Two seemingly incomparable conventions took place this week: Singapore sovereign wealth fund Temasek organized EcoSperity in Singapore and sunken Dubai hosted Token 2049, the semi-annual party of crypto bros. In Dubai it was mostly about Bitcoin and in Singapore it was about carbon credits. Two opaque, moderately regulated markets that nevertheless attract billions from investors because of their undeniable usefulness.   

I attended the Climate Summit 2024in Singapore, part of EcoSperity, organized by Temasek subsidiary GenZero, which is trying to make investments that combat climate change with five billion dollars. Much of the talk at this climate conference last week was about the doubts in the "climate tech sector" about the quality of carbon credits since The Guardian and Die Zeit published scathing articles about them last year.

Instead of phasing out fossil fuels, years have been lost and huge investments have been made in the vague carbon offset schemes that trade, limit and capture carbon, without actually reducing the CO2 emissions that cause global warming.

The VoluntaryCarbon Market(VCM) is estimated to be about two billion dollars a year and consists of a complex network of developers, registries, traders, brokers and investors, making it difficult to determine the effectiveness of offset projects.

An old park does not remove CO2

On his show Last Week Tonight, comedian John Oliver took a strong stand against the hot air in carbon credits that made a comeback mainly after COP21, the climate conference in Paris. There, in 2015, nearly two hundred countries agreed that carbon credits would be the most important tool to limit global warming to one and a half degrees.

I attended COP21 in Paris for several days and then spent hours listening to experts explain how the "limit and trade" system was going to reduce carbon emissions, but understood little of it. Unfortunately, rightly so, because research shows that forestry offsetting projects, approved by the world's largest certifying bodies and used by Disney, Shell, Gucci and other large corporations, are largely worthless and may even exacerbate global warming.

The critical media reports have had much effect, because the days when some loopy dictator could designate an old forest whose nonexistent carbon credits were then sold several times over to, say, an unsuspecting European bank, after which the trees were still cut down and the timber sold, seem to be over for good.

The future belongs to carbon removal credits

There is broad consensus that offsets should only offset emissions that are impossible to avoid. However, the focus should be on ways to permanently remove CO2 from the atmosphere, because just limiting emissions is not enough. Projects that permanently remove CO2 do not generate carbon credits, but the much more relevant carbon removal credits.

Precisely because of the emergence of carbon removal credits, the expectation of Morgan Stanley and others is that the carbon credits market will increase fifty-fold to one hundred billion dollars by 2030. The idea is simple: carbon is becoming more and more expensive, because it is increasingly taxed more heavily, which combined with higher quality carbon removal credits will lead to much more demand at a higher price, which will be imposed by governments.

Good examples of carbon removal projects are:

• Bioenergy with Carbon Capture and Storage (BECCS): This technology captures CO2 emissions from biomass power plants and stores them underground.
• Direct Air Capture (DAC): These are technologies that capture carbon dioxide directly from the air. The captured carbon can then be stored underground or used to produce low-carbon fuels.
  Enhanced rock weathering is a strategy to help address climate change by taking carbon out of the air and storing it in rocks. It is one of several “carbon removal” techniques that target carbon dioxide (CO2), the most important climate-warming greenhouse gas humans have been adding to the atmosphere.
   
• Ocean fertilization, or ocean fertilization (OF): ocean fertilization involves adding nutrients, usually iron, to the ocean for the purpose of stimulating the growth of phytoplankton; and for those like me who are not completely at home in the magical world of phytoplankton, which are microscopic marine plants that absorb carbon dioxide through photosynthesis. When this phytoplankton dies and sinks to the ocean floor, it can carry the captured carbon with it and store it for long periods of time.

Although more research needs to be done on possible long-term effects of ocean fertilization, it appears to be a very cheap and effective way to remove carbon and combat global warming. 

For those interested in learning more about the need for carbon credits and the issues surrounding their quality, I have written this article with brief summaries of seven relevant publications from Morgan Stanley, Harvard Business Review and S&P Global, among others).

How do we achieve and finance CO2 capture?

As companies approach their target dates for "net zero" emissions, they are increasingly turning to carbon credits to meet their goals. Currently, however, at the aforementioned $2 billion market size worldwide, the market for carbon credits is far too small to reduce companies' entire environmental impact.

Climate startups need much more funding to develop their technology. 'Companies need to become earlier funders of carbon removal technology and commit earlier to become future customers', said Meghan Sharp of Decarbonization Partners, a joint venture between BlackRock and Temasek.

It came across as odd at first that Sharp, in particular, which manages the billions from two of the world's biggest investors, was making an appeal to other companies to fund climate technology developers. But she had a point, illustrated by Henrik Wareborn of the renewable fuels technology company Velocys.

Wareborn signed a  15-year agreement with Southwest Airlines. This agreement was signed as early as November 2021, years before Velocys' biorefinery will supply fuel commercially. So Southwest Airlines is actually funding the creation of climate technology it will use itself.

