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📄 "Future of Carbon Credits"

The Climate Change & Cleantech Show

Photo by Lukasz Szmigiel / Unsplash

Host: Dawn Van Zant
Guest: Jean-Pierre Colin | President & CEO | Galaxy Power Inc.
Category: 📄 Carbon Policy

Podcast’s Essential Bites:

[2:16] “You could divide the world of carbon credits into two kinds. Each carbon credit represents one metric ton of greenhouse gas emissions that are either avoided or removed from the atmosphere. So there's a number of greenhouse gases. They include carbon dioxide, CO2, nitrous oxides […]. By the general nomenklatur. In the industry, carbon credits are produced by developers and carbon offsets are retired by polluters, who wish to offset greenhouse gas emissions.”

[3:08] “There are numerous regulated and unregulated carbon credit markets throughout the planet. And we can segment them in two general groups. Generally, we call one group the compliance market, and the other group the voluntary carbon market. […] The compliance markets are regulated by government entities, they operate in various international jurisdictions. The carbon market values recently have reached all time highs in terms of their trading. So in early 2021, there was about $272 billion of compliance carbon credits being traded. That represents a 20% increase over 2019. […] And the total traded volume is estimated to be over 10 billion tonnes of carbon. […] As of June this year, I counted about 64 carbon pricing initiatives around the world in the compliance market. So they include the emission trading schemes that we call ETSs and carbon tax schemes, which are either currently implemented or scheduled to be implemented or under consideration. […] These initiatives would cover up just about over 11 gigatons of CO2 equivalent, and that represents about 21% of global GHG emissions.

[5:34] “Voluntary carbon credits are administered by independent non government organizations. These voluntary offset projects are often managed by international standards and international programs. And some are also managed by just local organizations. The voluntary carbon market is important because it's poised right now to expand dramatically in the years ahead. And that's driven by the global commitments to reduce emissions by 50% by 2030, and net zero by 2050.”

[6:52] “Generally, voluntary high quality carbon offsets from reputable projects and programs usually trade at a value between $20 to $35 per tonne […] per carbon credits across Canada in the US. […] To develop these voluntary offset projects, a project developer or project owner first has to select an offset standard or an offset program, under which that particular project can be developed. There are probably a dozen program authorities worldwide in the voluntary market, but there are four leading program authorities in the world. […] The largest one […] is the VERRA Program which is based out of Washington DC, but it's an international program. They created the verified carbon standard program. And it's the largest program worldwide with over 1,700 offset projects. And they have now registered over 500 million offsets in their program.”

[11:47] “It's worth mentioning also that an organization called CORSIA, which stands for the Carbon Offsetting and Reduction Scheme for International Aviation, that has been very successful. […] Since October 2016, they have been creating a voluntary offset program, which is represented now by airlines from 80 countries, which represents about 77% of international aviation emissions. These airlines have volunteered to offset their GHG emissions by buying these carbon credits. […] CORSIA has provided about $40 billion in funding through this mechanism for carbon for climate change projects. And they claim […] they will offset 2 billion tonnes between now and 2035.”

[13:07] “There's a problem and an opportunity in the carbon credit market. First of all, it's an unregulated market, even though there are voluntary organizations that create rules and regulations and procedures, there's no oversight to the carbon credit market. And […] many organizations and people have used different systems of oversight. So as a result, there's no real liquidity in carbon credits. There's no access to the traditional capital markets or the financial markets. There's no price discovery mechanism. And by that, I mean, it's very difficult for a developer to know […] what value or what price they could sell their carbon credits at. There [are] no organized marketing structures to raise money for developers and to trade carbon credits. And there's no regulatory environment with respect to trading and investing in carbon credits. There's no trading transparency. There are trades that are reported, but when you're actually trying to buy or sell a carbon credit, you don't know what the whole market is doing. There's no organized or regulated funding mechanisms. There's counterparty risk, because […] a buyer or seller of carbon credits, doesn't have the security of a stock exchange. […] There's no requirement either for continuous disclosure as there are in the securities market.”

[19:47] “Carbon avoidance projects are those that help avoid emission emitting greenhouse gas gas emissions into the atmosphere. And examples of that would be fuel switching activities or energy efficiency activities. Carbon carbon removal projects are also called carbon sequestration projects and those are the projects that sequester greenhouse gas emissions from the atmosphere. Examples include carbon capture and storage in concrete, for example, soil sequestration in agriculture. Those types of projects are generally known as removal projects.”

[21:07] “In the carbon credit market, we've also seen recently the development of a futures market. Actually, many different platforms will trade futures in carbon credits. And to understand that it's important to understand that demand […] high quality, voluntary carbon markets […] far exceeds supply. So what happens is, if you're an airline, and you have bought under CORSIA, all you can possibly buy, but you still have greenhouse gas emissions that you're producing and you want to offset them, […] you would dip into the voluntary carbon credit market to buy and retire those carbon credits. But then, if you're planning at this airline, you know you're going to fly in the next 10 years, you have projections of what your greenhouse gas emissions might be. So you may decide to buy carbon credits that don't exist yet or futures, where a developer says, I will create these carbon credits, but I will sell you these carbon credits today for just like in the future markets in commodities.”

[26:53] “Recently, we've seen trends of buyers looking to purchase offsets that are number one, preferably located where the buyers operate, so in the same jurisdictions or geographic areas. We're also seeing database projects like in transportation, and the reliance of the data becomes important to the credibility of the carbon credit. We've also seen carbon credits that are modeled, they’re computer projections. For example, to plant trees in a forest, you model how fast they will grow and how much carbon they will sequester. We also see a preference for nature based […] solutions for mangroves, agriculture. And we also see a preference for carbon credits that generate GHG removals, like carbon capture projects.”

[30:10] “The conclusion one can draw from that is that the carbon credit market is growing exponentially, there's evidence of […] demand exceeding supply. […] There are many new technologies also being developed, which will add to the reduction of GHG, globally and these technologies are also being certified as legitimate sources of verified carbon credits. So that adds to the supply of the voluntary carbon credit market. This is fostered by international airlines, transportation, multinationals, power utilities, oil and gas producers, mining operators, all these companies compete with each other for carbon credit.”

Rating: ⚡⚡⚡

🎙️ Full Episode: Apple | Spotify
🕰️ 33 min | 🗓️ 11/17/2021
✅ Time saved: 31 min