London-based climate tech startup BeZero Carbon secured $50 million (about €48M) in a Series B round to scale its carbon rating platform and expand into the US and Asia.

BeZero Carbon is a ratings agency founded in 2020 for the voluntary carbon market (VCM). Its ratings are determined by scientists, earth observation specialists, and financial analysts.

BerZero’s users include major energy institutions, commodities, and the financial sector. The firm’s platform also supports credit buyers, investors, project developers, brokers, carbon marketplaces, and top exchanges.

For Scale Up & Expansion

BeZero’s latest $50 million funding round is the largest Series B raise in UK climate tech this year. The company raised a total capital of over $70 million.

The firm’s CEO Tommy Ricketts said:

“… Starting with carbon, effective ecosystem markets have huge potential to accelerate the Net Zero transition and generate economic prosperity. Developing the information infrastructure that allows these markets to take off is fundamental to their growth. The raise will ensure we can continue to invest in our ratings, risk and analytics tools to make this vision a reality.”

US-based investment firm Quantum Energy Partners led the round, with more investments from old and new partners:

Molten Ventures
Norrsken VC
Illuminate Financial
Qima
Contrarian Ventures
EDF Pulse Ventures
Hitachi Ventures
Intercontinental Exchange (ICE).

The startup said it would use the funds to drive innovation in the VCM. And that’s through developing ratings, risk and analytics tools, and opening offices in New York and Singapore.

The funding will also be for investing in creating risk-based products for other markets. BeZero will further use it to develop its proprietary toolkit, deepen its earth observation capabilities, and expand the team.

The BeZero Carbon Rating Methodology

The BeZero Carbon Rating (BCR) gives users a risk based assessment for understanding and evaluating carbon credit of any type, in any sector and country.

The BCR of carbon credits represents the firm’s opinion on the likelihood that a given credit achieves a tonne of CO2e avoided or removed. It uses a 7 point scale across 3 categories: A, AA, AAA.

BCR Qualifying Criteria:

Projects must meet these 3 key criteria to be eligible for a BeZero Carbon Rating.

Applied an additionality test or provide enough information on how it is additional
Audited by a recognized independent auditor to ensure the credibility of data and information
Information on project design and ongoing monitoring must be available in the public domain at all times

BCR Analytical Framework:

The BCR follows a robust analytical framework with detailed assessment of the following 6 critical risk factors. They significantly affect the quality of carbon credits issued by the project.

The BCR Process:

BeZero rates a project’s carbon credits in a 4-stage process.

#1. Macro factor assessment: making top-down assessment of the credits based on country-specific risks, sector, and accreditation methodology.

#2. Project specific assessment: assessing project-specific risks based on all publicly available information on project’s credits.

#3. Risk factor weighting: summing up all the specific weighting for each risk factor, according to these percentage.

#4. BCR committee review: The Rating Committee reviews all ratings and must approve them before assigning final BCR to the carbon credits.

Ensuring Transparent Growth of VCM

All BeZero Carbon Ratings are valid at all times and are tracked on an ongoing basis. The monitoring process involves reviewing all new information about the project, sector, and methodology.

That’s to ensure that the VCM grows in a transparent way, delivering a real impact on the planet. 

Jeffrey Harris from Quantum Energy Partners noted that:

“Set to reach $50bn by 2030, the Voluntary Carbon Market will play a central role in the transition to Net Zero. BeZero Carbon has built the biggest ratings agency in the market, with an incredible team of experts that are leaders in their fields. We are excited to be supporting them with their next stage of growth to help build a new climate economy.”

All headline ratings are available on the firm’s website, making it the only carbon ratings agency to do so.

With more information readily available to assess a carbon credit’s quality, the more confidence investors and buyers can have that it’s achieving its claim towards a net zero emissions.

Paying clients can access full project assessments, research insights and risk tools via its platform. And by integrating its API, carbon credit marketplaces and exchanges can also host the BeZero Carbon ratings.

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The COPs are the most important annual climate conferences but this year’s 27th annual summit or COP27 is different from the previous ones.

It’s all about moving from mere negotiations and planning for the net zero pledges to implementing promises to protect forests and provide climate finance.

During the first three days, talks center on carbon credits and compensating developing nations for ‘losses and damages’ caused by climate change. The UN had also made clear its zero tolerance for greenwashing.

