Tag: Temasek

Herewith a listing of interesting publications on carbon credits, indicating authors, date and a summary. It is intended to refresh this document regularly with new material and to remove publications overtaken by time. 

Where the Carbon Offset Market Is Poised to Surge

author: Morgan Stanley

date: April 11, 2023

summary:

Decarbonization strategies are driving a rapidly evolving market for offsets. Where are the opportunities? 

key takeaways

• Although many companies are working to eliminate emissions entirely, carbon offsets will remain a critical tool in fighting climate change.
• The voluntary carbon-offset market is expected to grow from $2 billion in 2020 to around $250 billion by 2050.
• Three shifts now underway will bring new opportunities for investors as product mixes grow and evolve to help meet net-zero targets.

1. From Reduction and Avoidance to Removal.

2. From Nature to Technology

3. From Offsets to Investments

A tale of two carbon markets

author: S&P Global, Roman Kramarchuk and Marie-Louise du Bois

date: March 13, 2024

summary: In 2024, we expect carbon compliance expansion alongside reflection on the voluntary carbon market.

highlights: 

• COP28 failed to deliver expected progress on Article 6 of the Paris Agreement on climate change, which sets out the principles for international carbon markets.
• Consequently, the voluntary carbon market is regrouping around the question of quality, which affects issuance, retirements and price trends.
• Simultaneously, national carbon compliance programs are expanding around the globe.
• In time, these two markets may converge - particularly if there is agreement on Article 6 at COP29.

Corporate engagement with voluntary carbon market claims: findings & recommendations

author: The Climate Board

date: January 25, 2024

summary: A recent report conducted by The Climate Board found that 93% of respondents who developed and set Scope 3 targets are facing critical challenges in reaching their goals. Further, while 70% of global firms acknowledged that the use of carbon credits would likely increase the likelihood that they'd set or maintain their climate targets, only a mere 41% had taken tangible actions to purchase carbon credits as part of their carbon reduction strategies in the past two years. This report helped inform the release of VCMI's additional guidance to its Claims Code of Practice (November 2023), particularly the evolution of VCMI Claims, which bring confidence and credibility to the voluntary carbon market.

Credibility is required to scale the carbon markets

author: Allen & Overy

date: March 8, 2024

summary: With the Intergovernmental Panel on Climate Change (IPCC) concluding that it will be difficult (and in some cases impossible) to reduce emissions to zero in certain sectors,several hundred million tonnes of CO2 will need to be removed from the atmosphere to decarbonize the global economy. The voluntary carbon markets are expected to play a critical role in this regard over the next decade and beyond.

Carbon Markets 2.0 - Addressing Pain Points, Scaling Impact

authors: Anshari Rahman, Edmund Siau (GenZero)

date: December 2023

summary: The urgency of climate action is clear, and carbon markets are an efficient way to accelerate decarbonisation. The first Global Stocktake has confirmed that we are not on track for a 1.5°C world. Despite ambitious net-zero pledges covering 88% of global emissions and 92% of global gross domestic product (GDP), emissions continue to rise, and a significant emissions gap has persisted. Putting a price on carbon will provide a strong economic incentive to reduce emissions, and by implementing carbon pricing in the form of carbon markets, finance can be channeled to the most cost-effective abatement opportunities while supporting flexibility, scalability, and innovation.

The voluntary carbon market (VCM) supports additional abatement and channels finance into critical areas that lack funding. While compliance markets can be effective, implementation of a high-ambition carbon tax or emissions trading system (ETS) is often difficult due to political and economic considerations. The VCM therefore helps to support decarbonisation in sectors beyond the reach of compliance schemes. Projects that monetise carbon credits through the VCM can use carbon revenues to protect nature, conserve biodiversity, and support sustainable development.

