Tag Archives: carbon credits

The $22 Trillion Global Carbon Market

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Two of the world’s biggest oil companies, Royal Dutch Shell  and BP already have significant carbon-emissions trading arms, thanks to a relatively well-developed carbon market in Europe. Big carbon emitters such as steel producers receive emission allowances, and can buy more to stay under European emissions guidelines. Companies that fall below those limits can sell their excess carbon-emissions allowances.

Carbon traders get in the middle of those transactions, seeking to profit from even small moves in the price of carbon and sometimes betting on the direction of prices. The value of the world’s carbon markets—including Europe and smaller markets in places such as California and New Zealand—grew 23% last year to €238 billion, equivalent to $281 billion.

That is small compared with the world’s multitrillion-dollar oil markets and to other heavily traded energy markets, such as natural gas or electricity. But growth potential exists, the industry says. Wood Mackenzie, an energy consulting firm, estimates a global carbon market could be worth $22 trillion by 2050… An experienced carbon trader’s base salary can be roughly $150,000 to $200,000, although a lot of compensation occurs via bonuses, traders said…. BP’s overall annual trading profits were between $3.5 billion and $4 billion during the past two years, according to a person familiar with the matter.

Excerpts from Sarah McFarlane, Energy Traders See Big Money in Carbon-Emissions Markets, WSJ, Sept. 9, 2021

Can We Change Path? Saving Forests and Cutting Carbon

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No ecosystem is more important in mitigating the effects of climate change than tropical rainforest. And South-East Asia is home to the world’s third-biggest patch of it, behind the Amazon and Congo basins. Even though humans release carbon from these forests through logging, clear-felling for agriculture and other disruptions, some are so vast and fecund that the growth of the plants within them absorbs even more from the atmosphere. The Congo basin, for instance, locks up 600m tonnes of carbon a year more than it releases, according to the World Resources Institute (WRI), an international NGO that is equivalent to about a third of emissions from all American transport.

In contrast, such is the extent of clearing for plantations in South-East Asia’s rainforests, which run from Myanmar to Indonesia, that over the past 20 years they have turned from a growing carbon sink to a significant source of emissions—nearly 500m tonnes a year. Indonesia and Malaysia, home to the biggest expanses of pristine forest, have lost more than a third of it this century. Cambodia, Laos and Myanmar, relative newcomers to deforestation, are making up for lost time.

The Global Forest Watch, which uses satellite data to track tree cover, loss of virgin forest in Indonesia and Malaysia has slowed for the fourth year in row—a contrast with other parts of the world…The Leaf Coalition, backed by America, Britain and Norway, along with such corporate giants as Amazon, Airbnb, and Unilever, aims to create an international marketplace in which carbon credits can be sold for deforestation avoided. An initial $1bn has been pledged to reward countries for protecting forests. South-East Asia could be a big beneficiary,

Admittedly, curbing deforestation has been a cherished but elusive goal of climate campaigners for ages. A big un initiative to that end, called REDD+, was launched a decade ago, with Indonesia notably due for help. It never achieved its potential. Projects for conservation must jump through many hoops before approval. The risk is often that a patch of forest here may be preserved at the expense of another patch there. Projects are hard to monitor. The price set for carbon under the scheme, $5 a tonne, has been too low to overcome these hurdles.

The Leaf Initiative would double the price of carbon, making conservation more attractive. Whereas buyers of carbon credits under REDD+ pocketed profits from a rise in carbon prices, windfalls will now go to the country that sold the credits. Standards of monitoring are much improved. Crucially, the scheme will involve bigger units of land than previous efforts, the so-called jurisdictional approach. That reduces the risk of deforestation simply being displaced from a protected patch to an unprotected one.

Excerpts from Banyan: There is hope for South-East Asia’s beleaguered tropical forests, Economist, May 1, 2021

Buy Carbon Stored in Trees and Leave it There

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For much of human history, the way to make money from a tree was to chop it down. Now, with companies rushing to offset their carbon emissions, there is value in leaving them standing. The good news for trees is that the going rate for intact forests has become competitive with what mills pay for logs in corners of Alaska and Appalachia, the Adirondacks and up toward Acadia. That is spurring landowners to make century-long conservation deals with fossil-fuel companies, which help the latter comply with regulatory demands to reduce their carbon emissions.

For now, California is the only U.S. state with a so-called cap-and-trade system that aims to reduce greenhouse gasses by making it more expensive over time for firms operating in the state to pollute. Preserving trees is rewarded with carbon-offset credits, a climate-change currency that companies can purchase and apply toward a tiny portion of their tab. But lately, big energy companies, betting that the idea will spread, are looking to preserve vast tracts of forest beyond what they need for California, as part of a burgeoning, speculative market in so-called voluntary offsets.