But there’s a lot more to expect and learn from COP27 and here are the four key takeaways.

#1. Emissions from fossil fuels are 3x higher than what producers claim.

Climate TRACE, an NGO tracking emissions, released a report at COP27 that analyzed 72,612 individual sources of CO2.

Their study revealed that fossil fuel emissions could be up to 3x higher than what oil and gas companies claim.

The authors found that half of the biggest polluters are oil and gas fields. They used satellite technology to detect unreported emissions such as methane leakage.

The top sources of global emissions represent less than 1% of total facilities reported in Climate TRACE’s dataset. But they account for 14% of total emissions in 2021.

The Permian Basin, an oil and gas field in the USA, is the most polluting project in the world as per the report. It has emitted 471 million MT of CO2e in the last 20 years. A Russian oil and gas field, Urengoyskoye, came second, emitting 317 million MT of CO2e for the same period.

Understating emissions from fossil fuels by oil and gas firms is “greenwashing and cheating”, according to UN Secretary General António Guterres. He further remarked that:

“The climate crisis is in front of our eyes – but also hidden in plain sight. We have huge emissions gaps, finance gaps, adaptation gaps… But those gaps cannot be effectively addressed without plugging the data gaps. After all, it is impossible to effectively manage and control what we cannot measure.”

Al Gore, former US vice president and a founding member of Climate TRACE, also said at COP27 that:

“The climate crisis can, at times, feel like an intractable challenge – in large part because we’ve had a limited understanding of precisely where emissions are coming from.”

Gore further noted that accurate and detailed data on emissions sources help us prioritize efforts to reduce planet warming gasses significantly.

#2. Africa needs up to $41.6 trillion to tackle the climate crisis.

The COP27 summit has been dubbed as the “African COP”. What the African countries have to say takes center stage at the talks.

Africa is so vulnerable to climate change. NGOs in the continent said that staple crops and fish harvests will decline in the coming years. Plus, the 116 million people in Africa will experience issues with rising sea levels.

Investment opportunities are very important for the continent, especially when it comes to water, cooling, and coast protection, according to the International Finance Corporation analysis.

In fact, the Minister of Environment for Egypt Yasmine Fouad told COP27 that Africa needs up to $41.6 trillion (€41.4 trillion) by 2030 to deal with the damaging effects of climate change.

She also added that funding was a key challenge but is a must to “bridge the gaps between the needs and climate funding” for African nations.

Unfortunately, the world’s richest nations failed to deliver their $100 billion funding per year pledge for developing countries. And while there have been hunches of support, African nations have yet to see if COP27 can help them find the right investors.

#3. Finance giants with net zero pledges still invest in firms causing deforestation.

Large banks and financiers form the Glasgow Financial Alliance for Net Zero (GFANZ). They pledged to hit net zero by 2050 before COP26 last year, knowing that protecting forests is vital to achieving it.

To date, the alliance members achieved only a 3% cut in investments associated with deforestation.

But a report launched at COP27 summit by Global Witness found that the finance giants still invest around $8.5 billion in firms at risk of causing deforestation. The NGO stated that:

“A year on from COP26, GFANZ membership is at risk of becoming little more than a badge to be worn by banks and financiers, who continue to plough money into practices that are destroying our forests.”

The report found that GFANZ members have investments in agricultural businesses accused of deforestation. Examples include the Brazilian firm JBS where members of the group have acquired shares since COP26. Their investments in similar firms have also gone up.

So key leaders of the alliance such as Mark Carney, the former Bank of England Governor, urged members to end financing deforestation. They warned that “the world will not reach net zero by 2050 unless we halt and reverse deforestation within a decade”.

And in October GFANZ announced it was dropping out of the ‘Race to Net Zero’. That came after the UN-backed campaign upped its standards and threatened to kick out non-performers.

#4. U.S. Agency pledges $15 million to protect coral reefs.

Coral reefs have long drawn tourists to the Red Sea peninsula and the COP27 venue in Sharm El Sheikh. But these diverse marine ecosystems are more than just a backdrop to the climate summit. They are home to over a thousand various species of fish and corals.

Yet more importantly, Egypt’s coral reefs act as ‘coral refugia’ that can withstand the increasing impacts of climate change.

