Big companies are already spending as much as $800 a ton to buy carbon credits. That’s 10 times the price of allowances in the EU, the world’s biggest CO2 market.
Why are they doing this?
It’s not because they are greenwashing.
It’s because they genuinely think people will pay a small premium for consumer products that are carbon neutral.
While $800 sounds like a lot for something that’s free across 75% of the world (most polluters don’t pay a brass razoo per ton), when translated to a carbon-neutral cup of coffee it’s only a couple of cents.
Nick Gogerty, managing director of Carbon Finance Labs, says embedded carbon is going to get very real quite quickly.
While the “carbon discovery” process is just beginning in each industry for each product, it’s being spurred by carbon border policies such as that in the EU, the Paris climate deal, net-zero targets of the biggest corporates and climate clubs.
Companies have fiduciary duties to meet their net zero targets.
“One of the things you may not realise is anyone who has a net zero commitment is short a market that doesn’t exist yet.
“And that market is the removals market. You have a financial liability with that declaration, a net zero commitment, and the only way to meet that is with a removal.
“And if you’re the CFO with your fiduciary responsibility, you should be thinking ‘uh oh’. And there’s gonna be a lot more of those ‘uh ohs’ out there in the future.
“We of course are here to try and help solve that.
Emitting companies have “a massive forward liability for a market that doesn’t yet exist. And that liability keeps growing — and growing very, very rapidly. 10s of billions of dollars,” and it’s becoming so much more than that.
“The world is changing. And the question I just put forward — how much carbon is in that thing? — is going to become very real,” he told the European Carbon Summit in Barcelona today.
“It’s no longer about hearts and minds and environments. It’s about wallets,” Gogerty said.
Global carbon prices and revenues have surged to a record, the World Bank said today.
Last week G7 Leaders agreed to “explore establishing an open, cooperative international Climate Club to support the implementation of the Paris Agreement, consistent with international rules and with participation beyond the G7. We are committed to achieving a true paradigm shift, by demonstrating that ambitious climate action is conducive to strong and sustainable growth for all economies.”
That’s why it’s getting real, even if some nations may stay outside the club, for now.
“If you want to see action, connect something to someone’s wallet — you’re gonna see a lot of action — and a lot of demand to manage the risk exposure or to stay in business,” Gogerty said.
Even the carbon content of crude oil or natural gas used to make each product will become important when determining the product’s carbon content, he said. Wal Mart in the US is already doing this.
“The oil example I gave you earlier — (where there’s a $20 a barrel discount or premium depending where it is extracted around the world) — that same case is going to exist for steel.
“If you make steel in China, you have three times the carbon, than steel from the EU or the US. The same is going to be with the plastics, etc.
“Every single product has a hidden carbon story in it. That story is going to be revealed.
“Some people can make a lot of money, some people are going to go out of business. Hopefully we get a better environment out of that discovery process.”
China is among countries questioning whether CBAMs and climate clubs are being designed to improperly limit world trade / create trade barriers. The WTO and UNFCCC is trying to overcome these concerns.