One of the most enthusiastic, BP PLC, has already bought more than 40 million California offset credits since 2016 at a cost of hundreds of millions of dollars. In 2019, the energy giant invested $5 million in Pennsylvania’s Finite Carbon, a pioneer in the business of helping landowners create and sell credits. The investment is aimed at helping Finite hire more foresters, begin using satellites to measure biomass and drum up more credits for use in the voluntary market.  BP has asked Finite to produce voluntary credits ASAP so they can be available for its own carbon ledger and to trade among other companies eager to improve their emissions math. As part of its shift into non-fossil-fuel markets, BP expects to trade offset credits the way it presently does oil and gas.“The investment is to grow a new market,” said Nacho Gimenez, a managing director at the oil company’s venture-capital arm. “BP wants to live in this space.”

Skeptics contend the practice does little to reduce greenhouse gases: that the trees are already sequestering carbon and shouldn’t be counted to let companies off the hook for emissions. They argue that a lot of forest protected by offsets wasn’t at high risk of being clear-cut, because doing so isn’t the usual business of its owners, like land trusts, or because the timber was remote or otherwise not particularly valuable.

If other governments join California and institute cap-and-trade markets, voluntary offsets could shoot up in value. It could be like holding hot tech shares ahead of an overbought IPO. Like unlisted stock, voluntary credits trade infrequently and in a wide price range, lately averaging about $6 a ton, Mr. Carney said. California credits changed hands at an average of $14.15 in 2019 and were up to $15 before the coronavirus lockdown drove them lower. They have lately traded for about $13.

These days, voluntary offsets are mostly good for meeting companies’ self-set carbon-reduction goals. BP is targeting carbon neutrality by 2050. Between operations and the burning of its oil-and-gas output by motorists and power plants, the British company says it is annually responsible for 415 million metric tons of carbon emissions.

Excerpts from Emissions Rules Turn Saving Trees into Big Business, WSJ, Aug. 24, 2020

The Green Climate Fund and COVID-19

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 The Green Climate Fund has promised developing nations it will ramp up efforts to help them tackle climate challenges as they strive to recover from the coronavirus pandemic, approving $879 million in backing for 15 new projects around the world…The Green Climate Fund (GCF) was set up under U.N. climate talks in 2010 to help developing nations tackle global warming, and started allocating money in 2015….

Small island states have criticised the pace and size of GCF assistance…Fiji’s U.N. Ambassador Satyendra Prasad said COVID-19 risked worsening the already high debt burden of small island nations, as tourism dived…The GCF  approved in August 2020 three new projects for island nations, including strengthening buildings to withstand hurricanes in Antigua and Barbuda, and installing solar power systems on farmland on Fiji’s Ovalau island.

It also gave the green light to payments rewarding reductions in deforestation in Colombia and Indonesia between 2014 and 2016. But more than 80 green groups opposed such funding. They said deforestation had since spiked and countries should not be rewarded for “paper reductions” in carbon emissions calculated from favourable baselines…. [T]he fund should take a hard look at whether the forest emission reductions it is paying for would be permanent.  It should also ensure the funding protects and benefits forest communities and indigenous people…

Other new projects included one for zero-deforestation cocoa production in Ivory Coast, providing rural villages in Senegal and Afghanistan with solar mini-grids, and conserving biodiversity on Indian Ocean islands.  The fund said initiatives like these would create jobs and support a green recovery from the coronavirus crisis.

Excerpts from Climate fund for poor nations vows to drive green COVID recovery, Reuters, Aug. 22, 2020

The Privilege of Polluting v. Decarbonization

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The Paris climate agreement of 2015 calls for the Earth’s temperature to increase by no more than 2°C over pre-industrial levels, and ideally by as little as 1.5°C. Already, temperatures are 1°C above the pre-industrial, and they continue to climb, driven for the most part by CO2 emissions of 43bn tonnes a year. To stand a good chance of scraping under the 2°C target, let alone the 1.5°C target, just by curtailing greenhouse-gas emissions would require cuts far more stringent than the large emitting nations are currently offering.

Recognising this, the agreement envisages a future in which, as well as hugely reducing the amount of CO2 put into the atmosphere, nations also take a fair bit out. Scenarios looked at by the Intergovernmental Panel on Climate Change (IPCC) last year required between 100bn and 1trn tonnes of CO2 to be removed from the atmosphere by the end of the century if the Paris goals were to be reached; the median value was 730bn tonnes–that is, more than ten years of global emissions…

If you increase the amount of vegetation on the planet, you can suck down a certain amount of the excess CO2 from the atmosphere. Growing forests, or improving farmland, is often a good idea for other reasons, and can certainly store some carbon. But it is not a particularly reliable way of doing so. Forests can be cut back down, or burned—and they might also die off if, overall, mitigation efforts fail to keep the climate cool enough for their liking. …But the biggest problem with using new or restored forests as carbon stores is how big they have to be to make a serious difference. The area covered by new or restored forests in some of the ipcc scenarios was the size of Russia. And even such a heroic effort would only absorb on the order of 200bn tonnes of CO2 ; less than many consider necessary.