As such, they offer the global community the chance to protect marine ecosystems. And they also act as seed banks that can help restore degraded reefs.

Mindful of their global importance, the United States Agency for International Development (USAID) announced a major new fund to support this local ecosystem. At COP27 summit, USAID pledged $15 million to the Global Fund for Coral Reefs (GFCR).

This funding from USAID makes the total money raised by the GFCR to protect reefs to $187 million.

There will be more ‘blue carbon financing’ announcements in the coming days at COP27 summit. They include financing mangroves and seagrass.

The post Fossil Fuels and Coral Reefs: 4 Key Takeaways From COP27 Summit appeared first on Carbon Credits.

In the simplest sense, financing is the process of putting money to entities or activities that most need them or can put them to the most productive use. While there are all sorts of financing for personal or business use, there’s one type that often makes head turns.

Carbon financing.

You may also be raising your eyebrows if it’s the first time you to hear it or if you want to know more about it. There’s no need to wonder about it though because this article will explore carbon financing.

It will help you know the tools of this financing and walk you through the world of carbon credits and carbon markets. You’ll also learn how the government and the private sector works under a carbon financing scheme. Then you’ll get to discover how you can also partake in this exciting space of carbon.

What is Carbon Financing?

Carbon finance supports an asset that’s the main culprit of global warming and climate change – carbon dioxide or its equivalent. Its sole purpose is to reduce global carbon emissions by offering opportunities to mitigate the effects of climate change through emissions reduction projects.

Carbon financing creates climate systems that make it possible to measure carbon and incentivizes both firms and individuals to reduce their carbon footprint. It often takes the form of annual payment to a project partner, be it an NGO, private, or public entity, for the emission reductions delivered by the project.

The emission reductions are typically measured in tonnes of carbon dioxide equivalent (tCO2e) and are represented by carbon credits. One carbon credit is equal to 1 tonne of tCO2e removed or avoided.

As such, carbon financing improves the financial viability of projects while creating additional revenue streams for developers and beneficiaries. It also enables the transfer of technologies and knowledge in the industry.

Best of all, carbon finance provides various means to leverage investments in projects that reduce GHG emissions in countries where they’re most viable. All the while helping the world to transition to a low-carbon economy.

But what makes this kind of financing possible and feasible? A carbon bank.

What is a Carbon Bank?

Carbon financing can only be effective in spurring the transition if the challenges associated with it are addressed. This is where the role of a carbon bank comes into play.

A carbon bank is an independent entity, free from political influence, responsible for oversight and management of the carbon market.

It seeks to sustain confidence in the system and ensure compliance by managing and minimizing carbon pricing volatility. It can choose how to manage the price, using some of the cost-containment mechanisms available.

A carbon bank can also help tackle some of the underlying factors of price volatility, such as market expectations and investor activities. Plus, it can also react to volatility due to external drivers like fuel prices and weather conditions.

The bank will not only be charged with price management, but would perform a range of market oversight and management functions. These include:

Professional forecasting: judgments or assessments with regards to emissions and carbon prices
Allowance management: allocating and tracking allowances as well as conducting auctions
Monitoring emissions: ensuring compliance and evaluating progress towards emissions reductions
Cost containment: buying and selling allowances and approving offset projects
Coordinating with different government bodies

Many jurisdictions, including Australia, Canada, and the United States, have explored the possibility of using a carbon bank as a potential tool to manage their carbon pricing as part of the overall policy objectives of the government.

What Are the Tools of Carbon Financing?

While there are a range of tools of carbon finance, the creation or allowance of carbon credits that can be traded in compliance or voluntary carbon markets, has been the top option.

That could be because this kind of financial mechanism places value on the reduction of carbon itself, which makes it a tradable asset. Turning emission reductions into carbon credits that can be traded in various exchanges and markets help stimulate the economy as the world fights climate change.

For carbon finance to work, carbon credits are essential. So, let’s dig deeper into this carbon financing tool and the markets the credits trade.

What Are Carbon Credits and How Are They Created?

Carbon credits are tradable assets that represent one tonne of carbon avoided/removed from the atmosphere.

They are created through projects that reduce carbon emissions. These projects vary a lot, from nature-based solutions to carbon removal technologies.

The types of carbon credits also vary, depending on what project creates them. So far, there are 170+ types of credits available in the market.

