Kyle Bass and Terry Anderson launched Conservation Equity Management, LP – a sustainability and conservation firm. Conservation Equity will buy large parcels of land in Texas. They are searching in other states nearby too.
They plan to protect ecosystems while raising their value. Plus, they will use the land they buy to create environmental credits.
How do environmental credits work?
Environmental credits are just like carbon credits. A company invests in an environmental project to offset its carbon emissions with carbon credits.
So, one carbon credit equals one metric ton of carbon. Pretty simple.
But environmental credits are a bit different.
Environmental credits restore wetland, water, and habitat resources. They also reduce air pollution.
So, they are not just focused on carbon.
However, Conservation Equity wants to do all the above.
They plan to mitigate wetland, stream, and endangered species habitat destruction. Plus, they want to generate sustainable income as well.
“There is a substantial opportunity to acquire larger timberland and rangeland parcels as ESG solutions to carbon capture, utilization or storage (CCUS), biodiversity offsets, and as hedges to inflation risk,” said Anderson, Principal.
Environmental credits and sustainability and conservation.
“As more companies and people move to Texas and other pro-business, low-tax states, there will be devastating environmental consequences, forcing firms to consider their physical environmental impacts, carbon footprints, and mitigation options,” said Bass, CEO.
So, environmental projects will be needed to promote sustainability and conservation efforts. Hence the need for environmental credits.
Bass continued, “This is the right moment for Conservation Equity.”
To date, Conservation Equity has successfully completed two transactions. One is in Cameron County, TX. The other is in Cherokee County, TX.
Per Bass, “The Bahia Grande and Cherokee Ridge properties are both outstanding opportunities to create value by employing various levels of conservation and mitigation strategies.”
Phillips 66 Aviation has partnered with 4AIR to launch a carbon credit program.
Phillips 66 is one of the largest refiners in the U.S. and a major contract jet and fuel supplier to private, commercial, and military aviation.
Through this program, flight operators and airports can offset carbon from jet fuel, gasoline, and diesel emissions. Emissions created by vehicles and operating are also included.
The 4AIR program has 4 different rating levels for clients to chose from:
Requires a 100% carbon dioxide (CO2) offset.
Requires a 300% offset to comprehensively offset emissions.
Requires a 5% direct emission reduction.
Requires a direct contribution to the Aviation Climate Fund.
“4AIR’s rating system is designed specifically for aviation and makes compliance with industry goals and sustainability efforts simple,” said Kennedy Ricci, president of 4AIR.
Lindsey Grant, Manager, Phillips 66 Aviation said, “We’re giving pilots and FBOs the right tools to help them on their carbon journey. We look forward to working alongside the 4AIR team to bring sustainable offerings to our customers.”
Sustainable Aviation Fuel (SAF) emits 80% less carbon than jet fuel. However, SAF is not easy to make. So, it is difficult to make the switch.
Phillips 66 Aviation hopes to change that by converting its San Francisco Refinery into a place to produce SAF. They would like it to be one of the most significant SAF production facilities in the world.
Verdox, a carbon capture start-up in Massachusetts, has raised $80 million from investors, including Bill Gates-backed Breakthrough Energy Ventures.
Increased interest in Verdox is due to a recent breakthrough in their technology.
According to CEO Brian Baynes, it involves a critical material used to trap GHG emissions.
What is carbon capture?
Carbon capture is when carbon is separated from the atmosphere and stored deep within the earth’s surface.
Most technology uses a liquid that attracts carbon like a magnet.
This takes a lot of time, energy, and, quite frankly, money.
Many do not feel it is an efficient or cost-effective way to reach net-zero.
How is Verdox’s technology different?
Verdox has developed a new plastic that can pull carbon from the air when charged with electricity. This could cut the total energy usage for direct air capture by more than 70% – which is a big deal.
Verdox hopes this technology will enable millions of tons of carbon to be captured at $50 per/tonne or less.
It is important to note that Verdox’s technology is still only operable at the lab scale.
What are carbon credits?
Carbon credits are permits that companies can buy to emit more carbon than regulated.
Each carbon credit represents an environmental project that helps offset carbon in the atmosphere.
One carbon credit = one metric ton of carbon.
So, carbon credits are different than carbon capture because carbon capture takes carbon out of the atmosphere (while credits just offset it).