The world has about 2,500 coal-fired power stations, and thousands more gas-fired stations, steel plants, cement works and other installations that produce industrial amounts of CO2. Just 19 of them offer some level of Carbon Capture and Storage (CCS), according to the Global Carbon Capture and Storage Institute (GCSI), an advocacy group. All told, roughly 40m tonnes of CO2 are being captured from industrial sources every year—around 0.1% of emissions.

Why so little? There are no fundamental technological hurdles; but the heavy industrial kit needed to do CCS at scale costs a lot. If CO2 emitters had to pay for the privilege of emitting to the tune, say, of $100 a tonne, there would be a lot more interest in the technology, which would bring down its cost. In the absence of such a price, there are very few incentives or penalties to encourage such investment. The greens who lobby for action on the climate do not, for the most part, want to support CCS. They see it as a way for fossil-fuel companies to seem to be part of the solution while staying in business, a prospect they hate. Electricity generators have seen the remarkable drop in the price of wind and solar and invested accordingly.

Equinor, formerly Statoil, a Norwegian oil company, has long pumped CO2 into a spent field in the North Sea, both to prove the technology and to avoid the stiff carbon tax which Norway levies on emissions from the hydrocarbon industry. As a condition on its lease to develop the Gorgon natural-gas field off the coast of Australia, Chevron was required to strip the CO2 out of the gas and store it. The resultant project is, at 4m tonnes a year, bigger than any other not used for EOR. But at the same time, what the Gorgon project stores in a year, the world emits in an hour.

In Europe, the idea has caught on that the costs of operating big CO2 reservoirs like Gorgon’s will need to be shared between many carbon sources. This is prompting a trend towards clusters that could share the storage infrastructure. Equinor, Shell and Total, two more oil companies, are proposing to turn CCS into a service industry in Norway. For a fee they will collect CO2 from its producers and ship it to Bergen before pushing it out through a pipeline to offshore injection points. In September Equinor announced that it had seven potential customers, including Air Liquide, an industrial-gas provider, and ArcelorMittal, a steelmaker.

Similar projects for filling up the emptied gasfields of the North Sea are seeking government support in the Netherlands, where Rotterdam’s port authority is championing the idea, and in Britain, where the main movers are heavy industries in the north, including Drax.

The European Union has also recently announced financial support for CCS, in the form of a roughly €10bn innovation fund aimed at CC S, renewables and energy storage. The fund’s purpose is not to decarbonise fossil-fuel energy, but rather to focus on CCS development for the difficult-to-decarbonise industries such as steel and cement.

Excerpts from, The Chronic Complexity of Carbon Capture, Economist, Dec. 7, 2019

Making a Fortune from Climate Change

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Eleven years ago Dharsono Hartono, a former JPMorgan Chase & Co. banker, spotted what he thought was a new way to make a fortune: climate change.The plan was to snap up rainforest in Borneo, preserve it from logging and sell carbon credits to big polluting companies in the developed world. The earth’s temperature was rising, and this was a way to profit by confronting the problem.  Investors around the world have poured money into assets like once-frozen farmland in Canada and groundwater basins in California, betting that warming temperatures will raise their value.  Another bet has been on what some investors hope will be the most profitable outcome of a warming climate: government regulation of carbon emissions. Those who correctly anticipate future government responses to climate change are likely to reap profits.

Mr. Hartono went in big. His company’s rain forest, a humid and swampy expanse home to orangutans and clouded leopards, is twice the size of New York City and has one of the largest carbon stores of any such project in the world.  Mr. Hartono has sold just 20% of his credits to environmentally conscious corporations voluntarily buying credits, and has lost around $20 million, burning through $5 million to $10 million a year in recent years. Other investors in Indonesia and Latin America who made similar bets, including one backed by Australian bank Macquarie Group , failed to sell credits and abandoned their rain-forest projects…

Only after actor Harrison Ford visited the project to shoot a documentary on climate change, and raised the issue with Indonesia’s forestry minister, did final approval come for most of the concession in October 2013. For an initial payment of around $3 million to the Indonesian government, Mr. Hartono’s company gained the rights to the forestland for 60 years.  By then, however, some environmentalists were questioning private carbon-selling projects like Mr. Hartono’s. They argued that buying up and preserving rain forest to sell credits wouldn’t decrease net deforestation, since palm-oil barons would simply work around the few protected plots in the forest.  U.S. legislation that would have put a price on carbon failed during the Obama administration. The European Union’s carbon market doesn’t include tropical forests amid worry that low-cost credits generated there would make it affordable to pollute…

The Paris climate accords are expected to lead to an international carbon market after 2020, where countries that exceed emissions targets can purchase offset credits from countries that reduce emissions beyond their targets, potentially opening up new opportunities for Mr. Hartono.