There are two ways to produce these credits:

Development and operation of projects that remove and reduce carbon from the air
Adopting practices or initiatives that purposefully reduce business-as-usual emissions

Under the first method, project developers document, report, and verify that their activities did remove and sequester or prevent a tonne of carbon from entering the atmosphere. Upon successful verification, a corresponding amount of carbon credits are created.

It’s the funds from carbon financing that support the emissions reduction projects. Common examples of these projects include forest management and protection, wind or solar power generation, and gas capture from landfills, mines or farms. The project developer can then sell the carbon credits they generate.

Under the second option, companies that alter their practices and verify the reduction in their business-as-usual emissions create carbon credits. For every tonne of carbon reduced, the entity gets a credit that it can trade in the market.

Both methods of creating carbon credits differ but they share one common goal – reduce emission levels. The ultimate aim is to reverse the effects of global warming.

Trading Credits in Carbon Markets: Voluntary vs. Compliance

Carbon credits in the voluntary carbon market (VCM) are known as carbon offsets of offset credits. Within the VCM, offset credits are exchanged horizontally between companies.

If one company removes one unit of carbon by improving their normal business activity, they generate a carbon offset credit. Other firms can then buy that credit to offset or compensate for their own emissions.

Here’s how the carbon offset credits trading performs over the years. The market’s total or cumulative value reaches $8 billion until 2021.

Individuals and corporations can decide to buy carbon offset credits at any time they choose. Part of the revenue from the sale of the credits is put back into the projects to maintain them or invested into new projects. As such, carbon credits bolster the positive effects of this form of carbon financing.

Within the compliance or regulatory markets, carbon credits are called carbon allowances or certificates. They work like permission slips to emit carbon and other GHGs. The credits represent the number of emissions they’re allowed for a given year.

In a sense, money from carbon financing flows vertically from entities to regulators inside the compliance market. But companies who have excess credits (emit less than their allowance) can sell them to other firms who go beyond their allowed emissions level.

But since players in this carbon market are business entities from the same sector, the impact of the carbon credit finance is industry-wide.

The Role of Governments and Private Sectors in Carbon Finance

Carbon financing often involves government programs on compliance and how the private sector responds to carbon regulations. Climate policies that promote carbon finance in compliance markets can reduce the impacts large businesses have on climate change.

But it’s not only about companies changing their business models to comply with policies. Some entities in the private sector have also started to capitalize on carbon finance opportunities that compliance markets bring.

Let’s consider some instances of how governments and the private sector affect carbon financing.

Green Credits and Bonds:

There are plenty of incentives present for businesses looking to create green projects. Green bonds and loans, for example, that cater to green project firms do a great job of creating these opportunities.

Most governments worldwide have portfolios in banks consisting of loans dedicated to green projects.

Likewise, green bonds offer an opportunity for investors to support projects that reduce global emissions. They often come with tax incentives as they fall under the category of environmental, social, and governance or ESG investing.

Carbon Taxes:

The purpose of a carbon tax is to change how entities do business to reduce their emissions. Carbon taxes apply to an entity’s direct emissions as well as goods that emit CO2.

Taxing corporate emissions and goods like fossil fuels will prompt polluters to cut their carbon footprints. However, not all countries impose carbon taxes. Yet, some of them do such as in the case of EU states, some parts of the U.S. and Canada, too.

Cap and Trade Systems:

A cap and trade system works within the compliance carbon market. It sets a cap or limit on the level of carbon an entity can emit over a period of time. The cap decreases over time, so total emissions drop.

This scheme is also known as the Emissions Trading System (ETS). As mentioned earlier some industries emissions, particularly the heavy emitters like steel and iron, are heavily regulated.

Firms can sell their carbon credit allowances to others who need them to cover their cap to avoid fines. The carbon credits then become another revenue stream for the seller under this system.

ETS has been proven to reduce CO2 emissions significantly. For instance, the European Union’s ETS had reduced emissions by 29% in 2018 from 2005 levels. The California cap and trade program was also able to reduce covered entities’ emissions by 10% in 5 years.

You can find the real-time prices for carbon credits traded in different ETS here.

How to Participate in Carbon Financing?

It’s undeniable that government regulations on emissions have significantly reduced carbon levels. Still, even more are possible with the help of individuals and businesses who seek to voluntarily slash their footprints.