Carbon credits have reached an all-time high of $851 billion. Much of that growth is due to the EU’s Emissions Trading System, now trading over 90 Euros per ton.
Verdox is now competing with Canada’s Carbon Engineering Ltd. and Switzerland’s Climeworks AG – which have raised more than $100 million each.
U.S. based Global Thermostat is another competitor.
According to analysts at Refinitiv, Global Carbon Markets grew 164% in 2021 – reaching $851 billion.
90% of the global value is due to the European Union’s Emissions Trading System (EU ETS) which opened in 2005. It is the world’s most established carbon market.
The EU ETS is currently worth 683 billion euros (approximately $769 billion).
Regional markets in North America have grown by 6% as well.
What are carbon markets?
Carbon markets are tools that are used to limit GHG emissions.
As countries cap emissions, companies can purchase carbon credits beyond the acceptable levels. These credits represent carbon offset through an environmental project (such as reforestation or renewable energy).
This allows companies to continue operating as they develop the technology needed to reduce their carbon output.
How do carbon markets differ from the voluntary carbon market (VCM)?
Simply put, voluntary carbon markets are just that – voluntary. So, individuals or organizations choose to purchase carbon credits to reduce their emissions (but are not regulated to do so).
Last year, the VCM was valued at $1 billion – up from just $300 million in 2018.
Per Refinitiv, “We expect interest in the VCM to keep growing, boosted by an increasing number of companies worldwide taking on carbon neutrality goals and other climate commitments that involve the use of carbon offsets.”
Why does the price of carbon keep increasing?
Because the EU’s goal is to reduce emissions by 55% by 2030, the price of carbon has doubled since the end of 2020.
Ingvild Sørhus, the lead-carbon analyst at Refinitiv, said, “More expensive emission permits hit coal power plants relatively harder than gas plants, but because of the soaring gas prices in the second half of 2021, coal generation was still more profitable.”
China is getting ready to relaunch the China Certified Emission Reduction (CCER) system, the voluntary carbon credit plan that was abandoned 5 years ago.
This coincided with the completion of the first compliance period for China’s new carbon trading market, the national Emissions Trading Scheme (ETS).
The CCER will play a crucial role in attaining carbon cost reductions and renewable energy goals as an important additional mechanism to the ETS.
CCER is projected to play a significant role in attaining carbon cost reductions and renewable energy goals.
CCER is carried out on a voluntary basis by firms and certified by the Chinese government. Projects such as renewable energy generation and waste-to-energy initiatives, as well as forestry projects, are set to benefit.
Carbon emitters must pay CCER owners, such as renewable energy generators, for their credits.
These voluntary CCER credits can be used to offset emissions by companies that are part of the compliance ETS.
The carbon credits can be used to offset China Emissions Allowances (CEAs) shortfalls or credits that companies participating in the national ETS can buy or trade under the program.
The offset rate of CCER credits is limited to 5% of emissions that exceed national ETS targets.
The earlier CCER plan was scrapped in 2017 due to low trading volume and a lack of standards in carbon audits.
Since China introduced its national ETS in July of last year, the concept of reinstating the CCER system has gained traction.
In a January interview, Lai Xiaoming, chairman of the Shanghai Environment and Energy Exchange, which manages the national ETS, stated that the government was actively planning for the relaunch of CCER in 2022.
Analyst Lin Yuan for Refinitiv believes the reintroduction of CCER will increase demand for offsets and that the supply volume of CCERs could be over 300 million tonnes.
Domestic and foreign institutions, companies, communities, and individuals are eligible to participate in transactions involving voluntary emissions reductions.
It is expected that in the future, Hong Kong-based and abroad enterprises will be able to participate in the CCER system by including CCERs that meet international criteria into their overall carbon-offsetting plan.
Last August, China’s carbon market saw its first cross-border transaction, with a Hong Kong-based organization and individual purchasing approximately 10,000 tonnes of CCERs from a solar power facility in the Kubuqi Desert.
The CCER relaunch finally started operation in 2023 under the management of China Beijing Green Exchange (CBGE).
These “carbon stocks” are doing their part to achieve a net-zero world. And catching investors’ attention.
KRBN, NETZ, OFSTF and BEP are stocks in focus in rising carbon markets.
An infographic version of this post can be found here or by clicking the image below.