Carbon markets are at a critical inflection point. They need to scale up rapidly, but multiple pain points are holding them back. Recent macroeconomic conditions, combined with increased global scrutiny and a lack of regulatory clarity, have significantly dampened demand. This uncertainty is particularly pronounced around Article 6 and its implications for national commitments. Furthermore, variability in credit quality and a lack of standardization have exacerbated these challenges, impeding the market's growth and credibility.

A multi-pronged strategy is required to unlock the full potential of carbon markets. This includes providing clear guidance on the usage of credits, aligning market participants on quality benchmarks, enhancing market transparency and liquidity, and garnering government support.

We do not want a large-scale low-integrity market, but we also do not want a small-scale high-integrity market. We see several key areas where more attention is required in the short term:

- Evolve the discourse on supply-side quality. There needs to be a better understanding of what constitutes 'quality' in carbon markets. The misconception that some project types are inherently higher quality needs to be dispelled (i.e. removals are better than reductions, tech-based are better than nature-based solutions). The industry needs to shift away from discussing quality in general to specific quality considerations.

- Provide pragmatic incentives for corporate carbon credit use. It is clear that corporates will not move at scale if only motivated by charity. The system should provide the appropriate incentives to encourage greater participation from corporates. Having quality controls is important, but it must be balanced with pragmatism.

- Leverage technology to build a robust and scalable market. Legacy systems in carbon markets, such as analogue registration processes, can be improved greatly by digitization. Technology is a critical lever to scale the market, enhancing interoperability between the various emerging systems while safeguarding rigour. The future of carbon markets hinges on seeking common ground. Improvements in methodologies, harmonisation of standards, and advances in technology can help carbon markets to evolve into robust, effective instruments that contribute significantly to our climate goals. This evolution can also improve support for biodiversity conservation and sustainable livelihoods. Collaboration among governments, corporations, and market participants is essential to bring about the evolution of carbon markets and to deliver impact at scale.

The Role of Carbon Credits in Scaling Up Innovative Clean Energy Technologies:

How high-quality carbon credits could accelerate the adoption of low-emissions hydrogen, sustainable aviation fuels and direct air capture

author: International Energy Agency (IEA) and GenZero

date: April 2024

abstract: Achieving net zero requires rapid development of technologies such as low-emissions hydrogen, sustainable aviation fuels (SAF), and direct air capture and storage (DACS). The IEA and GenZero report explores how carbon credits can incentivize their deployment.

Massive scaling-up is needed: low-emissions hydrogen production needs to jump from almost zero today to 70 million tonnes by 2030; SAF's share of final energy consumption in aviation needs to rise from close to zero today to around 11% by 2030; and annual removals of CO2 via DACS need to reach almost 70 Mt CO2 in 2030, from almost zero today. Investment must also increase dramatically. Governments can unlock investment through a mix of policies and financing instruments. Carbon credits can play an important role, especially in attracting private capital and accelerating technology adoption.

Carbon credits cannot bridge the investment gap on their own, and governments and the private sector need to develop strategies to create the right enabling environment for investments. Moreover, the current low availability of crediting methodologies hinders the generation of carbon credits from low-emissions hydrogen, SAF and DACS, but the landscape is shifting. A coalition of stakeholders should develop clear guidance on emissions accounting, and efforts to get better data on emissions are necessary to provide the foundation for such guidance.

What every leader needs to know about carbon credits

author: Varsha Ramesh Walsh and Michael W. Toffel (Harvard Business Review)

date: December 15, 2023

summary: Many companies have begun to look into credits to offset their emissions as a way to support their net zero goals as their target years get closer and closer. As it stands, the carbon credit market is too small to bear the brunt of reducing companies' impacts on the environment. However, the voluntary carbon market has the potential to drive billions of dollars over the coming decade into climate solutions. Here, the authors offer a primer for leaders to learn about the carbon credit market. What's the best way to participate in the market? Which types of credits are considered to be the highest quality, and thus carry the least reputational risk? Who are the players when it comes to standards and regulation? The authors answer these questions and outline the characteristics of high-quality carbon credits