Canadian Pension Plan Invests in Carbon Credits

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Canadian Pension Plan Invests in Carbon Credits

The Canadian Pension Plan Investment Board (CPP Investments) and Conservation International announced a new partnership to invest in nature-based climate solutions (including Carbon Credits). This partnership is the first of its kind between a global asset owner and an established NGO.

Their goal is to support the development of high-quality offset projects that will reduce global carbon emissions.  These projects will take place in Brazil, Chile, Columbia, and Peru and span 20 million hectares of land (approximately 49,000,000 acres). This can prevent more than four million metric tons of carbon from being released into the atmosphere each year.

The first project will take place at the Amarakaeri Communal Reserve in Peru.

“We’re very excited to form this unique partnership with Conservation International, one of the world’s leading conservation organizations with a strong scientific focus and operating expertise,” said Bruce Hogg, Managing Director and Head of the Sustainable Energies Group at CCP.

“This new partnership adds to our investments in important and growing industries that help enable the energy evolution through our Innovation, Technologies and Services strategy, in support of our Sustainable Energies program and overall investment mandate.”

All projects will be verified under a United Nations-backed framework called the Reduced Emission from Deforestation and Forest Degradation (REDD+) program.

Agustin Silvani, Senior Vice President of Conservation Finance at Conservation International, said, “Together with CPP Investments, we’re setting our sights on projects that protect nature, reduce emissions, provide sustainable sources of income for local communities, and at the same time are economically attractive. That’s a win-win-win for companies committed to decarbonization, people, and the planet. Our aim with this partnership is to make carbon markets work for the communities that are helping to protect nature and fight climate change.”

CPP will initially contribute $20 million, and Conservation International, $500,000. They expect to expand the partnership to additional investors over time.

This announcement is significant to the carbon credit industry, which has expanded over the past year alone. Designed to offset carbon emissions, improve the environment, and drive economic development, many see carbon credits as part of the answer to combat climate change.

The global carbon market is expected to reach $22 trillion by 2050.

United Arab Emirates Becomes the First Persian Gulf State to Aim for 2050 Net Zero

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United Arab Emirates Becomes the First Persian Gulf State to Aim for 2050 Net Zero

The United Arab Emirates has become the first Persian Gulf petrostate to Aim for net-zero carbon emissions by 2050. The UAE is among the world’s highest emissions per capita, and has committed over $165 billion towards the transition to clean energy.

Many believe this is a very ambitious plan and can help strengthen the global Net-Zero initiative. It also put additional pressure on Saudi Arabia and others in the region to make a similar vow.

The United Arab Emirates is a member of the OPEC, which has a more optimistic view on the future of oil.

Under a business-as-usual scenario, the cartel believes that demand for fossil fuels will only peak in the 2040s. And the International Energy Agency sees the world consuming up to 24 million barrels of oil per day by 2050, down from approximately 100 million presently, under its scenario for reaching net-zero.

There is a loophole in the UN standards, for net-zero as it only takes into account emissions created “within” a country’s borders and would only include the extraction and processing of exported fuel.

The UAE has no intention of abandoning fossil fuels anytime soon though. The Abu Dhabi National Oil Company (ADNOC), the state energy powerhouse, plans to raise its oil production capacity to 5 million barrels per day within a decade, up from a little over 4 million.

The aim is that these emissions will be offset by absorbing and burying carbon dioxide or growing trees by then.

Despite the UAE’s decades of efforts to diversify the economy, the UAE is strongly reliant on oil and gas exports, which account for over 30% of its GDP.

“The UAE net-zero initiative will provide us with precision and boost our efforts to accelerate the energy transition,” the Department of Energy of Abu Dhabi, the capital, said in a statement.

The new deadline aligns the UAE with the majority of major economies, and scientists believe it provides the world a fighting chance of averting the worst effects of global warming.

The UAE has already begun to improve its environmental status and the International Renewable Energy Agency is headquartered in Abu Dhabi. The city’s $240 billion sovereign wealth fund, Mubadala, has made significant investments in its renewable-energy subsidiary Masdar.

ADNOC has also begun testing shipments of blue hydrogen, a fuel considered critical to the energy transition.

This pledge is the most recent from governments ahead of the United Nations-sponsored COP26, which is being held in Glasgow in early November. This may also help strengthen the UAE’s ambition to host the 2023 climate conference, COP28.

Russia Announces First Carbon Capture Facility

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Russia Announces First Carbon Capture Facility

The Ministry of Science and Higher Education of the Russian Federation announced the creation of Russia’s first-ever carbon capture facility, located in Tomsk off the floodplain of the Ob River.

Additional plans include constructing a carbon farm to develop and test carbon absorption, neutralization, and recycling technologies.

