europe’s biggest banks gave $32 Billion (£24B) towards oil and gas company expansions.

A researcher noted that,

“There is a stark disconnect between what they [financing firms] say about climate change and what they’re actually doing.”

Climate advocates in the sector contended that it’s not enough to set a net zero target. What’s needed is a credible plan for achieving those targets as emphasized in the resolutions.

And the sure-fire way to that is to stop new fossil fuel expansion and new supply, immediately.

Yet, management from the three banks rejected such proposals focusing on climate goals.

Citi CEO Jane Fraser, for instance, opposed the resolution saying that,

“It’s not feasible for the global economy, for human health or livelihoods to shut down the fossil fuel economy overnight.”

Big Asset Managers and Bankers Are Not Supportive, Too

Blackrock, State Street, and Vanguard have also most likely voted quietly against the proposal. These big three asset managers are top shareholders in Citi, Wells Fargo, and Bank of America.

They also own about 20% of America’s 6 largest banks and 20% of the average company listed on the S&P 500 index.

JP Morgan Chase, Morgan Stanley, and Goldman Sachs are also expecting to face similar resolutions in the coming weeks. But speculations indicate that most shareholders are likely to reject them as well.

These giant financiers even lobbied the Securities and Exchange Commission to toss out the resolution. They argued that it will set inflexible and heavy restraints on their daily business.

While those biggest banks decide not to vote for climate goals, a few others have been pursuing measures that cut emissions.

And the votes for the resolutions calling on banks to pursue climate goals urgently say one clear thing.

That there’s a small yet notable number of Wall Street investors who want to do away with fossil fuels. In a figure, it’s accounted for $65 billion in capitalization.

New Enzyme That Breaks Down Plastics May Boost Plastic Credits

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New Enzyme That Breaks Down Plastics May Boost Plastic Credits

Scientists made a new enzyme to break down plastics very fast, which can boost plastic credits.

Plastic credits are eyed as the next big thing to deal with sustainability, next to carbon credits.

Plastic is one of the major pollutions damaging the environment, especially the oceans. About 80% of all debris polluting the seas is plastic waste.

Companies have been working to find solutions to deal with the plastic crisis.

Luckily, scientists recently created an enzyme that breaks down plastic waste very fast. This new enzyme reduces the time it takes to decompose plastics to hours, not decades.

The New Discovery That Can Boost Plastic Credits

A team of scientists from the University of Texas at Austin discovered the new enzyme. They called it the FAST-PETase – functional, active, stable, and tolerant PETase.

PET refers to polymer polyethylene terephthalate, one kind of plastic material.

FAST-PETase involved the study of 51 different plastic containers, 5 polyester fibers, and water bottles made from PET.

The team used a natural PETase that is capable of degrading PET plastic while modifying it using machine learning.

Their technology discovers mutations that degrade the plastic faster under different environmental conditions. It can break down PET within a week or as fast as 24 hours, which took decades to centuries to happen before.

More interesting is that the scientists also showed that decomposed plastic can become a new plastic product.

The team said that they can use the new enzyme to clean up areas polluted by plastics. Also, their technology can work in environments with ambient temperatures.

There are endless possibilities for various industries to leverage this novel plastic solution. According to one of the chemical engineers,

“Beyond the obvious waste management industry, this provides corporations from every sector the opportunity to take a lead in recycling their products.”

Currently, the most common way to dispose of plastics is to throw them in landfills where they rot at a very slow rate. Others are even burning them which further pollutes the air.

Thus, there’s a need for alternative strategies to resolve plastic pollution. And the discovery of FAST-PETase can be a solution that’s cheap, portable, and not too difficult to scale up.

Better yet, it’s a great aid to the emerging rise of plastic offset or credit schemes.

How Do Plastic Credits Work

The plastic credit industry works like how the carbon credit industry does.

In the carbon credit market, entities buy carbon credits. Each credit equals one metric ton of carbon, which is then “offset” through carbon projects. These often involve renewable energy and nature-based projects.

The carbon credit market has been growing rapidly over the last few years. Verification of carbon credit projects becomes stricter to ensure the quality of carbon credits.

Both countries and companies are thriving to reduce their carbon emissions as part of their climate goals in line with the Paris Accord. And so, the carbon credit industry is booming as the world races to net zero by 2050.

Essentially, the plastic credit industry works the same way. The only difference is that companies claim credits for projects that tackle plastics.

Each plastic credit is equal to one ton of plastic waste that would otherwise have not been collected or recycled.

