Global Shipping Shakeup

Carbon Credits
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Global Shipping Shakeup

The International Chamber of Shipping backed plans for a global surcharge on carbon emissions to fund the shift towards climate-friendly fuels. Their plan, which will be proposed to the United Nations, requires all international vessels of a specific size to pay per metric ton of carbon they emit.

The proposal has been well received by environmental groups and the International Maritime Organization, a U.N. body. If this surcharge passes, it will impact over 80% of the world’s merchant fleet. As of now, a price has not been set.

Director of Global Transportation at the Environmental Defense Fund, Aoife O’Leary, said, “We will know they are serious about real progress when they embrace a level of ambition consistent with what climate-vulnerable island nations have already proposed.”

Two nations with large shipping fleets and vulnerable territories (The Marshall Islands and The Solomon Islands) have suggested the surcharge starts at $100 per ton.

The Secretary-General of International Chamber of Shipping, Guy Platten, said, “This proposal sets out how to practically create a market-based measure for the global shipping industry, to quickly move towards an effective price. Rather than make guesses for PR purposes, we want to come to a number that will decarbonize the sector without disenfranchising huge proportions of the developing world on the way.”

Currently, the shipping industry accounts for nearly 3% of greenhouse gas emissions. That percentage is expected to increase over the next several years.

The International Chamber of Shipping aims to invest the money from this surcharge into a climate fund that would subsidize clean fuel alternatives. It is important to note that they oppose piecemeal regional measures, such as the current tariff being discussed within the EU.

Whether this global surcharge or the regional one being proposed by the EU is enacted, it is safe to say there is a drive for change. With these proposals on the table, and the global carbon offsetting industry expected to hit $22T by 2050, a net-zero future seems possible.

Getting a Handle on the Carbon Credit Opportunity

Carbon Publisher
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Getting a Handle on the Carbon Credit Opportunity

It’s not the first country you might think of when carbon credits come to mind. Instead, the Democratic Republic of Congo is a country rich in natural resources such as vital materials for the burgeoning battery industry.

A specialist conservation group is rolling out a multi-million dollar project to conserve millions of hectares of rainforest. Over the next 30 years, the Bonobo Peace Forest project has the potential to remove, and avoid the emission of, hundreds of millions of tonnes of carbon dioxide equivalent (CO2e).

Thousands of miles away, just off the coast of Mexico, lies a unique ecosystem of mangroves covering 22,000 hectares in the gorgeous Magdalena Bay. Mangroves store up to 1000% more carbon than terrestrial forests and another specialist conservation team is rolling out a multi-million dollar plan to reduce estimated emissions by 26 million tonnes of carbon dioxide equivalent (CO2e) over 30 years.

These projects have two things in common:

  • They both received their funding from the same publicly traded corporation, and
  • They are both part of the rapidly growing carbon credits industry. Indeed, once they’re up and running they will start generating credits, year-after-year, for sale on the carbon credit markets worldwide.

The Two Main Carbon Markets: Compliance and Voluntary

Carbon credits represent a fascinating, rapidly growing sector which is split into two very different parts: the compliance markets and the voluntary markets.

Compliance markets, aka the Regulated Markets, are government-run, emission trading systems (ETS) that require all companies in certain industries to offset their emissions with carbon credits. The markets are designed as cap-and-trade and last year the combined total value of these markets topped US$261 billion. They are also very hard to get into if you happen to be a retail investor.

The voluntary markets hold the most promise for investors. They are the corporate world’s answer to the lack of a universal, government-run carbon credit system. If, like most companies, your industry is part of the compliance markets, the chances are you will eventually find yourself purchasing carbon credits in order to reach net zero.

  • Before we get too far ahead, let’s take a quick step back to understand the voluntary market in more detail.

Understanding Voluntary Carbon Markets

Whatever your personal thoughts on the matter, global decarbonization is gaining pace fast. Pressure from governments, pressure from consumers, pressure from investors… it’s all forcing companies to implement climate strategies, with carbon reduction front and centre.

The process of carbon reduction is straightforward but time consuming. Companies hire a specialist to evaluate their carbon footprint, analyze their business model and operations. The company can then plan and roll out whatever changes are required to cut their carbon footprint.

