Matt Udberg, Partner, Valitera
Voluntary carbon pricing has taken a hit across the board this year. The macroeconomic climate, media scrutiny and high carry rates have all played their part in suffocating activity.
Lack of direction from governments worldwide has left potential buyers in the dark about what they could and should be retiring, with many choosing instead the route of doing nothing – avoiding any potential complications or mis-purchases.
Moving Beyond Decarbonisation
That being said, the voluntary carbon market (VCM) is an essential tool in the journey to net zero. Decarbonisation of supply chains should always be the first step on that journey, but subsequently entities will ultimately be left with a balance.
Airlines will continue to fly despite using sustainable aviation fuel (SAF), delivery and logistics companies will somehow need to charge their electric fleets, and companies and individuals globally will still require electricity and heating from a grid which is not yet entirely renewable.
Do emitting entities stop here? Or should they go one step further, and account for the balance of those remaining emissions, calculating that tonnage balance and channelling funding equivalent to that carbon amount to climate positive initiatives which would otherwise not have the finance to get off the ground?
Diverse Methodologies and their Role in Supply Chain Decarbonisation
The market is global and the range of methodologies broad; from projects focussing on afforestation to renewables, on carbon capture and storage to providing clean energy cookstoves to lower-income households thus avoiding the carbon emission of a fire to cook with.
Research shows entities which make the step to offset their balance are more effective in decarbonising their existing supply chains, in part because there is immediately thereafter a cost of their remaining emission balance, which must be accounted for and kept within budget.
The Crucial Role of Financial Institutions in Advancing Climate Finance and ESG Integration
Financial institutions play an important role in the transition to a low carbon economy. Many of the largest investment banks have setup carbon or environmental product desks, offering solutions for climate finance and insurance related products to their banking clients, bridging the gap to the complex world of environmental products.
It is imperative environmental, social, and governance (ESG) factors are part of the discussion from the c suite, right through to individual trade decisions at a desk level. These financial institutions are in a position to steer the narrative, ensuring integrity is at the heart of such decisions.
Sultan Al Jaber, Ph.D., the president of COP28 recently estimated the climate gap was 2.4 trillion USD annually. Unfortunately, climate positive initiatives are rarely free; the private sector therefore has a pivotal job to provide and channel this finance, ensuring it only lands in the hands of high quality, impactful projects.
The VCM is the ultimate tool; placing the responsibility with the emitters and steering flows of capital to such projects. Net zero commitments as such are an impactful and efficient means of acknowledging one’s responsibilities, and actioning a long-term strategy.
Empowering Buyers
The good news for the buyers is that the communication is improving. With clearer definitions of climate labelling under the EU directive, compliance schemes in force within the airline space (CORSIA), and better direction of what constitutes a good offset via the core carbon principles (CCPs), to name a few.
Clearer guidance should allow for more buy-side confidence, in turn increasing demand. As the price of carbon rises, more projects will become financially viable, especially those more expensive. But quality and impactful methodologies with require higher pricing, such as afforestation, reforestation, revegetation (ARR) or carbon capture and storge (CCS).
While volumes are also down dramatically in the secondary market, retirements are at historic highs. Ultimately this should be celebrated; some point to the reduced volumes as concerning, but in reality, the market is in existence for retirements rather than speculative trading.
Valitera is a strategic advisory and execution desk that delivers expert insights and bespoke access to carbon markets to support clients on their journey to net zero. Our global strategic advisory, principal trading, and portfolio management services assist clients in navigating the complex environmental commodities landscape and maximizing market opportunities.
Our aim is to deliver an integrated, top-tier service with industry-specific solutions to streamline clients’ emissions reductions efforts, specialising in sourcing and trading carbon credits, renewable energy certificates (RECs), and sustainable aviation fuel (SAF) credits – to meet client needs while positively impacting the planet.