Excerpts fom One Man’s Money Draining Bet on Climate Change, WSJ, Dec. 27, 2018

Keep Forests Standing: the forests bond

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Launched on November 1, 2016, the Forests Bond will provide investors the opportunity to invest in a traditional financial product that offers the unique option of receiving interest payments in the form of environmental impact — in this case, verified carbon credits generated through REDD, an initiative that rewards landholders for protecting forests, thereby reducing carbon emissions that worsen climate change. The development of the bond is a collaboration of the International Finance Corporation (IFC), a member of the World Bank Group, and BHP Billiton with technical support from Baker & McKenzie and Conservation International (CI).

REDD (short for Reducing Emissions from Deforestation and forest Degradation), which offers financial incentives to landholders in tropical countries to keep their forests standing, has met with mixed success since its launch in 2005, in part because the lack of a carbon market left it dependent on voluntary action and bereft of the certainty needed to attract private funding.

“If you look at the scale of the problem, roughly US$ 100 billion to 300 billion needed to cut deforestation by half over the next decade, it’s clear that we need to mobilize private institutional investors, who control vastly greater amounts than public or philanthropic aid can deliver,” said Agustin Silvani, Conservation International’s vice president of conservation finance. “The REDD mechanism has mostly excluded them because it required specific carbon expertise or a specific interest in forests to engage with it.”

The Forests Bond supports a REDD project in Kenya, and investors can choose between a cash or carbon credit coupon (the interest received from the bond), or a combination of both. This unique element of the bond is made possible by the price support that BHP Billiton**is providing, which means that investors can either 1) elect to take the carbon credits to offset corporate greenhouse gas emissions or 2) sell them on the carbon market, or 3) take a traditional financial return instead. This provides the certainty needed to attract institutional investors while still generating verified reductions in deforestation, in the form of REDD credits…

The REDD project that the Forests Bond will support takes place in the Kasigau Corridor in eastern Kenya….Forest protection activities include forest and biodiversity monitoring, funding for community wildlife scouts, forest patrols, social monitoring and carbon inventory monitoring. Community development activities include reforestation of Mount Kasigau; establishment of an eco-charcoal production facility; support to community-based organizations; and expanding an organic clothing facility.

The bond is listed on the London Stock Exchange and has raised US$152 million from institutional investors.

**BHP Billiton is providing a price support mechanism of US$12 million that ensures that the project can sell a pre-defined minimum quantity of carbon credits every year until the Bond matures, whether or not investors in the Bond elect to receive carbon credit coupons.

Excerpt from Bruno Vander Velde  New bond aims to unlock private investment to protect forest, Reuters, Nov. 1, 2016 and BHP Billiton and IFC collaborate on new Forests Bond, Press Release of BHP Billiton, Nov. 1, 2016

Madagascar Sells Polluting Rights to Microsoft

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Madagascar’s government has agreed to sell forest-related carbon credits to Microsoft and Zurich’s zoo, which will help protect the Makira National Park, in the first sale of state-owned REDD+ credits in Africa, according to the group that manages the park.  The Wildlife Conservation Society (WCS), an international charity headquartered in New York City, said the revenues from selling carbon credits generated by avoided deforestation in Makira will finance the conservation of one of Madagascar’s most pristine rainforest ecosystems, while supporting the livelihoods of local people.

The funds will be used by the government for activities under its Reducing Emissions from Deforestation and Forest Degradation “plus” conservation (REDD+) programme, and by WCS to manage Makira park. But the largest share – half of the proceeds – will go to support local communities in areas around Makira for education, health and other projects, WCS said.

The Makira forest, which spans nearly 400,000 hectares (over 1,500 square miles), is home to an estimated 1 percent of the world’s biodiversity, including 20 lemur species, hundreds of species of birds, and thousands of plant varieties, some unique to the location. The forests also provide clean water to over 250,000 people in the surrounding landscape.

Jonathan Shopley, managing director of The CarbonNeutral Company, which handled the purchase for Microsoft, said its clients are increasingly looking for opportunities to manage the entire environmental impact of their organisation, driven by the need to make their supply chains more resilient…In Madagascar, burning for agricultural land and extraction of wood for household energy leads to around 36,000 hectares (139 square miles) of natural forest being lost each year, WCS said.

BY MEGAN ROWLIN, Madagascar: Microsoft Buys Carbon Credits From Madagascar Rainforest, AllAfrica.com, Feb. 13, 2014