Shipping Industry Insurance Companies Join the Net-zero Movement

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Six of the world’s major marine insurers have undertaken a ground-breaking project to give carbon emissions transparency and promote the shipping industry’s green transition.

The Poseidon Principles for Maritime Insurance (PPMI) establishes a methodology for quantifying and disclosing the climate alignment of marine insurers’ underwriting portfolios.

This aims at developing a sector-specific methodology to support the ambition of the Net-Zero Insurance Alliance (NZIA).

NZIA members have committed to transitioning their underwriting portfolios to net-zero GHG emissions by 2050.

This is in line with the International Maritime Organization (IMO) who adopted a zero-emissions target by 2050 at the COP 26 climate summit.

Signatories to the PPMI have committed to assessing and disclosing the climate alignment of their hull and machinery portfolios.

They have also benchmarked their alignment with two initial pathways:

A 50% reduction in annual CO2 emissions by 2050 compared to 2008 (this is in line with the IMO’s Initial GHG Strategy)
A 100% reduction in emissions by 2050.

Members include: Swiss Re, Gard, Hellenic Hull Management, SCOR, Victor International, and the Norwegian Hull Club.

More marine insurers are anticipated to join in the not-too-distant future.

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Wall Street’s Carbon Crisis

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A new report shows that Wall Street is the fifth-largest carbon emitter, coming in just after Russia and before Indonesia.

In 2020, 8 of the largest US Banks and 10 of the largest US asset managers financed $2 billion tons of carbon emissions.

Though major corporations have shared their support for net-zero initiatives, the “Wall Street’s Carbon Bubble” report by the Sierra Club and the Center for American Progress (CAP) says it isn’t enough.

Some banks are continuing to fund oil and heavy industries, but many have joined the Glasgow Financial Alliance for Net Zero (GFANZ) to limit their investment in heavy emitters.

“If left unaddressed, climate change could lead to a financial crisis larger than any in living memory,” said Andres Vinelli, vice president of economic policy at CAP.

According to Insurer Swiss Re, the global economy could lose 18% of current GDP by 2048 if no action against climate change is taken. So, whether you are an environmentally-conscious investor or not, there is cause for concern.

The report went on to say that financial institutions across the 20 largest economies have $22 trillion worth of assets within carbon-intensive sectors.

Following the report’s release, SEC Commissioner Caroline Crenshaw acknowledged the concerns expressed but drew attention to actions taken at COP26.

Many public companies have pledged to reach net-zero with world leader support.

However, she did say, “It’s sometimes unclear to me how companies will achieve these goals. Nor is it clear that companies will provide investors with the information they need to assess the merits of these pledges and to monitor their implementation over time.”

Crenshaw added that “metrics calculated using reliable and comparable methodologies that enable investors to decide whether companies mean what they say” will play a significant role moving forward.

The Securities and Exchange Commission is looking at more rigid climate reporting rules from publicly traded companies, including banks.

A ruling could take place as soon as next year.

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Honeywell Carbon Capture Partnership with University of Texas

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Honeywell and the University of Texas at Austin have partnered together to drive down the cost of carbon capture from power plants and heavy industry.

The UT Austin team has created a system that will improve carbon capture performance.

This makes the process more efficient for industries such as steel, cement, chemical plants, coal, natural gas, and bio-energy power plants.

The licensing agreement with Honeywell enables UT Austin to commercially scale & make major contributions toward zero emissions.

The difference between UT Austin’s system and others is that they utilize an advanced solvent. This technology can be used within existing plants or included within new systems.

This can make carbon capture less expensive and more efficient.

Honeywell is capturing, storing, and utilizing approximately 15 million tons of carbon per year – with the potential to capture 40 million tons annually.

They are committed to reaching carbon-neutral operations and facilities by 2035.

Like carbon offset projects, Carbon Capture and Storage projects (CCS) are growing in popularity.

In 2020 alone, CCS projects captured and stored 40 million metric tons of carbon. However, to meet new emissions goals, CCS must increase to 840 million metric tons by 2030.

While increasing CCS project capacity 20x seems like a challenge, partnerships such as Honeywell and UT Austin can help get us there.

UT Austin has been a leader in carbon capture research for more than 20 years.

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Blockchain Carbon Credit Token Lists on Coinbase

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Moss (MCO2), a blockchain carbon credit token company, recently listed on one of the world’s largest crypto exchanges, Coinbase.