Plastic credits also have to meet certain quality assurance criteria or principles. Confirmation of quality is done via the project’s validation and verification process.

And like carbon credits, companies also have to retire plastic credits to offset their plastic waste footprint.

Verra has seen initial estimates for plastic credit prices ranging from $200 – $800 per tonne.

How to Use Plastic Credits

Plastic credits can help enhance technologies and systems that collect and recycle plastics. It’s very much the same as how carbon credits can help reduce carbon emissions.

Companies can use plastic credits to address the plastic wastes that they can’t get rid of yet. And like establishing a robust carbon footprint, a company needs to assess its plastic footprint to engage well in plastic offsets.

Here are some activities companies can do to mitigate their plastic footprint:

plastic credits
From Verra Registry

Plastic credits are issued to registry account holders listed on the Verra Registry. Under its Plastic Program, the issuance of plastic credits involves two parts.

One is the Waste Collection Credits (WCCs) for projects involving plastic collections. The other one is the Waste Recycling Credits (WRCs) for plastic recycling projects.

The discovery of the new plastic decomposing enzyme opens a new door for those who want to offset their plastic footprint.

Companies can leverage plastic credits with this enzyme along with carbon credits to address sustainability concerns.

Many firms even consider plastic waste reduction as part of their GHG emissions reduction strategy. It’s one viable way to deal with net zero commitments.

The Bahamas Intends to be the First Country to Sell Blue Carbon Credits

Jennifer L
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The Bahamas Intends to be the First Country to Sell Blue Carbon Credits

The Bahamas plans to sell blue carbon credits on the voluntary carbon market by the end of this year.

The island nation is counting its carbon-sink assets like mangroves and hopes to sell blue carbon credits out of them.

The inventory of its ocean-based assets is still ongoing. But the Prime Minister said they can produce at least $300 million worth of blue carbon credits.

The Role of Ocean-based Carbon Sink in Cutting Emissions

Coastal ecosystems like mangroves and seagrass meadows can store big amounts of CO2. In fact, mangroves store 10x more carbon than terrestrial forests. Mangrove forests usually grow in sea bays.

Also, as mangroves capture and store CO2 below water, it’s sequestered there for over 10x longer than tropical forests do. As such, they have a crucial role in fighting climate change.

The image below shows how a typical blue carbon sink sequesters CO2.

Bahamas Ocean Carbon Sink

There are other positive effects of coastal forests on climate change and the economy. They help reduce coastal wave energy and the impact of harsh coastal storms and events.

Plus, blue carbon systems also filter pollution and trap sediments that support coastal habitats.

The Bahamas Timely Move with Blue Carbon Credits

Market analysis also shows that global demand for carbon credits is surging as companies are in a race to offset their emissions. Countries are also striving hard to meet their emissions reduction targets.

Countries and businesses alike are setting goals to achieve net-zero emissions by 2050. For the same year, the BloombergNEF, clean energy research team, expects the market for carbon credits to reach as high as above $500 billion.

The carbon market has seen money pouring in on green carbon credits projects, involving forests and grasslands. So if The Bahamas begins selling blue carbon credits, it will be among the first nations to focus on this space.

And the Bahamas PM thinks that it’s time for the country to get paid for the services of its coastal carbon sinks. Philip Davis said that,

“I want to see the Caribbean that is not dumped on any further… We are a major carbon sink for the world, and we need to benefit from cleaning the Earth’s atmosphere.”

The Caribbean contributes very little to global emissions. But the region is among the world’s most vulnerable to climate change.

Hurricanes and other ecosystem damages experienced by the country that cost it $10 billion in national debt are due to the climate crisis.

The Bahamas hopes that other Caribbean nations will join them in this initiative. They’ll be having a regional meeting in the coming weeks.

Meanwhile, the country had recently introduced its landmark legislation to regulate carbon credits. This policy will aid the Bahamas in promoting blue carbon credits and removing CO2 from the air. It will also help boost its coastal conservation and restoration efforts.

Other Plans to Tackle Climate Change

The Bahamas plans to invest the money from selling blue carbon credits in renewable energy and other green projects.

The island nation promised to generate at least 30% of its energy from renewable sources by 2030.

It also seeks to transition its public sector to a fleet of electric cars and retrofit buildings with renewable energy elements. In particular, the government focuses on solar energy projects in various areas.

It partnered with the EU and the Inter-American Development Bank for solar generation and storage. The solar infrastructures will be in places damaged by hurricanes.

There are also plans to use reverse metering to credit people who produce more electricity than they use.