“The Tomsk regional carbon test site will become a part of the test site network created under the order of Vladimir Putin. The network will solve both climate and economic issues,” said Lyudmila Borilo, executive director of the TSU Center of Excellence

This project is the first of its kind in Russia. Russia accounts for 4.6% of the world’s greenhouse gas emissions, behind China, the United States, and India.

The Russian President has also ordered the creation of 80 additional carbon test sites to monitor and study the carbon cycle across different ecosystems. The goal is to assess the natural carbon balance of Russia to implement initiatives that drastically reduce emissions.

According to Borilo, “The numbers are not in our favor. The EU data states that German forests absorb ten times more carbon than the Russian. It is obviously untrue, but we need to prove it. A network monitoring all the country’s major ecosystems will provide the necessary data and prove that Russia, with its natural resources, does an ecosystemic favor to the whole planet. It needs to be counted towards the carbon quota allocation under the Paris treaty.”

It is important to note that there is an economic factor at play here as well. With pending EU taxes concerning carbon, accurate measuring is needed. Russia could expect to pay billions while losing the ability to export products with a high carbon footprint (such as metal, oil, and wheat).

This is one of the reasons the carbon credit industry is booming – companies need to find ways to offset carbon as quickly as possible.

Regardless of the motive, with China, the EU, the US, and many others focused on reducing carbon through additional regulations, innovative technologies, and carbon offsetting, it feels as if the world is on its way to meeting net-zero goals.

 

Fossil Fuel Industry Benefits From $5.9 Trillion in Subsidies a Year

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Fossil Fuel Industry Benefits From $5.9 Trillion in Subsidies a Year

The International Monetary Fund has found that the Fossil Fuel industry benefits from $11 million in subsidies per minute. No, you didn’t read that wrong. $11M per minute.

Coal, oil, and gas were subsidized by $5.9 trillion in 2020. At a minimum, prices were 50% below their actual costs for 99% of coal, 52% of diesel, and 47% of natural gas. Two-thirds of the subsidies resulted from 5 countries, which happen to be the top-five carbon producers globally: China, the US, Russia, India, and Japan.

Without action, the IMF expects subsidies to rise to $6.4 trillion by 2025.

If fuel prices that reflected the actual cost were set, global carbon emissions would drop by over a third, helping the world meet its Paris Agreement targets.

With the COP26 summit approaching, IMF researchers believe there is no better time to call for fossil fuel price reform. They feel that ending these subsidies could prevent nearly a million deaths a year from dirty air while raising trillions of dollars for governments across the globe.

According to Ian Parry, the lead author of the IMF report, “Some countries are reluctant to raise energy prices because they think it will harm the poor. But holding down fossil fuel prices is a highly inefficient way to help the poor because most of the benefits accrue to wealthier households. It would be better to target resources towards helping poor and vulnerable people directly.”

“The IMF report is a sobering reading, pointing to one of the major defects of the global economy,” said Maria Pastukhova, at the thinktank e3g. “The IEA’s net-zero roadmap projects that $5T is necessary by 2030 to put the world on the pathway to a climate-safe world. It is maddening to realize the much-needed change could start happening now, if not for governments’ entanglement with the fossil fuels industry in so many major economies.”

Fifty countries have committed to achieving net-zero emissions by 2050. Many are using offsets and implementing new regulations.

Though the carbon credit industry is booming and technological advances are happening, meeting these goals is still a long way away. Removing the subsidies while further expanding the carbon markets and technological innovation can help improve the environment while sparking economic growth.

This report by IMF shows there is still much progress to be made.

KraneShares Announce 2 new Carbon ETF’s – KEUA & KCCA

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KraneShares Announce 2 new Carbon ETF’s – KEUA & KCCA

Based on investor interest in KRBN (KraneShares Global Carbon ETF), the firm has launched two additional carbon allowances-focused ETFs.

“Through the phenomenal success of KRBN, we learned that many of our clients also want targeted exposure to the underlying markets,” said Luke Oliver, managing director and head of strategy at KraneShares.

“KEUA and KCCA provide access to the component carbon allowance markets at various stages of their growth cycle. With these new ETFs, investors can take a customizable precision-approach to invest in carbon markets.”

The KraneShares European Carbon Allowance ETF (KEUA) and the KraneShares California Carbon Allowance ETF (KCCA) are the new funds.

KEUA – Provides exposure to the European Union Allowances cap-and-trade carbon allowance program solely, and is actively managed with a 0.79% expense ratio.

The benchmark for the fund is the IHS Markit Carbon EUA Index, which follows the most-traded EUA futures contracts in the market, which is the oldest and most liquid for carbon allowances.

The market presently covers around 40% of all EU emissions, covering 27 member states as well as Norway, Iceland, and Liechtenstein. In an effort to reach long-term carbon emission targets, the yearly cap reduction was recently boosted from 2.2% to 4.2%.