Moss is a Brazilian startup that created the first carbon credit-backed token used to offset greenhouse gas emissions.

Since then, Moss has processed about $20 million in transactions and has assisted in the conservation of ~735 million trees in the Amazon through internationally verified and audited programs.

The MCO2 Token is equal to one carbon credit, or one metric ton of CO2 that is no longer emitted into the atmosphere as a result of REDD and REDD+ (Reducing Emissions from Deforestation and Forest Degradation) program.

MCO2 has already been employed by over 300 companies worldwide. Moss recently provided the offsets for One River Asset Management’s carbon-neutral bitcoin fund.

Moss has also collaborated with Brazil’s largest airline, GOL, to allow its customers to offset their emissions by purchasing the MCO2 token.

Gol has the world’s fifth-largest Boeing fleet and transports over 20 million passengers per year.

This collaboration amounts to more than 2.3 million MCO2 exchanged, or more than 2% of the total volume of carbon credits traded globally each year.

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Increased Demand for Carbon Offsets in Asia

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Demand for carbon offsets in Asia is increasing across the global supply chain, IT, and banking industries.

Many companies want to lower their carbon footprint, especially after COP26. One way they are doing this is through the use of carbon offsets.

Carbon offsets are when a company offsets its carbon emissions by buying carbon credits. One metric ton of carbon is offset by an environmental project for every carbon credit bought.

Simply put, one carbon credit equals one metric ton of carbon.

With no global standard, offsets were often criticized. But that has now changed.

At COP26, leaders agreed to:

Set a global standard to create, account for, and verify carbon credits. This will help prevent double counting. It will also improve the quality of offset projects.
Allow certified emissions reductions (CERs) to be traded through Internationally Transferred Mitigation outcomes (ITMOs).
Provide countries with the choice to use or sell offsets to other countries.

With these changes, companies see the potential of the carbon offset industry, causing it to boom. But that isn’t all. Demand for Renewable Energy Certificates (RECs) is increasing as well.

RECs are just like carbon credits – except their focus is on renewable energy. One REC equals one megawatt-hour (MWh) of renewable electricity with RECs.

Singapore-based T-REC.ai is one of eight companies approved by the US to register and verify RECs.  Demand has reached 20 million RECs – accounting for half of the city-state’s power consumption.

However, demand was so high, they could only fulfill orders for 500,000 certificates.

Kang Jen Wee, founder and CEO of the exchange told Reuters that the company was working to register more renewable power suppliers.

Global companies want their suppliers across Asia to purchase RECs to offset emissions. Right now, the price ranges from $3 – $30 per REC.

Kang believes the exchange will grow by 10 million RECs next year. He expects it to reach 100 million by 2025.

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Shell & EKI Energy to Invest $1.6 Billion in Carbon Credits

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Royal Dutch Shell has partnered up with EKI Energy from India to develop nature-based solutions for carbon capture.

The JV is expected to invest $1.6 Billion over a 5-year period to develop 155 million Carbon Credits.

EKI Energy, is the largest carbon credit developer and supplier from the developing world. They currently serve over 2,500 corporate customers with ~70% based in India.

The JV will work on conserving, enhancing, and restoring natural ecosystems such as grasslands, wetlands, forests, agriculture, and blue carbon.

Shell has set a target to become a net-zero emission energy business by 2050.

The carbon credits generated from these projects can be used either by Shell for its internal consumption or to sell in the open market.

A carbon credit is a certificate signifying that one tonne of carbon dioxide emission has been reduced from the atmosphere.

This can be done through nature solutions, such as planting trees, or through industrial applications such as using carbon-reducing agents at emission points.

These carbon credits can be traded to help more polluting entities meet increasingly stringent carbon-emission norms.

Shell and EKI have signed on the exclusivity clause in contract to form the JV.

The carbon credits generated from the projects the JV undertakes will be shared in proportion to the investment Shell or EKI makes.

If Shell invests 75% of the capital in a project, it will get 75% of the carbon credits generated from it.

Positive sentiment driving this share is due to the growth of net-zero commitments being made as the world focuses on lowering the carbon footprint.

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How Carbon Credits Can Increase Land Conservation Efforts

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For years, timber harvests and development opportunities have been a source of income for landowners worldwide. Carbon credits are changing that.

One metric ton of carbon is offset from the atmosphere for every carbon credit purchased. This happens through an environmental project, such as reforestation.

The more carbon credits purchased, the greener a company can be – which is why the industry is booming.