As for its plan to sell blue carbon credits, the Bahamas expects to earn much to fund its transition to renewable energy and be climate-resilient.

As such, carbon markets serve as a bridge to a renewable energy future for nations like the Bahamas.

U.S. Forest Projects Generate Questionable Carbon Credits

Jennifer L
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U.S. Forest Projects Generate Questionable Carbon Credits

States and counties across the U.S. are looking at public forests for carbon credits hoping to generate millions of dollars.

The State of Michigan and five counties in Wisconsin set the precedence.

Michigan had inked agreements with Blue Source, LLC, a carbon development firm. This partnership aims to produce carbon credits starting later this year or in 2023.

The agreement also creates projects covering about 800,000 acres of forest. This is 3x bigger than the current public forestland producing carbon credits in the U.S.

The State of Michigan expects to generate 10 million credits with the projects over the next decade. This amount corresponds to the emissions of over 2 million cars or a big coal power plant in a year.

US Forests Enrolling Dubious Carbon Credits

The promise of credit generation of those carbon projects is huge. But reviews and interviews by the Bloomberg Green team revealed that the case seems to be not likely.

Overseers of the U.S. forests involved in the projects don’t expect changes in how they’re managing the public land. Rather, the promised payments would be capitalizing on the same forest practices.

Responses from interviewed state and county officials share the same message. That’s the carbon projects won’t impact their forest management practices and harvest.

As per Jeremy Koslowski, forest administrator for Rusk County,

“We’ve already done the legwork to get where we need to be.”

Also, another state official, Scott Whitcomb, said that the carbon project is consistent with their timber harvest strategies. He noted,

“We’re not expecting to see a change or difference in management from the working forest model we have now.”

Officials’ statements bring light to the “additionality” that these carbon credits will generate.

Meanwhile, the market for carbon credits had reached past $1 billion for the first time. But the questionable U.S. forest carbon offsets have cast doubt on the market’s future.

Analysts suggest that the carbon market can surge as high as $100 billion or more. But it may crash if there are no big improvements made in ensuring the quality of carbon credits.

Some specific cases raise key questions about the quality of carbon credits generated by U.S. forests.

The case of Michigan’s Pigeon River County state forest

Michigan’s Pigeon River County project covering 105,000 acres claims about 1 million carbon credits over the next decade. The basis of this credit generation is on expectations that harvests will increase.

The project claims that timber harvest will triple in the following decade (from 20,000 to 55,000 cords) a year.

But that will only be the case if the state has plans to triple its harvests. Officials said there weren’t any such plans.

Yet, Blue Source countered that the carbon projects they signed with the State of Michigan meet the highest quality standards. The carbon project development firm will earn about 10% – 33% of the project’s proceeds.

The firm said that their US forest carbon projects heed the rules set up by the American Carbon Registry. It’s one of the carbon registries that make protocols for carbon projects.

Meanwhile, DTE Energy, a Detroit-based energy company, agreed to buy $10 million worth of credits from the project.

The firm plans to sell carbon credits from this U.S. forest project to its climate-conscious customers who want to pay extra to cut emissions. DTE seeks to add about $48 to $192 per year to their rate for those wanting to offset their natural gas consumption.

As per the American Carbon Registry’s point of view, the executive director said that,

“…Harvest plans frequently change and the carbon project now provides legal certainty, which was absent before, that the project area will increase its carbon stocks over time…”

Michigan is also working with Blue Source to develop a second carbon project on another 125,000 acres of public forest. Other states seem to follow suit.

The case of Wisconsin counties

Blue Source is also partnering with the State of Wisconsin. The state counties own some 2.4 million acres of forests, which is over 40% of all county-owned forests in the U.S.

Five counties in Wisconsin have signed carbon project contracts with Blue Source. The firm said that these projects will create a lot of carbon credits.

Both parties to the agreement believe the projects will help preserve trees. There’ll be highly motivated to cut fewer trees to gain more carbon credits.

But same with the case of Michigan, forest administrators in five counties said those projects won’t affect their harvests. They’re also not anticipating any changes to their timber management.

Other officials in Wisconsin say the carbon payments will help lock in their current practices for decades to come.

And if carbon prices will rise high enough to rival timber values, it can encourage them to harvest less.

Blue Source and other carbon development firms are pitching officials who think they can get over $30 million out of carbon projects.

Still, the calculation of carbon credits that those US public forest projects will generate seems questionable.

As one county official said,

“It’s a little silly to pay us to do something that was already going to happen, which could allow someone to pollute somewhere else.”