However, businesses are quickly discovering that it’s almost impossible for most of them to reach net zero carbon solely through operational changes and improvements. Some can’t even come close.

This is where the voluntary carbon credit markets come in.

  • Companies can buy carbon credits each year each to offset their remaining carbon footprint. 1 credit for every 1 metric tonne of carbon the company is responsible for.

And they need to do this each year if they want to stay carbon neutral. Unless, of course, they can somehow reach the net zero finish line by changing the way they do business.

  • So where do these carbon credits come from?
  • Who issues them?
  • Are these credits not simply giving companies an easy way out when they should be making those critical efficiencies?

How Carbon Credits Get Verified

Behind every carbon credit is a project designed from the ground up to avoid and/or reduce carbon emissions. They are run by teams that specialize in carbon offsetting. And those teams need to be at the top of their game because credits are issued by one of the big carbon credit verification agencies.

After, that is, every aspect of the project has been investigated and verified by the agency.

Once verified, credits are generated on a yearly basis and registered (including type and date) with the verification registry, and can then be purchased.

The quality and vintage of credits matter because they impact the quality and therefore the value of the project… a lot.

Knowing that the money they spend on credits is directly helping decarbonization is giving corporations the confidence to enter the carbon credits market. In turn, knowing they have a powerful carbon reduction tool at their disposal increases their confidence in making net zero pledges.

And they are, in droves.

Big business in leading the way with the number of corporations making net zero carbon pledges tripling to over 1,600 in the last 24 months.

This positive trend is backed by major investment funds aggressively pressuring for action. This includes some serious collective action like the Zero Asset Managers Initiative, which has signed up 128 asset management companies that manage a combined US$43 trillion in assets.

The Size of the Voluntary Carbon Market

The value of the voluntary carbon markets has started growing swiftly, reaching US$320 million in 2019. This is a fraction of its potential, however…

Analyst firm, McKinsey & Company, has stepped forward with growth forecasts of 15x by 2030, which would put the market value at US$50+ billion. And that same report predicts 100x growth by 2050.

Now, the voluntary markets have not been without their challenges. Having been in existence less than 20 years, it has taken some time to reach the level of maturity required for corporations to consider them a viable option.

“Cheap” Credits

The main culprit was verification standards that varied wildly between the agencies. As a result, some early projects received approvals that perhaps should have been withheld or had credit calculations that were too generous for the project in question. As a result, cheap, poor-quality credits were released onto the market in large quantities.

In recent years, however, increasingly strict verification standards have come into play thanks to new technology and a better understanding of the science and processes involved. These tougher standards have proven to be a boon, ensuring that only dedicated, seasoned organizations can successfully undertake a new offset project and bring new credits to the market. In turn, this has increased confidence among the growing pool of potential buyers.

Standards will continue to evolve. In time, the industry may even reach a point of having globally accepted framework accepted by every verification agency. For now, however, the issue is not the quality of standards, nor the demand for credits. Instead, it’s supply of credits from new, high end carbon offset projects.

From being cash poor, the carbon offset industry now has corporate buyers lining up, eager for the sort of projects that will not only help them across the net zero finish line but will also enable them to promote their involvement with whatever additional benefits each project brings – whether it’s a boost to the local economy, protection of an endangered species, etc.

It’s a startling change of pace even for the most successful carbon offset teams and it will be some time before the cash pipeline delivers increased return flow of high-quality credits. While the industry waits for supply of premium credits to catch up, it will increase upwards pressure on prices.

Where Does All This Leave Investors?

Trying to invest directly in a carbon offset project is generally going to require a lot of industry knowledge and a lot of leg work. Even then, you’ll likely be investing in a private company and shouldering all of the risk that comes with it.

You can purchase carbon credits through one of the verification agencies but as I’ve already mentioned quality and vintage matter so you will need to do a lot of leg work to get it right.

The remain avenues are investment vehicles such as ETFs and publicly traded companies. For the latter, the only one currently on the market is Carbon Streaming Corp., which listed earlier this year on Canada’s NEO exchange ($NETZ). Judging from Carbon Streaming’s successful financings, I doubt it will be long before we see other public companies with carbon credit offerings.

Keep a close eye on the voluntary carbon credit markets. It’s going to be an exciting ride and when more opportunities open up, they will do so fast.