KCCA– Provides exposure to the California Carbon Allowances cap-and-trade carbon allowance scheme solely, and is actively managed with a 0.79% expense ratio.

The fund’s benchmark is the HIS Markit Carbon CCA Index, which measures the most actively traded CCA futures contracts in a market that covers around 80% of California’s greenhouse gas emissions and has also covered Quebec’s emissions since its expansion in 2014.

The cap is now set to drop by 4% each year in order to achieve future carbon emission targets, and it has a built-in floor price that increases by 5% per year, plus an inflation adjustment.

 

Both funds may invest in carbon credit futures with different maturity dates than the index, or they may weight futures differently than the index. The fund may trade in CTFC-regulated futures and swaps beyond the CFTC 4.5 limit and is thus classified as a “commodity pool.”

Many countries and regions have implemented carbon-cap-and-trade programs, which limit how much carbon an individual firm can produce before needing to acquire allowances to offset extra emissions.

KraneShares presently invests in markets that have cap-and-trade schemes tied to emissions limits imposed by the Paris Agreement.

By establishing such programs, investors and markets can collaborate to put pressure on corporations to reduce emissions when exceeding the emissions limit becomes increasingly expensive.

Both funds join the increasing array of carbon allowance-focused ETFs, which includes the KRBN, which presently invests in the EU and North American markets, whereas the two new funds will each target a single market.

Formula 1 is Going Net Zero

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Formula 1 is Going Net Zero

Professional motorsports are getting the green light.

First, there was the Formula E (all-electric) series which started in 2014, and now is a FIA World Championship series, making it the first single-seater racing series outside of Formula One to be given world championship status.

Now the clean energy movement has reached the pinnacle of motorsports – F1.

Formula 1 recently announced that they are working on developing a new fuel for its next-generation engines intended to produce the same high-end performance while emitting net zero carbon dioxide.

In 2022 F1 will be using a blended fuel, 90% Fossil fuel, and 10% Ethanol.

This is just the first step in the longer race towards their stated 2030 NetZero goals.

The next major step will begin in 2025 when F1 announced that will begin using 100% “sustainable fuels” for their next-gen engines.

Formula 1 is working with fuel companies to creating the fuel in the quantities needed for the motorsport circuit. Then they plan on scaling up production for wider social use.

The fuel will be lab-created and using components from municipal waste, carbon capture schemes, or non-food biomass. The fuel will be 100% ‘drop in’ meaning that it can still power standard Internal Combustion Engines (ICE).

F1 believes that this 100% sustainable fuel will be available to use in the millions of internal-combustion vehicles still on the roads until the Electric Vehicle market beings to takeover.

This is good news as the full transition to Electric Vehicles will take decades to complete. According to IEA, Electric Vehicles sales are expected to account for 40% of total passenger car sales by 2030, but this will only equate to 13% of the global car fleet.

This new sustainable fuel could be the perfect transitionary fuel source.

Is Rio de Janeiro the Next Carbon Credit Hub?

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Is Rio de Janeiro the Next Carbon Credit Hub?

Over the past several years, Brazil’s image has been tainted through the practice of deforestation. To improve their environmental standing, Rio de Janeiro has made plans to establish a specialized exchange that will trade environmental assets.

According to Chicão Bulhões, Rio de Janeiro’s Secretary for Economic Development, their goal is to create tax incentives to fuel this market, consolidating the world’s most accepted regulatory standards to provide its framework. The plan is to launch by the end of the year.

“Brazil will be one of the biggest players in this market, which, as it is voluntary, has global reach. Companies around the world can buy credits to offset their emissions from anywhere else.”

With the global carbon market anticipated to reach $22 trillion by 2050, the city’s desire to tap into this can drive growth even further.

Bulhões hopes that as companies worldwide purchase credits to offset their own carbon emissions, Rio de Janeiro’s economy will strengthen, all through low-carbon initiatives, such as reforestation, seed, fertilizer production, and more.

The goal of this exchange goes beyond just the carbon credit industry. Bulhões has said they “Want to attract agents interested in trading all environmental assets, such as reverse logistics credits and environmental reserve quotas, which have great potential.”

Rio de Janeiro hosted the ECO 92 meeting that prompted the UN framework on climate change, which resulted in the Kyoto Protocol and the Paris Agreement. The city has celebrated these initiatives every 10 years since. As such, Bulhões believes this credit exchange is the natural next step. He hopes this will expand into Brazil as the country takes measures to combat the damage done to the Amazon rainforest.

In Brazil, the Amazon rainforest lost 10,129 square kilometers in 2019 – an increase of 34% from 2018 – and 11,088 square kilometers in 2020.