As most of you are probably aware, 2021 was a banner year for carbon investments around the world.
And 2022 is setting up to attract a lot of investor attention in the carbon markets. Especially as it relates to carbon stocks.
Carbon prices went on a tear in the wake of rising awareness of the dangers of climate change thanks to the many extreme weather events that took place last year.
Not to mention other events like the highly publicized COP26 United Nations climate change conference in Glasgow.
Future Carbon Prices
By the end of the year, European carbon allowances were up over 150%. Their Californian equivalents saw a more modest, but still impressive, 80% gain:
While these were impressive performances that might make you think you’ve already missed the boat, nothing could be further from the truth.
Carbon Markets Set to Soar In 2022
The carbon markets are still in their infancy and will need to see continued growth if the world is to meet the climate change target set out during the Paris Agreement.
This is the international accord to limit global warming to below 2 degrees Celsius, signed and ratified by all but four countries in the world.
Though the rough framework for a fully regulated global carbon market has already been laid out by the Article 6 agreement at COP26 last year, it could still be years before such a market actually comes into existence.
And when it does, it’s uncertain how it’ll interact with the current compliance and voluntary carbon markets. Will it merge with currently existing marketplaces or exist alongside them?
That’s why it’s the Wild West in the carbon markets right now. There are tons of unexplored territory with very little oversight. But opportunities abound, and there’s plenty of money to be made if you look in the right places.
So that brings us to the most important question of them all: where should we be investing right now?
3 Carbon Stocks You Should be Keeping Eyes On in 2022
Here are the carbon stocks with potential we’re focusing on:
KraneShares Global Carbon Strategy ETF (KRBN.NYSE)
Currently the largest carbon ETF in terms of net assets, the KraneShares Global Carbon Strategy ETF,KRBN, holds a mix of carbon allowance futures from each of the major compliance markets.
That includes European Union Allowances (EUAs), California Carbon Allowances (CCAs), Regional Greenhouse Gas Initiative allowances (RGGIs) and U.K. Allowances (UKAs).
Though its holdings are slightly weighted in favor of the European EUAs at the moment, KRBN provides broad exposure to the performance of compliance market carbon credits.
These are currently one of the best ways for not only retail investors, but also corporations, banks and other financial institutions to invest in the carbon markets.
By matching the price performance of these compliance market carbon credits through its holdings, KRBN allows the average investor to add exposure to carbon prices to their portfolio without having to purchase futures, which are complicated and risky to invest in.
Investors who held KRBN at the beginning of 2021 would’ve seen their investment more than double by the end of the year, mimicking the price performance of European and Californian carbon credits.
Those of you who think carbon allowance prices are going to continue their strong performance in 2022 will definitely want to keep KRBN on your watchlists.
Carbon Streaming Corporation (NETZ.NEO and OFSTF.OTC)
As the carbon markets are still in their early stages, so too are the investment opportunities – most of the listed entities you’ll find are exchange-traded products of some sort.
Index funds and ETFs do an excellent job of tracking their underlying assets. However, those who are both able and willing to stomach greater risk will also see greater potential for return on their investments.
NETZ is just one such opportunity. It trades in Canada on the NEO exchange and in the U.S. markets under the symbol OFSTF for now.
The company has secured an early-mover advantage by not just being the first streaming/royalty deal in the carbon credit space, but also by being among the first carbon-credit-focused businesses to go public.
For those of you who aren’t in the know, the streaming/royalty business model is an extremely lucrative one whose roots lie outside of the financial markets.
Here’s how they work:
Find an asset with upside and pay an upfront fee
Get a share of the future output for set period of time
Music royalties, for example, are one of the oldest and most well-known examples. Artists can sell their catalog and rights upfront for $, the owners of the ‘royalties’ get a share in the profits in the future.
In the 1980’s Michael Jackson thought the Beatles catalog had upside paid over $50 million to secure the rights in the future (actually outbidding the actual Beatles).
Those assets grew over time and the value of the overall catalog grew alongside it.
The business model has since made its way into many different types of commodities, with gold and precious metals streaming and royalty companies being another prominent example.
And just like how Sony bought up the Beatles music catalog at a $1.5 billion valuation in 2016. NETZ is betting big to lock in agreements with some of the highest-quality carbon credit projects out there.
