June 14-23, 2022
Video link here
By Mathew Carr
London-based carbon consultancy Redshaw Advisors has teamed with others who say the voluntary carbon markets need sorting out because there’s a lot of mistrust and massive underinvestment in projects that cut emissions.
The markets, which are currently largely unregulated, should incentivise expensive emissions-removal technology, including carbon capture and storage / carbon removal, which needs to dominate the space by 2050.
If the world is going to achieve its net-zero target by about that year, all emission credits will be removing GHG by then, said Louis Redshaw, CEO and founder of Redshaw. All other carbon credits won’t be valid because clean tech will be “business as usual”.
(Today, the credits incentivize renewable energy, climate friendly farming and energy efficiency, etc)
The idea of Net Zero Markets, a collaboration of traders and exchanges (see snip and PDF slides below), is to tweak the markets right now to put them on a more focused trajectory that better speeds the climate transition during the next three decades.
At the moment, companies and consumers voluntarily buy the carbon credits in a bid to smooth their transition away from fossil fuels. (They have to do this in Europe because of the mandatory carbon market.)
While the voluntary carbon credits are the focus of a lot of unfair, ill-informed criticism, the lack of clear oversight and some sharp practices are preventing the market’s take off more than three decades after the world decided to tackle climate change.
Opacity and mistrust that swirl in the market today breed some “quite negative” behaviors, including profiteering and even criminal activity / fraud, Redshaw said Tuesday in a refreshingly frank online briefing.
Net Zero Markets grouped the market into four buckets of carbon credits in a bid to create transparency. I’m not sure it has the buckets completely right, but by forming a weighted average based on how the various credits are being traded and cancelled (used) in reality, the market will become more credible.
Here’s the proposed “solution” in one chart.
The weighted average price of the combined buckets is called the Global Emission Reduction, or GER, Redshaw said. (Other companies and exchanges are also grouping together markets to form indexes, too.)
This is a bit new: By having a single, hybrid carbon offset that represents how the market is using carbon credits right now, traders can attain a reliable and credible indication of the entire market, which will help repair the perception of it, Redshaw said.
For carbon capture / carbon removal credits, which currently are the most expensive because they include the testing of direct-air capture technology, for instance: “Very, very high prices will lead to low take up” and supply of expensive credits is low anyhow, at the moment, Redshaw said.
“Demand is the key to success of scaling the voluntary carbon market,” Redshaw said later by email, clarifying. “You make the price too high, basic economics tells you that you decrease demand.
“To grow demand: by making the market more trustworthy and accessible then, once the corporates are committed to being carbon neutral, any rise in price has a higher chance of being acceptable.
“Ideally supply comes on tap to meet demand and price remains manageable.
“Certainly there are many low-hanging fruits still out there to help keep a lid on things (to help prevent prices rising too fast).
“A growing market, even with only a small proportion of removals at the outset, means more money being available for removals projects – with the GER.”
Carbon removal credits are being offered to change hands for about $200-$600 a ton vs about $8 a ton for a GER.
The high price and small volume is partly why the CCC bucket is such a thin sliver now (about 1%), Redshaw said (see chart below for evolution over time).
He acknowledged the GER would evolve, as would, potentially, the theory behind it.
One problem is there is not even a thin sliver for afforestation credits, he said.
For afforestation credits (credits generated by newly planted forests), the problem today is there is very little afforestation, Redshaw said. “There are few sellers. Sustaining a market and creating a price is very, very difficult.”
CarrZee comment: Net Zero Market’s analysis and initiative are helpful, yet even they won’t solve the world’s wider market-structure problems that are preventing a fast-enough climate transition.
For one, the global markets are not rewarding the absorption of CO2 via existing forests, at all, right now.
This is extremely annoying for countries like Brazil, Indonesia and others.
For instance, the Congo Basin rainforest in Central Africa is Earth’s African lung, according to the Mail & Guardian:
“With an area as big as Western Europe, it is the second-largest rainforest in the world. It absorbs 4% of global carbon dioxide emissions every year, offsetting more than the whole African continent’s annual emissions. This represents about 1.1-billion metric tons of carbon dioxide per year — three times the amount emitted by the U.K. in 2019. The Basin is also Africa’s thermostat as it regulates rainfall patterns, critical to dry areas in the Sahel region and beyond.”
At climate talks in Bonn, Germany, envoys were seeking to find ways to link up voluntary markets and those markets and incentives being created under the Paris climate deal.
Those markets and incentives are arguably already three years late (Paris struck in 2015 was meant to begin in 2020).
I reckon, though, there’s still a chance to get these voluntary markets, regulations and Paris incentives working together.
By 2050, the world will probably need to be removing more GHG from the atmosphere than it puts up there— just to keep temperature from rising too high. See this slide from Net Zero Markets:
Hypothetical scenario to make a point about the importance of removals:
See charts here for how voluntary and Paris markets may evolve, merge:
(Adds Redshaw comments, links, context, logo; clarifies to say Net Zero Markets in headline)