ENZYMES WORLD IS WORKING WITH COMPANIES LOOKING TO OFFSET THEIR GHG EMISSIONS

CARBON CREDITS AND VOLUNTARY OFFSET CARBON CREDITS CAN BE A VALUABLE SOURCE OF FINANCING FOR PROJECTS IN DEVELOPING COUNTRIES

ENZYMES SOLUTION TECHNOLOGY IS CREATING CARBON CREDITS AS A PROJECT DEVELOPER

Voluntary carbon markets: how they work, how they’re priced and who’s involved

  • 2021 will probably be remembered as the year when carbon finance emerged as a talking point among a wide range of industries.

  • In a market note released at the start of May, the most liquid carbon credits exchange currently, the New York-based Xpansiv CBL, shared a figure that made that clear: on May 7, CBL’s year-to-date carbon volume of more than 30 million tons of CO2 traded emissions was already approaching 2020’s full-year record of 31 million tons.

  • Among the 2021 new entrants in voluntary carbon markets, oil and gas majors, hedge funds and banks were heard as the most active players, resolutely taking positions in the market.

  • Voluntary carbon markets allow carbon emitters to offset their unavoidable emissions by purchasing carbon credits emitted by projects targeted at removing or reducing GHG from the atmosphere.

  • Companies can participate in the voluntary carbon market either individually or as part of an industry-wide scheme.

  • While compliance markets are currently limited to carbon credits from a specific region, voluntary carbon credits are significantly more fluid, unrestrained by boundaries set by nation-states or political unions. They also have the potential to be accessed by every sector of the economy instead of a limited number of industries.

  • The Task force on Scaling Voluntary Carbon Markets, sponsored by the Institute of International Finance with support from McKinsey, estimates that the market for carbon credits could be worth upward of $50 billion as soon as five main players make up the engine of carbon markets:

  1. Project developers represent the upstream part of the market, and produce carbon credits. Projects can range from large-scale, industrial style projects like a high-volume hydro-plant; to smaller community-based ones like clean cook stoves.

  2. The downstream market is made of end buyers: companies—or even individual consumers—that have committed to offset part or all of their GHG emissions. Among the early buyers of carbon credits were tech companies such as Apple and Google, airplane operators, and oil and gas majors, but more industry sectors are joining the market as they set their own net-zero targets.

  3. To link supply and demand, there are brokers and retail traders, just as in other commodity markets. Retail traders purchase large amounts of credits directly from the supplier, bundle those credits in portfolios, ranging from hundreds to hundreds or thousands of mtCO2e, and sell those bundles to the end buyers, typically with some commission.

  4. Brokers buy carbon credits from a retailer trader and market them to an end-buyer, usually with some commission.

  5. There is a fifth player unique to carbon markets. Standards are organizations, usually NGOs, which certify that a particular project meets its stated objectives and its stated volume of emissions.

  • Carbon credits can be grouped into three large categories or baskets: avoidance projects (they avoid emitting GHG’s completely), reduction (they reduce the volume of GHG’s emitted into the atmosphere) and removal (they remove GHG directly from the atmosphere).

  • But putting a price on carbon credits is far from a straightforward operation, mostly because of the wide variety of credits in the market. The nature of the underlying project is one of the main factors affecting the price of the credit. For example, community-based projects can be priced at premiums to industrial projects.

  • As of January 2021, the number of carbon credits issued by the largest Standards (UN Clean Development Mechanism, Verra, the American Carbon Registry, Climate Action Reserve and Gold Standard), totaled 3,110 million mt of CO2. Of these, 810 million mt were still available in January, while 2,300 million mt had already been offset and therefore retired, meaning that those credits had been used by buyers to offset their emissions.