Anthony Milewski

Mr. Anthony Milewski has spent his career in various aspects of the capital markets, including as a company director, advisor, founder and investor.  In particular, he has been active in the commodities related to decarbonization and the energy transition, including nickel, cobalt, copper and carbon credits. Anthony has served on the London Metals Exchange Cobalt Committee, which includes representatives from the largest mining and commodities companies globally, to represent the interests of the industry to the board of directors the LME.

 

 

EU’s Carbon Tariffs Might Not Work for the US

Tony S
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EU’s Carbon Tariffs Might Not Work for the US

The EU recently released plans to tax carbon imports coming into the union. As such, any goods coming in would be taxed as if it was produced in a member state. However, the US is not convinced when it comes to the method of carbon tariffs.

The EU aims to be carbon neutral by 2050. The international community sees this goal as quite adventurous. BRICS countries in specific had “grave concern” regarding the EU’s plans to reduce carbon emissions. Many less developed countries also would have trouble following the EU’s path.

Previously, the US stated how such a proposal would be difficult to implement in the US. As well, carbon border tariffs would be considered a last resort option for the US. If the US were to implement border tariffs, it could incentivize countries to stop trading with high carbon tax countries. This would not bode well for climate change due to trade being shifted towards countries with fewer tariffs. Therefore, high emissions goods and services will continue being traded for low prices.

The border pricing mechanisms are being heavily pursued by the EU, but it would take 2 years to implement the legislation. The fight against climate change however will require every method possible.

EEAM Seeks $1B for Carbon Offset Fund

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EEAM Seeks $1B for Carbon Offset Fund

Evolution Environmental Asset Management (EEAM), a new environmental asset management firm, aims to raise $1 billion for its Premium Carbon Offset Fund. This voluntary offset fund aims to generate risk-adjusted returns while improving the environment through emissions reductions.

Based in New York, EEAM was started by a team lead by Andrew Ertel, the CEO and Founder of Evolution Markets.

EEAM’s Premium Offset Fund is seeking an 8% rate of return with a 10-year investment horizon (five-year investment period followed by a five-year harvest period). The minimum investment amount is $1 million.

EEAM said it would use its proprietary Intelligent Carbon Offset System (ICOS) to assess existing projects based on integrity and compliance eligibility. The fund will only purchase offsets that obtain a “premium” rating based on their in-house system.

Through the use of ICOS, EEAM has evaluated more than 5,500 offset projects – and is committed to only invest in those that meet their strict guidelines. The goal is to initially focus on offset projects that avoid emissions and offer low-cost alternatives to emissions, then gradually expand into carbon removal projects. The fund will favor projects that support biodiversity and gender equality.

EEAM has also expressed interest in direct air capture projects and bio-energy initiatives with carbon capture and storage as those technologies become available.

In addition to their ICOS, EEAM plans to utilize tools from existing registries such as SD VISta from Verra and SDG Impact Tool from Gold Standard.

In a statement, EEAM said, “As corporates are more closely scrutinized on their ESG commitments, the reputational appeal should drive these offsets to trade at a premium. Our conviction is that offsets with environmental integrity that have been screened for these long-term criteria will appreciate significantly in value as the voluntary market matures.”

With the global offset industry anticipated to be worth nearly $22T by 2050, it’s no wonder that EEAM is feeling confident.

Saudi Arabia Releases New Carbon Plan

Tony S
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Saudi Arabia Releases New Carbon Plan

Saudi Arabia announced on Friday a plan to establish an exchange for carbon credits and carbon offsets. The exchange is called the Riyadh Voluntary Exchange Platform and will trade carbon credits for countries throughout the Middle East and North Africa.

As a result, companies in the regions mentioned above will be able to reduce carbon emissions by exchanging carbon credits.

This move comes as Saudi Arabia plans to keep within the Paris agreement’s temperate goal of 1.5 degrees Celsius above pre-industrial levels. As well, the COP26 climate conference is coming up in November.

In March, Saudi Arabia announced it would plant 50 billion trees across the Middle East. 10 billion trees are to be planted directly in Saudi Arabia while the remaining 40 billion trees will be planted in neighboring countries. In addition, the Saudi plan to reduce carbon emissions includes increasing biodiversity on land and in the sea. Also, half of the country’s power will come from renewable energy sources by 2030.