These include the Rimba Raya Biodiversity Project in Indonesia, one of the world’s largest REDD+ projects that’s expected to offset 130 million tonnes of CO2e over the next 30 years.
Those of you with a higher risk tolerance for your investment portfolios will want to check out NETZ. Its business model, in addition to it being the first of its kind in the carbon markets, could potentially allow NETZ to outperform relative to the rest of the carbon credit market.
It should be clear to everyone at this point that the surge of interest and capital into green investing isn’t going away anytime soon.
However, if you’re still not totally sold on the idea of carbon credits or have a lower appetite for risk in your portfolio, there are more conservative ways to play the green investment boom.
One such example would be with a company like BEP which trades on the NYSE. It’s one of the largest pure-play renewable energy companies in the world.
BEP has extremely diversified holdings, with nearly $60 billion in power assets located in over a dozen countries across four continents, split across hydro, wind, solar and energy transition projects.
Source: Brookfield Renewables website
The company has managed consistent growth over the past decade, with distributions to unitholders growing at an average annual rate of 6%. They have a strong balance sheet with a healthy capital pool, and no need to go back to the markets for equity.
In other words, BEP is an extremely well-run clean energy company with a great business model and a long history of solid performance – all before carbon credits even enter the picture.
To be fair, BEP is likely not a company that will benefit significantly from the growth of the carbon credit marketplace. Renewable energy projects are generally considered “low-quality” carbon credit projects due to their lack of additionality.
Simply put, many renewable energy projects are already profitable even before taking carbon credits into account. This makes any credits they could generate less worthwhile, because many of these projects would have happened even without the presence of carbon credits.
With all that said, as previously mentioned, BEP was already a great company even before carbon credits came along; the coming wave of decarbonization can maybe help lift it higher.
So, if you would still like a little bit of exposure to the carbon market in your portfolio, but you’re not very gung-ho about the future of carbon credits or would prefer a lower risk play, BEP is one company you might want to keep your radar.
The Best Carbon Stocks Should Generate a Lot of Interest from Investors
With a large number of public companies declaring their Net-Zero ambitions and disclosing carbon emissions, socially responsible investing is becoming a major theme in financial markets. There are trillions of dollars of investment going into renewable energy and the offsetting emissions.
Facebook (Now Meta Platforms), Apple and Netflix are among the major tech companies leading this charge to net-zero targets for 2030. And major mining (Barrick, Newmont) and energy companies (Exxon, Shell) are doing the same.
These factors will drive increasing investor interest in all things carbon related in 2022 and beyond. Expect things to accelerate as net zero targets for 2030 draw closer.
Rising tides can lift all boats, and the best carbon stocks should generate some of the best returns for investors. These carbon companies have shown themselves to be steady value drivers with the financial acumen to capture many opportunities for solid returns in the past, and should be on the top of any green investor’s watchlist for 2022.
Disclosure: Owners, members, directors and employees of carboncredits.com have/may have stock or option position in any of the companies mentioned: NETZ, BEP
Carboncredits.com receives compensation for this publication and has a business relationship with any company whose stock(s) is/are mentioned in this article: NO
Additional disclosure: This communication serves the sole purpose of adding value to the research process and is for information only. Please do your own due diligence. Every investment in securities mentioned in publications of carboncredits.com involve risks which could lead to a total loss of the invested capital.
Carbon offsets rating provider Sylvera has raised $32.6M in Series A funding. Index Ventures and Insight Partners co-led the round. Salesforce Ventures, Local Globe, and angel investors also participated.
The demand for carbon credits is at an all-time high.
In 2018 the carbon credit industry was worth $300 million. Today it is at $1 billion. Many experts believe the value of the voluntary carbon market could reach $100 billion by 2030.
The carbon credit industry has grown because carbon credits allow companies to offset emissions they cannot eliminate. Over the past several years, it has also improved, causing more companies to buy-in.
In the past, critics felt that the carbon credit and offset industry lacked the oversight it needed. The data or the claims made weren’t accurate.
But companies like Sylvera have helped make a difference. Their tools can help measure the quality of an offset project – easing concerns.
Accurate offset ratings can help carbon markets grow.