Sharp cited as a second example a billion-dollar loan from the U.S. Department of Energy to Monolith, a clean hydrogen and materials company funded by Decarbonization Partners. This money allowed Monolith to expand its production facilities in Nebraska and welcome Michelin and Goodyear, two of the world's largest tire manufacturers, as customers.

"This is an example of how companies can also play a role, not by funding the project itself, but by making the project more secure and investable through these types of purchase agreements." Sharp said. After all, investors are more likely to invest in a startup that already has revenue guarantees from global companies.

Tesla made $1.8 billion in revenue from carbon credits in 2023

American giants Apple, Tesla and Salesforce are each leading the way in their own ways in the use of carbon credits. Apple , by using carbon credits, made the Apple Watch its first "carbon neutral" product.

Tesla even sells carbon credits, last year for a record $1.8 billion bringing Tesla's total sales from carbon credits since 2009 to nearly nine billion dollars.

Salesforce is the largest employer in San Francisco and named sustainability as its fifth core value back in 2022. The company announced $100 million ito scale and commercialize Carbon Removal Technologies and even opened its own marketplace for carbon credit projects.

To my surprise, Salesforce's Chief Impact Officer Suzanne DiBianca confessed Tuesday at the Climate Summit that the carbon credits market is still so in its infancy, that after purchasing carbon credits, as proof of transaction the company receives PDFs with sometimes a few more Excel-spreadsheets. In addition, each registry (such as Verra, Gold Standard or American Carbon Registry) uses its own classification system of carbon credits, making standardization and comparison difficult, if not impossible.

Three recommendations from Oxford

A multidisciplinary team from Oxford University recently published an updated version of its carbon credit manual for businesses, called the Oxford Offsetting Principles "flagship guidance " with three key recommendations:

1. Prioritize reducing your direct and indirect emissions: reduce the need for offsets. 
2. Ensure the integrity of carbon credits: credits must be measured, reported, verified and properly accounted for. Investments that generate credits must demonstrably lead to additional results that would not have been realized without that investment, have a low risk of reversion, and avoid negative impacts on people and the environment.
3. Provide transparency - Disclose your current emissions, accounting and verification practices, goals and transition plans to achieve net-zero, as well as the type of credits you use, your selection process and the verification processes associated with the credits.

You feel it coming: to my knowledge, there is virtually no company in the world that adheres to these recommendations. It is precisely disclosure, the third recommendation, that should be required by law, just as annual figures must be published.

A world to win for blockchain

Of course, companies themselves must take care to reduce their emissions. But precisely in capturing, reporting and accounting, the transparency and immutability of blockchain can be of crucial value to the entire carbon ecosystem.

Most importantly, the source, the "enabler" of CO2 removal, must be clearly visible and the removal permanent. The proper use of blockchain technology can create a market where, to cite a previously mentioned example, airlines pre-fund the development of sustainable aviation fuel (SAF), as Velocys is paid for by Southwest Airlines. Then governments would not have to step in and only increase the pressure by raising taxes on carbon emissions.

Crypto meets climate

Recently, the UN climate conference COP28 was held in Dubai, where crypto-congress Token 2049 took place this week. While at the same time, Ecosperity Week was held at Singapore's iconic Marina Bay Sands, where the Asian edition of Token 2049 will be held in September. Perhaps the fact that crypto events take place in the same venue as climate conferences underscores that they are not such different worlds as is often thought.

By the way, climate played a major role during the days leading up to Token 2049, when persistent rainstorms in the Gulf region caused massive flooding in Dubai and air traffic experienced major problems. Preparations for Token 2049 also literally fell into the water with flooded exhibition stands, but the event took place without further major problems.

Symbolic halving moment

It was almost symbolic that the most recent Bitcoin halving took place Friday during Token 2049. Crypto icon Meltem Demirors explained on CNBC why the halving is important.

While attention at the halving is obviously focused on Bitcoin's expected price rise, which has already been spectacular since Bitcoin ETFs attracted over $10 billion from investors this year, the halving also has an interesting "energy effect."

With Bitcoin miners earning less after the halving, costs will again be looked at heavily. As a result, Demirors said, the expectation is that miners will look for lower energy costs, more renewable energy and also primarilyturn on their machines during off-peak hours on the energy grid. Hopefully, this will reduce Bitcoin' s carbon emissions.

Demirors points out that it is unusual for Bitcoin to reach a new high in March, just before the Bitcoin halving, whereas in the last two halvings, Bitcoin's new high was reached nine to 12 months after the halving. Therefore, she doubts that Bitcoin will continue to rise quickly to a new record price near or over the hundred thousand dollar mark, as many expect.

The crypto market is moving mostly sideways right now, with investors seemingly waiting for big price swings after the halving. From the major tokens,only XRP rose unexpectedly hard this week: a whopping 22%. 

Viewed from a slightly greater distance, it is important to follow the movements of the very big money. Then one notices that BlackRock, the world's largest investor with ten trillion (ten thousand billion) dollars in invested assets, has become very active in both markets: Bitcoin and carbon removal technology.