Tag Archives: Carbon emissions trading

The $22 Trillion Global Carbon Market

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

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

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 Carbon-Neutral Europe and its Climate Bank

The European Union (EU) Green Deal, a  24-page document reads like a list of vows to transform Europe into a living demonstration of how a vast economy can both prosper and prioritise the health of the planet. It covers everything from housing and food to biodiversity, batteries, decarbonised steel, air pollution and, crucially, how the EU will spread its vision beyond its borders to the wider world….The plan is large on ambition, but in many places frustratingly vague on detail.

Top billing goes to a pledge to make Europe carbon-neutral by 2050….Current policies on renewable energy and energy efficiency should already help to achieve 45-48% cuts by 2030. Green NGOs  would like to see the EU sweat a bit more and strive for 65% cuts by 2030, which is what models suggest is needed if the bloc is to do its share to limit global warming to 1.5-2ºC.

All this green ambition comes at a price. The commission estimates that an additional €175bn-€290bn ($192bn-$320bn) of investment will be needed each year to meet its net-zero goals. Much of this will come from private investors. One way they will be encouraged to pitch in is with new financial regulations. On December 5th, 2019 EU negotiators struck a provisional agreement on what financial products are deemed “green”. Next year large European companies will be forced to disclose more information about their impacts on the environment, including carbon emissions. These measures, the thinking goes, will give clearer signals to markets and help money flow into worthy investments.

Another lever is the European Investment Bank, a development bank with about €550bn on its balance-sheet, which is to be transformed into a climate bank. Already it has pledged to phase out financing fossil fuels by 2021. By 2025 Werner Hoyer, its boss, wants 50% of its lending to go to green projects, up from 28% today, and the rest to go to investments aligned with climate-change goals. Some of that money will flow into a “just transition” fund, worth €100bn over seven years. Job losses are an unavoidable consequence of decarbonising Europe’s economy; the coal industry alone employs around 250,000 people, mainly in eastern Europe. The fund will try to ease some of this pain, and the political opposition it provokes.

The Green Deal goes beyond the scope of previous climate policies. One area it enters with gusto is trade. Under the commission’s proposals, the eu will simply refuse to strike new trade deals with countries that fail to comply with the Paris agreement’s requirement that signatories must increase the scale of their decarbonisation pledges, known as “nationally determined contributions” or NDCs, every five years. That would mean no new deals with America while Donald Trump is president; it is set to drop out of the Paris agreement late in 2020. And, because the first round of enhanced ndcs is due next year, it would put pressure on countries that are dragging their feet on these, of which there are dozens—including China and India.

The deal also sketches out plans for a carbon border-adjustment levy. Under the eu’s emission-trading scheme, large industries pay a fee of about €25 for every tonne of carbon dioxide they emit. Other regions have similar schemes with different carbon prices. A border-adjustment mechanism would level the playing field.

Excerpts from, The EU’s Green Deal, Economist, Dec. 2019

Madagascar Sells Polluting Rights to Microsoft

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