As a major exporter of oil, the Saudi Arabians are under pressure to conform to renewable sources. Oil is one power source that could be phased out in the future. The Saudi Arabians must be prepared for when that day comes.

$3.2 Billion Tribeca Fund Bets Big on Carbon Offsets

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$3.2 Billion Tribeca Fund Bets Big on Carbon Offsets

Tribeca Investment Partners, which manages $3.2 billion in assets, has purchased $100 million worth of carbon credits. Portfolio Manager and Partner Ben Clearly says, “We are seeing a major demand from Asian corporates for offsets, above and beyond their organic carbon reduction programs.”

  • He expects the price of carbon credits in the Asia-Pacific to increase substantially.

With growing interest in carbon offsets across the globe, it’s no wonder this hedge fund is choosing to bet big.

Microsoft, Walt Disney Co, and Royal Dutch Shell plc are currently purchasing offsets to draw their own emissions. Countless other corporations are following their lead, viewing offsets as a tangible way to help remove carbon dioxide from the atmosphere.

Tribeca’s focus is on carbon credits that qualify for programs such as the Australian Carbon Credit Units or the United Nations’ REDD+ framework. These credits are expected to top $100 a ton over the next few years. Currently, they average about $8-$10 for high-quality projects.

Another goal for Tribeca is to raise $500 million for a new decarbonization-focused fund invested in climate-friendly plastics, chemicals, and food.

Though the global carbon market can hit $22T by 2050, critics are not so sure.

Some question whether carbon offsetting is effective enough to meet aggressive reduction goals. They also ask whether it is possible to prove carbon was removed from the atmosphere, especially for projects tied to cheaper credits.

According to Eli Mitchell-Larson, a researcher at the University of Oxford, “We need to ensure that these credits are having actual, high-certainty climate impacts before we rejoice in this growth. Otherwise, we’re going to have another boom-and-bust where buyer confidence is shattered.”

His concerns are valid – which is why the carbon offset industry needs additional verifications in place to ensure it is achieving all it promises to deliver.

Canadian Bitcoin ETF Pledging to be Carbon Negative

Tony S
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Canadian Bitcoin ETF Pledging to be Carbon Negative

The Accelerate Carbon Negative Bitcoin ETF (TSX:ABTC) has been announced by the Canadian Company Accelerate Financial Technologies. The ETF is pledging to be carbon negative. Meaning for every $1,000,000 CAD invested into the ETF, Accelerate will plant 3,450 trees. According to Accelerate, this will remove an estimated 1,000 tons of carbon dioxide from the atmosphere for each collection of trees planted.

Accelerate plans to remove “over 100% of the estimated carbon dioxide emissions attributable to bitcoin transactions that ABTC is indirectly exposed to”. It would be a forward move to have a carbon-negative bitcoin ETF, as Bitcoin is responsible for 0.5% of the world’s total electrical output.

ABTC is an attractive ETF due to the direct removal of carbon resulting from investments. Most ETFs that aspire for carbon neutrality do so with carbon credits. However, ABTC will be directly buying trees to offset their carbon emissions. The Fund will also not hold Bitcoin directly. Instead, it will focus on bitcoin futures trading on the Chicago Mercantile Exchange.

The ETF will trade on the Toronto Stock Exchange. As well, it will offer denominated units in Canadian and American dollars. A management fee of 0.70% is also listed. The fund will be managed by Accelerate CEO and Founder Julian Klymochko.

AT&T Releases Plans to Curb Carbon Emissions

Tony S
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AT&T Releases Plans to Curb Carbon Emissions

AT&T has created a Connect Climate Initiative to reduce its carbon emissions. This means bringing together researchers and business partners to look at ways of curbing carbon emissions. AT&T is looking to eventually reduce total emissions in the US by 1 gigaton, equivalent to 1 billion tons. Currently, a gigaton is around 15% of the U.S.’s total carbon output. As well, AT&T plans to be carbon neutral before 2035.

Right now, AT&T has announced companies such as Microsoft (MSFT) and Equinix (EQIX) as partners in this project. Universities such as Texas A&M and The University of Missouri are included in the research section of the initiative.