A Guide on Carbon Credit Accounting and Reporting Net Zero

Jennifer L
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A Guide on Carbon Credit Accounting and Reporting Net Zero

Why do companies have to consider carbon credit accounting along with their climate goals?

This question has been bouncing around the corporate world for several years. But its urgency began to kick in when the Securities and Exchange Commission released its initial GHG emissions disclosure rule.

The proposed regulation requires public firms, particularly the big ones, to report emissions. This includes Scopes 1 and 2 as well as Scope 3 emissions if found material.

And a big change the rule will cause is how companies will account for emissions transactions in their financial reports.

This guide will help address this concern. It will help you know how to weigh the effects of top net zero initiatives on financial reporting.

It will also provide guidance on how carbon credit or allowance items will be accounted for with some illustrative examples.

Carbon Credit Accounting and Achieving Net Zero

Investors, consumers, and regulators worldwide are making emissions reporting imperative for businesses.

Hence, the concept of net zero emerged. It’s a balancing act between the amount of emissions produced and the offsets and emissions reduced/removed from the air.

A simple yet profound quote “reduce what you can, offset what you can’t” has never been more vital to hit net zero.

There’s no single approach that works for any business, big or small, to account for its climate goals. Be it a net zero, carbon neutral, or carbon negative target.

The most effective strategy toward net zero is a combination of various actions. These include:

  • Emissions reduction across the value chain (Scopes 1, 2, and 3 emissions)
  • Removal of unavoidable emissions (with corresponding carbon removal credits)
  • Offsetting emissions via carbon credit investments in green / carbon / sustainable projects

A carbon credit is a tradable permit given to an entity that represents the amount of CO2 it’s allowed to emit.

So, accounting for each carbon credit that a company has is important in its journey to net zero.

Despite some confusion surrounding the three actions above, corporate net zero pledges are ramping up. Many Fortune 500 companies have pledged to reduce their Scope 1 or direct emissions.

Firms that haven’t considered cutting their indirect emissions (Scopes 2 and 3) may be in a disadvantaged position. Their business partners may look for others with clear CO2 reduction targets, for instance.

Or worse, they could be placing themselves at reputational risk or even a lower market cap. In this sense, knowing how to create and execute a net zero plan is crucial to do away with the risks involved.

And a sure-fire way to that is understanding the common net zero initiatives and how they affect financial accounting.

Common Net Zero Initiatives and Their Impact on Financial Reporting

Developing a good approach to getting net zero needs consideration of various means.

For instance, a company has to recognize what current technology is out there or what’s underway. It also has to know what others in the firm’s ecosystem are doing that may cause Scope 3 emissions.

Most important is that the costs of each selected strategy has to be accounted for.

The major accounting guideline for some net zero initiatives in the U.S. is the Generally Accepted Accounting Principles (GAAP). And the GAAP mostly reflects the key international accounting principles of the International Accounting Standards Board (IASB).

So, a company may use the IASB accounting guidelines which most firms do. Or it may be necessary for a firm to make its own accounting policies based on certain transactions.

Here are the 3 common net zero strategies businesses are using today and their impact on financial reporting.

Technology and its impact on financial statements:

Technological solutions are a major path taken by many companies toward net zero. They invest in capital projects that improve efficiencies of operations while reducing emissions.

Most common examples are electrification and making buildings or infrastructures greener (green certifications).

Others are focusing on research and development (R&D) to improve technology to both reduce and remove carbon. Examples include Direct Air Capture (DAC), carbon mineralization, and growing algae in deserts.

Here are major accounting considerations to make when exploring this carbon reduction initiative.

technology net zero strategy

Renewable energy and its impact on financial statements:

A lot of companies and countries are investing in renewable sources (wind, solar, hydro). This net zero strategy generates the REC or Renewable Energy Credit. Each megawatt-hour of electricity produced from a renewable resource creates one REC.

A state or jurisdiction or an agency certifies REC. It can also be tradable between firms similar to carbon credits. A company may invest directly in renewable projects to earn RECs. It can also buy it from power generators or move to a greener facility to claim RECs.

REC holders can use the credits to offset power used from other sources and account for the reduced emissions into net zero goals. Accounting for these carbon credit alternatives is a bit more complex.

renewable energy net zero strategy

Carbon offset program and its impact on financial statements:

Many emitters are using this net zero initiative to offset emissions they can’t reduce. In fact, the projected growth in demand for carbon offsets in this decade looks very promising as shown in the chart below.

projected carbon offset demand

There are plenty of programs that generate carbon offsets. Common ones include reforestation, farming or agriculture management, and carbon capture.

