It’s still hard to spot ‘pink sheets’ carbon offsets

              It’s still hard to spot ‘pink sheets’ carbon offsets

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Last year was a bit tumultuous for the global carbon offsets market. Volumes diverged from the trend of the last half-decade, quality and durability came under scrutiny, and some trading strategies vanished completely.  There were scandals.  There were fires. 

The market is still poised to grow into billions of tons of carbon dioxide equivalent every year, as countries and companies pursue net zero goals. But the space between today’s hundreds of millions of tons, and the future’s billions of tons, is both fluid and fascinating. It is a parley of market visions and ultimate standards. 

The data from 2022 are important. Last year, more than a quarter billion tons of carbon offsets were issued, a slight increase over the year before and the fourth consecutive year of increasing issuance, according to BloombergNEF. However, it also appears that fewer offsets were claimed against emitters’ carbon footprints — a process that takes credits out of the market to prevent double counting. Carbon offset retirements fell slightly for the first time since 2016.

Think of issuance and retirements as supply and demand, respectively. If more offsets are retired, more will be needed to meet future demand – and so last year’s slight decline is worth examining.

The biggest challenge to the market has been a raft of scrutiny over quality, in particular offsets generated by forestry projects. Two factors are under examination. The first is the permanence of offsets generated by forestry as climate change-driven events like wildfires can return captured carbon back to the atmosphere. The second is additionality, and the degree to which an offset project is capturing carbon above and beyond what would be happening naturally.

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 While last year’s voluntary carbon market was fraught in places, its future is wide open. Or perhaps it’s better to say that the future market is actually a set of markets, each possible, and each quite different. 

BloombergNEF sees three scenarios for the types of offset markets that could run to mid-century. The first is a voluntary market scenario, similar to today’s, with offset prices that remain quite low even by 2050. Supply would be accordingly abundant, but low prices would do nothing to incentivize technologically-driven carbon removal. 

Thus, the second scenario would only include offsets generated by the active removal of carbon dioxide from the atmosphere. The technologies that could meet this scenario’s requirements would be reforestation, regenerative agriculture, direct air capture of carbon dioxide, and bioenergy projects with carbon capture and storage. Prices in this scenario would be much higher, exceeding $250 a ton by the late 2030s.

BloombergNEF calls the third scenario “bifurcation.” Here, it is not technology that determines the price of a carbon offset, but quality. This forecast sees a market that splits into a low-quality and high-quality pathway. Low-quality offsets remain abundant and cheap; high-quality ones are scarce and more expensive. However, they are still not pricey enough to spur the development of direct air capture technology.

This vision for future voluntary carbon markets depends entirely on a widely shared view of how “quality” is defined. As an analogy, think of public equity markets. Big companies, with well-known institutional shareholders, have a relatively high level of transparency, generally accepted accounting procedures, liquidity, and are scrutinized through ample analysis. The smallest companies live in the pink sheets, are loosely regulated, trade thinly, and often receive little coverage. 

While the durability of a major exchange-listed company’s earnings or its strategy is often up for debate, the public generally trusts in the quality of the information it gives (and when that’s not true, it is scandalous, and not expected). Similarly quality will be crucial for future voluntary carbon markets.

 There is an old energy analyst joke that every passing year adds a few new three-letter acronyms to the lexicon. There are feed-in tariffs (FITs) for renewable power, and renewable identification numbers (RINs) for biofuels. Last year IRA was added following the Inflation Reduction Act. For 2023 it might be time to elevate another from its specialized domain to the general lexicon: measurement, reporting, and verification (MRV).

Today, stakeholders are negotiating what they think an ideal carbon market should be, but integral to that process will be a universal acceptance of what is a valid offset. That is what MRV will allow. It is why a recent open letter from market participants published last month is so important. Even competing entities know that “integrity, transparency, and accountability” are essential for a thriving long-term market. 

Nat Bullard is a senior contributor to BloombergNEF and Bloomberg Green. He is a venture partner at Voyager, an early-stage climate technology investor.

Buyer beware 40% Approximately the percentage of purchased offsets that came from renewable-energy projects in 2021, according to an investigation of more than 50,000 transactions. There are doubts over the efficacy of these types of offsets.

Calls for regulation “Without much stricter rules and oversight, the [voluntary carbon market] will not play a significant role in reaching the Paris Agreement goals; on the contrary, it could end up facilitating more emissions.” Juerg Fuessler Managing partner at INFRAS, a sustainability consultancy

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A new report finds that net-zero pledges made by some of the world’s largest corporations will only reduce their greenhouse gas emissions by just 36%. This is far short of the progress required to avert a catastrophic increase in global temperatures. Carbon Market Watch and the NewClimate Institute looked at 24 of the biggest global companies that have pledged to achieve carbon neutrality and positioned themselves as climate leaders. The authors particularly criticized the over-reliance by almost all the companies surveyed on the use of offsets to meet their goals. Read more here. 

Photographer: Bloomberg Creative Photos/Bloomberg Creative Collection

Fuente: https://www.bloomberg.com/green