The initiative aims to encourage IT companies to rely on systems that produce fewer carbon emissions. As well, further cloud work is another major component. Reducing the number of computers and servers working will produce fewer emissions. Moving these systems to the cloud is a possible way to reduce carbon emissions.

Equinix is letting customers use AT&T services to connect directly to serves and datacentres. Therefore, less infrastructure is used and fewer carbon emissions are created. Equinix has mentioned that the 10,000 customers have been shifted to AT&T networks. The technology is there to upscale, it just requires further support and research.

Global Carbon Market Could Hit $22T by 2050

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Global Carbon Market Could Hit $22T by 2050

Governments across the globe are looking to expand carbon markets – with the potential value reaching $22 trillion by 2050. This means carbon markets could exceed the oil market’s value as early as 2025. Big energy trading houses have noticed, which is why they are switching focus from oil and natural gas to carbon-trading operations.

This summer, the EU unveiled plans to expand its market, and China has started its own limited trading system. The Biden administration is interested and supportive of pricing carbon, but it is still far behind the EU and China. Right now, in the U.S., the price of carbon is market-led.

Big traders, such as Vitol Group and Glencore PLC, aren’t waiting for the U.S. Neither are Trafigura Group Pte. Ltd, and Mercuria Energy Ltd. All are working to increase trading capabilities, prepping for a shift in the marketplace as new regulations are implemented. They have even built up teams in anticipation.

BP, recognizing that competition will be fierce, has reportedly increased the salaries of key staff. Currently, carbon makes up 5-10% of their activities, contributing $50-$100M to trading profits annually.

Shell is also interested. A representative stated that the company was looking to build their participation in the carbon market as they work towards being a net-zero-emissions energy business.

Although interest is hot, some banks have decided to proceed with caution without a global framework in place. Chris Leeds, Head of Carbon-Markets Development at Standard Chartered, said, “There is huge interest in participating in carbon markets from banks, but they are extremely concerned about the reputational risk… The problem is defining what are high-quality carbon credits.”

Their position is understandable.

Still, with carbon markets at the forefront of consumer, business, and government minds and a $22T global value in play, carbon markets may very well be the opportunity of a lifetime for many.

It will be interesting to see how the U.S. responds and how the markets react.

One thing is for sure: the carbon marketplace is here to stay. And, while it may not be perfect – yet – all eyes are on making it better. A positive for big traders and the environment alike.

Big Four Firms Rush to ESG

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Big Four Firms Rush to ESG

The sustainability boom has resulted in trillions of dollars through environmental, social, and governance funds. Now, the Big Four firms – PwC, Deloitte, EY, and KPMG – are hoping ESG is key to rebuilding consumer trust after numerous scandals and multi-million-dollar payouts.

Though some say the Big Four’s rush to reinvent their image through ESG is a survival ploy, their efforts are noteworthy.

ESG advice is central to PwC’s $12B investment plan, adding 100,000 employees that will work through their “trust institute” to train clients in ethics. The objective, according to PwC Global Chair Bob Moritz, is “to make sure we’re valuable for what our clients need and what the world needs.”

Deloitte announced their own “climate learning program” for 330,000 employees – their largest climate-related initiative to date. Upon announcing, Global Chief Executive Punit Renjen re-tweeted an article about “the links between trust and economic prosperity.”

KPMG’s most recent work includes helping Ikea analyze social and environmental risks associated with raw materials and advising on India’s first-ever green bond issues.

All three groups, alongside EY, are working to help build and implement international standards for measuring sustainability.

Doing so isn’t entirely selfless.

With the carbon offsetting and credit industry expanding, there is an opportunity to track non-financial metrics for clients, such as carbon emissions and footprints.

Critics feel these efforts could backfire.

If the Big Four fail to live up to the standards they promote, there could be negative backlash. In fact, much of the Big Four investments are not related to climate change or diversity but rather technology and international markets. Plus, if activists begin scrutinizing each firm’s records – they may start calling out clients not meeting environmental or diversity goals, which could be a PR nightmare.

PwC Chair and Senior Partner in the U.S. Tim Ryan is not concerned. “There’s always a risk in leading. We’re not perfect, but we’re massively investing to make sure everything we do is with improvement.”

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