“The [carbon] market is one of the world’s most powerful tools against climate change. But we need reliable data to determine the quality of carbon offsets, to incentivize people to invest in the projects that are actually doing good – and to reward the project developers doing good work,” said Dr. Allister Furey, co-founder, and CEO of Sylvera.
“That’s why we’re building the most accurate ratings for the Voluntary Carbon Market (VCM). We’ll use the funding to expand our coverage so that, with our ratings, corporate sustainability leaders, carbon traders, and policymakers will have clarity, confidence, and choice when evaluating and investing in carbon projects. This is how you move billions of dollars into carbon abatement, sequestration, and removal.”
“We’ve seen incredible growth in the carbon offset market, but until recently, it’s been difficult for the companies that buy these offsets to measure their impact,” said Deven Parekh, Managing Director at Insight Partners.
“Sylvera’s advanced technology allows corporations to monitor the performance of nature-based offsets in real-time. Sylvera has quickly become a leader in the industry with a growing list of Fortune 500 clients. We’re excited to partner with Sylvera as they continue to scale up.”
To transition to a low-carbon economy, the London Stock Exchange (LSE) is developing a new Voluntary Carbon Market (VCM).
The market will:
Create capital for new climate projects worldwide; and
Provide access to high-quality carbon credits for companies and investors.
According to LSE’s CEO Julia Hoggett, by “raising the profile of the public listed fund market, we can enhance the disclosures and the visibility of that market and also direct capital into it.”
Once launched, how will this new Voluntary Carbon Market work?
First, the project developer identifies project(s) that will generate voluntary carbon credits.
If approved, the fund will list on the LSE (under the new VCM) for investors to invest.
The fund then issues carbon credits as a dividend to investors. Investors can keep buying or selling shares in the fund and receive returns in carbon credits, cash dividends, and other distributions.
The carbon credits can be used for their own purposes or traded.
What are carbon credits and why are they so popular?
Simply put, one carbon credit equals one metric ton of carbon. So, one metric ton of carbon is offset through an approved environmental project for every carbon credit bought.
The reason why carbon markets are booming is that companies need to find ways to lessen their carbon footprint. Deadlines to meet regulations are approaching, and quite frankly, the public is demanding it (which is a good thing).
Many believe that the increased financing that will be available through this new VCM will improve the supply of credits.
Since these credits are in high demand, supply right now is low.
Why are Voluntary Carbon Markets so important?
Not every industry has the ability to be at net-zero emissions yet. Much of the technology needed to get there is not developed or accessible. Or, the cost (currently) is exorbitant.
This doesn’t mean that companies don’t want to reach net-zero – they do. But they need to take action interim.
OPIS, an IHS Markit company (NYSE: INFO), has expanded its Global Carbon Offsets Report.
It now includes a Carbon Neutral Fuels Index (OPIS CNFI) and a Core Carbon Credits (OPIS CCP) assessment.
In a statement, Fred Rozell, President of OPIS said that “Price clarity is imperative for negotiating a fair and competitive premium to existing commodities benchmarks for the cost of offsetting emissions.”
OPIS believes these tools can help the energy industry become carbon neutral.
What does it mean when a company is carbon neutral?
You may have heard the terms carbon neutrality and net-zero emissions used interchangeably, but they do not mean the same thing.
Net-zero is when a company stops its GHG emissions. This means they are not putting any more GHG into the atmosphere.
A company is carbon neutral when it offsets its GHG emissions. So, the company still emits GHG but it invests in environmental projects to help ‘offset’ those emissions.
To be carbon neutral, companies purchase carbon credits through the carbon market. For every carbon credit purchased, a metric ton of carbon is offset.
1 Carbon Credit = 1 Metric Ton of Carbon.
Many industries do not have the technology to eliminate or reduce their GHG emissions. The tech is either too expensive, not ready for use, or non-existent.
Carbon offsets help to fill that gap. This way, companies can do something good for the environment while they work on net-zero solutions.
How can these tools increase carbon neutrality?
OPIS CNFI will list offset prices for 18 standard liquids, gaseous fuels, and eight IMO shipping fuels. OPIS CCP will have CORSIA-eligible credits, REDD+ credits, and other agriculture, forestry, and land use (AFLOU) credits.
The OPIS Global Carbon Offsets Report was launched in December 2020.
The report is the most extensive in the world. Assessments are published each day – reflecting confirmed bids, offers, and trades.
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