Host: Shayle Kann
Guest: Nat Bullard | Chief Content Officer | BloombergNEF
Category: 💬 Opinion | Carbon Markets
Podcast’s Essential Bites:
[2:51] SK: “ Let's start with four numbers: 1 trillion, 851 billion, 1 billion, 50 million. […] $1 trillion […] is the higher end of the size of the carbon removal market that is required by 2050 according to the IPCC, if you assume about 10 gigatons of carbon removal required at about $100 a ton. […] 851 billion that is indeed the size of the global carbon market today, the buying and selling of CO2 credits […] in 2021. […] But 1 billion out of that 851 billion, that's the entire size of the voluntary carbon market, the market outside what's regulated into existence largely by the European Union. […] 50 million […] is my honestly high end estimate of the total voluntary carbon removal purchases last year. So within an order of magnitude or so that the voluntary carbon removal market needs to scale up something like 20,000 times by 2050 in order to reach those IPCC goals, or it needs to no longer be voluntary.”
[4:11] SK: “But meanwhile, carbon markets, be they carbon avoidance, carbon removal, be they voluntary or compliance are hot. Tons of new companies are seeking to develop new kinds of credits, broker them, verify them, put them on the blockchain, and more. Prices and the main compliance markets have shot up and come a little bit back down, but still remain above historical norms. And bilateral contracts in voluntary markets are popping up right and left. […] But I think anyone involved in the voluntary carbon market today will tell you it's still very early days and there is much to be solved. And in the meantime, there is a very large liquid market for carbon that has been regulated into existence and should not be forgotten in the conversations around CO2 credits. “
[8:38] NB: “The EU ETS, the EU Emissions Trading Scheme, […] is $763 billion. In North America, the Western Climate Initiative and the Regional Greenhouse Gas Initiative, […] is about $55 billion. The UK, which now has its own baby carbon market, […] is about $26 billion [in 2021].”
[9:19] NB: “The EU ETS […] [had] quite a lot of price action last year. […] We had prices earlier this year […] approaching 100 euro per ton, which is quite a lot. That's the sort of number that […] should inspire quite a lot of change in behavior. But that price is actually, in this case, responding to events not used as a signal to then create change. And what it was was gas prices went high, so the heavy emitters in Europe, which in many cases are large power generators, had their fuel switch to coal. And if you switch to coal, you are outputting more carbon for every gigawatt hour […] generated. And so therefore the price to comply needs to go up.”
[13:08] NB: “In earlier years, there was actually an oversupply. The market was in many ways more efficient than people were expecting at creating emissions abatement and changing the emissions trajectory in Europe. And so the prices were too low, because there were too many credits. So there was an intervention to basically remove the number of credits that were there available in the market […]. So it's not that the market doesn't have some people stepping in here and there […] to make things happen, but it's happening in a very, very regulatory way.”
[18:38] NB: “There's […] a great deal of interest and attention, a great deal of uncertainty and in a productive way, a lot of questions that are attracting investor interest [in voluntary carbon markets]. […] There's this very, to my mind, nascent sense of what is and could be in many different dimensions, the best approach? […] What are the best market structures going to be? How to account? How to ensure that we're not double accounting things? And how to […] incentivize particular behaviors over time?”
[20:26] NB: “We have a couple of scenarios from looking at what prices could look like for carbon offsets all the way through the middle of the century. And just to give you an indication of […] how wildly divergent these are. If we stay in a world that's really very much like today, a voluntary market […] with […] largely worthless credits, […] not only drives down the price, it drives up the availability and […] in 2050 you'd have about a $47 a ton price for carbon. Now, if you only look at removing carbon, […] you can have prices that spike up to more than $200 a ton, and still settle in the range of $120 a ton by the middle of the century.”
[26:08] NB: “When we look at […] tech interests in carbon markets, the question we need to ask ourselves is this: Is tech solving carbon markets problems? Or are these carbon markets solving tech problems?”
[31:42] NB: “[Carbon markets] are very highly decentralized markets, because they don't have exchanges and Clearing Houses. And fortunately, there is a highly decentralized set of technologies that could help solve for that. That is basically web 3.0., a kind of user controlled and user programmable internet in a way. […] And then within that, you would think about blockchain being valuable as a way to track what is being happened specifically with each credit along the way that's being generated, such that you don't have double, triple or quadruple counting or whatever it is, because that information is indelibly recorded in a public ledger, which I think is actually particularly important.”
[46:32] NB: “From an investor perspective, […] [you’re backing carbon removal] companies, […] because these markets have a high degree of uncertainty today and a high degree of significance in the future. But more to the point, […] are there software kind of margins for many of these layers? […] And then are there winners who take on network effects? That I think is extremely important.”
Rating: ⚡⚡⚡⚡
🎙️ Full Episode: Apple | Spotify | Google
🕰️ 54 min | 🗓️ 03/24/2022
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