Each project produces a certain amount of carbon offsets, depending on its nature and capacity to reduce or remove CO2 from the air.

Companies have to be diligent in picking the projects to source their carbon offsets. They need to ensure the quality of offsets they buy.

There must also be a credible body that verifies the program and the calculations of emissions reductions are accurate. Here’s our complete guide on how offsets are created, purchased, and used.

carbon offset net zero strategy

How is Accounting Done for Carbon Credit?

High CO2 emitting sectors (e.g. energy, aviation, and automobile) are under regulatory or compliance credit schemes. It means they have to meet a certain limit on emissions set by a government regulatory framework.
 
This is also called the cap-and-trade scheme or Emissions Trading System (ETS). Currently, there are three major ETS existing worldwide. These are the European Union ETS, California ETS (US), and Chinese National ETS (China).
 
These systems create the Certified Emissions Reduction (CER) credits.
 
Firms with excess CER credits can trade with others who are over their limits and can be subject to fines.
 
Companies can trade credits from other companies, through a broker, or on an exchange. To know how this compliance carbon market works, read this full guide.
 
Globally, ETS systems are the most prevalent market mechanism for carbon credits. It reached ~$850 billion in 2021, a 164% increase from 2020.

Unfortunately, there’s a variety of carbon credit accounting issues due to the lack of mandatory rules until now. So, this section provides some insights on how to tackle this matter.

Key International Accounting Bodies for Carbon Credits

After the Kyoto Protocol ratification, some initiatives in accounting for credits are from:
  • Emerging Issues Task Force (EITF) in 2003
  • International Financial Reporting Interpretations Committee (IFRIC) in 2004
  • International Accounting Standards Board (IASB) with Financial Accounting Standards Board (FASB) in 2007
Both accounting agendas by the EITF and IFRIC were not pursued due to controversies.

The IASB Accounting Principles

Since there’s no regulatory guidance yet, some firms made their own emissions accounting policies. But most companies are accounting for their carbon credit transactions using the IASB’s IFRS.
 
This accounting standard specified that:
  • Emission allowances (CER) are intangible assets and measured following IAS 38 Intangible Assets
  • If the CER is from a government, an entity can treat the credits as government grants on initial recognition (IAS 20)
  • As an entity produces emissions, a provision for its obligation is recognized to deliver allowances as per IAS 37
CER is a non-monetary asset that has no physical substance. So, it’s treatable as an intangible asset. But it’s an asset that’s often not held for use in the production of goods or services.
 
Rather, it’s held for sale and self-generated by the entity in the ordinary course of business. In this case, these allowances should be accounted for as the valuation of inventories as per IAS 2.
 
CER as Inventory Item (IAS 2)
  • IAS 2: an entity must account for inventories at a lower cost and net realizable value
  • Net realizable value: estimated selling price less estimated costs of completion and other costs to make the sale.
The cost of inventories consists of all costs of: purchase, conversion, and other costs incurred in bringing the inventory to its present condition.
 
Major inventory costs may include:
  • Research costs from exploring measures to reduce emissions
  • Costs incurred in developing the selected alternative measures
  • Cost of preparing the Project Design Documents
  • Registration fees with the United Nations Framework Convention on Climate Change (UNFCCC)
Here’s what accounting for the costs of CER looks like when making a financial report:
 
carbon credit accounting example
Source: Gokten, S., Accounting and Corporate Reporting, 2017

Accounting for Carbon Credits under a Voluntary Market

A company can also get carbon credits through a voluntary carbon project. The steps involved are identical only without the national or regulatory approving bodies.
 
But a third-party entity must verify the carbon credits created by the emissions reduction of the project.
 
Here’s how the accounting goes like for carbon credits under the voluntary market:
 
carbon credit accounting example2
Source: Gokten, S., Accounting and Corporate Reporting, 2017
When it comes to accounting for the income from selling carbon credits, it may follow the IAS 9. It’s the accounting principle for revenue recognition.
 
In the U.S., reporting of regulatory credit sales falls under a non-GAAP treatment. 
 
So far, Tesla is the biggest seller of carbon credits within the regulatory market. It has earned billions of dollars in selling abundant excess of its CER. The electric carmaker reached record $1.78 billion carbon credit sales in 2022.
    But more importantly, these credits created a dominant market mechanism that helps cut emissions. They give companies and countries viable options to reverse climate change effects.
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