 

Biden’s Tax Credit for Carbon Capture – $85 / Tonne

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Biden’s Tax Credit for Carbon Capture – $85 / Tonne

Since US President Joseph Biden took office in January, Democrats and Republicans have gone back and forth on almost every piece of legislation. The new budget bill has been no exception. However, sources say top Democratic lawmakers have finally reached an agreement that includes increasing tax credits for industrial carbon capture projects.

If implemented, this agreement would expand the 45-Q tax credit for carbon capture projects in heavy industries, such as cement and steel, to $85 per metric ton.  Currently, the credit varies from just under $12 to $50 per ton.

This agreement does not cover coal and natural gas, a significant source of US carbon emissions. However, Senator Joe Manchin of West Virginia is pushing for coal and natural gas to be included. Doing so would help boost his state’s economy while improving the environment.

Since Senator Manchin is a right-leaning Democrat, his vote is key to the budget bill’s passage.

US Representative Cheri Bustos, a Democrat who has sponsored carbon capture legislation, said that raising the credit “Would drastically increase our carbon capture capacity by 2035 and create tens of thousands of new jobs.”

Many of these new jobs would be within ethanol and manufacturing plants that are in rural locations. Since many workers across more rural states feel left behind, a bill such as this could positively impact communities.

The carbon credit industry is expected to reach $22 trillion by 2050. This year alone, it has expanded as governments, companies, investors, and individuals recognize its potential to offset carbon and spark economic development.

The US is the second-largest greenhouse gas emitter globally, just behind China and before India, so action is needed. Biden has expressed that the US is committed to meeting emissions goals by rejoining the Paris Agreement.

Additional regulations, the carbon credit and offset industry, and innovative technological advances all have a role to play. Combating climate change was a significant campaign promise, and many feel Biden hasn’t delivered.

SEC Starts to Focus on Climate Change Impact

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SEC Starts to Focus on Climate Change Impact

The SEC recently published a sample comment letter on climate change disclosure. The goal is to make companies aware of what is coming down the pipeline in terms of disclosure for climate change.

Earlier in July, SEC Chair Gary Gensler asked agency staff to submit a mandatory climate risk disclosures proposal for review. These reports may be required in an expanded Form 10-K and describe a company’s direct and indirect carbon emissions, including those by suppliers and partners.

SEC disclosure rules may require companies to disclose current & potential future material impacts of climate change on the company’s business and financial condition and performance.

According to the SEC, “Information related to climate change-related risks and opportunities may be required in disclosures related to a company’s description of business, legal proceedings, risk factors, and management’s discussion and analysis of financial condition and results of operations.”

For now, the SEC is asking companies to provide information about climate change’s direct and indirect impact on their business. This includes the impact of regulations.

In the future, companies may need to report on greenhouse gas emissions, the financial effects of climate change, and progress towards climate-related goals.

Gensler said he wants investors to have access to “consistent, comparable, and decision-useful disclosures.”

The tools to combat climate change are here. Between technological innovation and carbon offsetting, it is possible to achieve net-zero emission goals.

The SEC is expected to release more information by the end of this year…

What Role Will Carbon Credits Play in the Race to Net Zero?

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What Role Will Carbon Credits Play in the Race to Net Zero?

The carbon credit industry is booming and with good reason!

Carbon offsets produced through the purchase of carbon credits can improve the environment and spark socio-economic growth.

When speaking about the carbon credit and offset industry, Australian Federal Energy and Emissions Reduction Minister Angus Taylor said, “The fact is, the world won’t achieve net-zero emissions without offsets, including cross-border offsets.”

The reason why? Offsets can make the transition to low emissions simpler as industries develop the technology needed to get there. Without offsets, it would be impossible for the world to keep rising temperatures below 1.5 Degrees Celsius, which the Paris Agreement requires.

The technology to bring us to net-zero isn’t quite there yet. In fact, one report by the Intergovernmental Panel on Climate Change in August found that the world would need to reduce carbon emissions by 45% by 2030 to meet the Paris Agreement’s goal. Unfortunately, with emissions on track to rise by 16%, temperatures may increase by 2.7C. Hence why carbon credits are so important.

Some aren’t so sure.

Standard Chartered Group CEO Bill Winters said that “The voluntary market, as we see it, has an absolutely critical role to play. [But] It’s always going to be a secondary role to the primary focus of reducing the carbon intensity of our economy in every possible way.”

Winters believes the voluntary markets are critical for two reasons:

1.) The markets can move billions into the hands of people who can perform projects that will help improve the environment; and

2.) When appropriately done, the market can provide a price for carbon that is accurate – forcing corporations and the public to make better choices when it comes to their carbon footprint.

His concern is due to a lack of standards, transparency, and in some cases, integrity concerning the verification process. Though some of these concerns are valid, they may not be for long.  The verification process is improving, with many entities working together to create global benchmarks.

With some additional regulation and reform, it is safe to say that carbon offsets will play a significant role in helping the world meet net-zero goals.

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