But there is another benefit here.

Revenue from carbon offsets could provide $250 billion annually for conservation efforts.

This means landowners can now receive compensation for conserving land instead of destroying it. So, carbon credits may, in fact, encourage conservation.

For land to qualify, it must be at risk of harvest or conversion. Landowners then sign an agreement to ensure they are committed to seeing these environmental projects through.

This makes sure that landowners are in it for the long haul. They cannot just sign up and then sell out.

According to the World Economic Forum, forest carbon projects undergo an intense verification process to help meet goals. It takes almost two years before their credits even hit the marketplace. So, the incentive to stick with this long-term is there.

There are decades of research used to let us know just how much carbon can be sequestered through a forest.

Then, a year after landowners sign their agreement, tree growth is checked to see if it is on track with projections. Only then are carbon credits issued.

Critics have always claimed that the lack of oversight within the carbon credit industry was why they could not support it.

However, increased ways to verify carbon sequestration are beginning to change that. Plus, leaders at COP26 have agreed on a global standard, putting many concerns to rest.

As more landowners take on sustainable forest projects, conservation has a chance.

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US Bill Could Eliminate Tax Credits for Oil Recovery

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Section 45Q of the US Internal Revenue Code offers a tax credit for each metric ton of carbon captured and sequestered.

It ranges from ~$12 up to ~$50 for every ton of carbon captured and stored underground. These credits can be claimed even if the carbon is used to push oil out underground.

California lawmaker Ro Khanna would like to change that.

His new bill is called the “End Polluter Welfare for Enhanced Oil Recovery Act.” If passed, carbon capture used for oil production would no longer receive a tax credit.

Over 95% of carbon capture and storage in the US is used for enhanced oil recovery. So, if Khanna’s bill were to pass, it would affect many companies.

Khanna told Reuters, “We shouldn’t be subsidizing enhanced oil recovery (EOR) if this is going to be increasing carbon.”

Environmentalists agree. In fact, twenty environmental groups have expressed their support for this bill.

They feel this practice defeats the purpose of carbon capture by increasing the use of fossil fuels. In the past, critics had felt this way about carbon offsets too. However, increased regulation and improved verification methods have changed that.

The bill’s co-sponsors include Rail Grijalva of Arizona and Mike Quigley of Illinois. Like Khanna, both are democrats. Grijalva is also chair of the House Natural Resources Committee.

There are deep divisions within the US House and Senate concerning environmental initiatives.

Some senators have discussed eliminating part of 45Q that requires facilities to capture at least 75% of their emissions to qualify for the tax credit. Senator Joe Manchin of West Virginia is said to be part of these discussions.

Khanna believes his senate colleagues are going about this the wrong way and hopes his bill will be adopted into the Senate’s version of the Build Back Better Act (BBBA).

Since Khanna’s bill varies significantly from the 45Q expansion discussed by the house, its chance of being signed into law is slim.

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Australia Carbon Prices Increase 180%

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The price of carbon is up 180% in Australia.

Research from RepuTex, a carbon market consultancy, believes that Australian Carbon Credit Units (ACCU) could reach $60 per ton.

Right now, the price is $47 per ton.

A limited supply of ACCU’s is the main reason behind the price increase. The Commonwealth’s Emissions Reduction Fund holds a sizeable portion of credits. In fact, 210 million are set for delivery with the Clean Energy Regulator.

Many have asked the Australian government to stabilize the market by increasing the credit supply.

RepuTex executive director, Hugh Grossman, agrees.

If contracts release part of their supply, it will fulfill part of the demand. Plus, it would be better than sellers canceling their contracts.

But this boom is not just happening in Australia. It is happening across the globe.

According to Grossman, “As companies pursue a net-zero pathway, a carbon ‘super cycle’ is almost inevitable, with voluntary demand to outpace supply, driven by a raft of corporate pledges which have come about at a rapid pace.”

In other words, as countries and companies look to reduce their carbon footprint, the carbon marketplace will continue to grow. Supply cannot keep up with demand with only so many credits to buy and projects to offset carbon. Hence the price increase.

Experts recognize that carbon offsets are crucial to fighting climate change. However, some feel that the focus should be on reducing or cutting emissions, not offsetting them. They believe this would reduce the price of offsets and improve the environment long-term.

Australia emits less than 2% of the world’s carbon, but they are the third-largest exporter of fossil fuels.

Australia has pledged to reach net-zero emissions by 2050.

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