Interest in solutions to the climate crisis, such as purchasing carbon credits and participating in carbon markets, continues to grow rapidly, as shown by the popularity of the recent new webinar series ESG and the Path to Net Zero.
The series featured informative discussions on several aspects of the energy transition and carbon markets, including the future of green energy markets and green financing for commodity trading. As sponsors of the event, Gen10 representatives participated in two of the panel sessions, which we summarise below:
What technologies will drive the journey to net zero?
Gen10 Founder & CEO Richard Williamson joined this panel to discus the importance of technology in procuring and trading carbon credits, and the features of carbon markets that make this technology so vital. Some of the main discussion points are summarised below, or expanded on further in the session recording.
- It’s behaviours that actually change things, not technologies, so any new technology projects need to start with the business’ goals.
- The ability to understand your actions’ impact is important – you can’t optimise your carbon operations without meaningful data.
- International carbon markets, particularly compliance markets, are all very different, but they cannot be separated out as each host country has their own climate responsibilities. Likewise, the regulatory and voluntary markets cannot simply be split out.
- Carbon markets are, however converging and we are seeing more standardisation within markets too, although this will be a long process.
- We can’t count carbon credits in a physical warehouse so we need industry coordination to make markets work.
- We also need collaboration to provide supply chain visibility and prevent greenwashing by ensuring that all offsetting claims are justifiable.
- And sustainability is more than just carbon – projects might include regenerative agriculture, or increasing grower incomes as well. This means that no two environmental credits are identical, so on top of a baseline price reference point, we should be able to add premiums and discounts for meeting other goals.
- The onus will be on technology platforms to collect the right data; with lots of OTC contracts, systems need to be flexible enough to collect auditing and reporting data.
- There is a lot of operational risk from ensuring contracts are correct, host countries have approved a corresponding adjustment, adding optionality and ensuring granular inventory management that can prove any claims.
- Data management and data sharing will be essential, as will getting system-wide data such as market prices and credit attributes into your own systems.
- The technology can then be a tool to help humans make more intelligent decisions.
- The issue is pressing and companies need to scale their carbon operations fast. This is a challenge as there are few people with expertise in these emerging carbon markets. But if your technology provides the right workflows and controls, you can set up a secure and effective carbon desk without the need for the entire team to be carbon experts immediately.
Carbon markets: Do they still fulfil their original role i.e. help decarbonise the world?
Bruce Tozer, of Gen10’s advisory board and an expert in carbon markets, joined this panel to discuss the factors promoting and hindering the growth of voluntary carbon markets, why they are becoming increasingly standardised, and what you can do before they reach standardisation.
- Markets are quite localised, for example the European market is making more progress than most, but compliance markets are working and their high prices will drive carbon reductions.
- We are seeing more offsetting and corporates being more environmentally responsible, so although the voluntary market is relatively small it has been growing over the last 2 years.
- The challenge now is where will the supply come from? As demand is looking to reach several billion tonnes.
- As carbon pricing is entering a wider roll-out, it will be standardisation that makes voluntary markets work, with a fungible, high-quality and assured product.
- Currently, different carbon registries have different standards but uniform standards across these registries would make it easier for corporates to purchase credits.
- At the moment, as well as the gap between supply, standardisation and demand, many organisations do not yet know how best to make use of carbon offset markets.
- Organisations that have committed to reducing their carbon footprint now have a large liability on their balance sheet and need to act on these commitments.
- If carbon prices rise then these liabilities also rise so it is important to act sooner rather than later.
- Carbon accounting can be difficult to calculate and the methodology will probably be refined over time.
- There is already a premium for compliant and regulated credits as buyers are becoming more knowledgeable about the risks associated with poor-quality credits.
- There are several pull factors including lenders and investors making more decisions based on the climate impact, but it is still important to focus on reducing carbon not just offsetting it, and the lack of clear standards is a concern for many potential market participants.
If you’d like to find out more about carbon markets, explore this overview of the main challenges to address when setting up a carbon desk. And if you’re ready to start addressing these challenges, talk to us about NetZero OS – the digital solution for procuring, managing and trading carbon assets.
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