This is where the voluntary carbon market becomes so important. When entities feel responsible to offset their emissions, they can work together and pool funds to finance carbon projects.

That resource is critical to help support new innovative climate solutions that are emerging today. If scaled, they may cut carbon emissions at a much faster rate than entities under the compliance markets alone.

So, how can you partake in carbon financing in the VCM?

The best way is to invest in emissions reduction projects by buying carbon offset credits they generate. You can choose from various carbon credit marketplaces online that sell those credits or directly from the project developers platform.

The amount of credits to buy depends on how much you want to voluntarily offset your personal or corporate emissions.

Carbon credit providers offer various options to suit different offsetting needs, from individual to big businesses.

You can even bet your money on carbon credits in spot exchanges and earn some profits. Blockchain-based or tokenized carbon credits are now emerging, giving market players a more transparent transaction.

Just see to it that the offset credits meet carbon standards to ensure they represent a real CO2 reduction.

Overall, whether it’s the VCM or compliance market, carbon financing creates essential opportunities to tackle emissions. More remarkably, the VCM enables individuals and companies to be part of the key financing that make carbon markets alive and grow.

The post What is Carbon Financing? appeared first on Carbon Credits.

On the first day of the COP27, Michael Bloomberg’s charitable organization and Three Cairns Group revealed plans to form the Global Carbon Trust (GCT) to help scale up the voluntary carbon market (VCM).

Three Cairns Group is a mission-driven investment and philanthropic firm. It seeks to build and support innovative platforms and initiatives to speed up climate action.

Bloomberg Philanthropies invests in five key areas to ensure better, longer lives and create lasting change, including arts, education, public health, government innovation, and the environment. Its fund includes all of Michael Bloomberg’s charitable givings.

The two firms will establish the GCT and the Carbon Storage Governing Council (Governing Council). The initiative will provide governance, boost the supply of projects, and promote standardized financial contracts to attract market participants.

The Global Carbon Trust aims to drive innovation, transparency, and scale the carbon markets.

Global Carbon Trust Supplementing the VCM

To help bring the world to a 1.5°C pathway, the VCM has to grow by 15x to 1.5-2 GT of carbon credits per year by 2030. And at maximum, by 100x to 7 to 13 GT per year by 2050, according to the Taskforce for Scaling the Voluntary Carbon Market.

The chart below shows the potential voluntary demand scenarios in 2030 and 2050.

There has been significant progress made by the private sector in improving governing principles, standards, and quality of carbon credits. But the VCM still lacks enough infrastructure that underpins traditional financial markets like standardized, incentive-based contracts.

There are a lot of potential buyers of carbon credits as part of their net zero pathways. But some of them hesitate to participate in the market because of these reasons:

Lack of standardized contracts
Inability to depend on carbon removal and storage projects in the long-term
Absence of well-capitalized intermediaries between buyers and sellers

Add to this the concern about carbon credit verification delays that is costing project developers $2.6 billion. This also limits the innovations essential to enable sellers to bring supplies of high-quality carbon credits to the VCM.

This is where the Global Carbon Trust comes in to supplement the current state of the VCM. The initiative will offer an effective means to manage the supply and liquidity of carbon credits.

Mark Gallogly, Co-founder of Three Cairns Group, said:

“…To reach its potential, the VCM will need greater rigor, data, transparency, ongoing measurement, and capital. The mission of the GCT is to augment and improve existing carbon markets and enable the VCM to scale to its needed size.”

Michael R. Bloomberg, Founder of Bloomberg Philanthropies, also noted that an efficient VCM is crucial in fighting climate change. It offers a powerful way to pump more money into projects that cut emissions. He further added:

“…Turning climate commitments into smart investments that make a real difference requires transparency, accountability, and reliable data, all of which the Global Carbon Trust will help bring to carbon markets.”

The Carbon Storage Governing Council

The Governing Council will work with the GCT. Representatives to the council are from academia, industry experts, and civil society.

As one of the working groups, the council will aid GCT in performing its tasks in scaling up the market. With its establishment, the organization can achieve its initial focus. This includes the development of fixed-term contracts and carbon credit projects.

The Global Carbon Trust will also build on key elements of the VCM. These include boosting revenue from carbon storage to help fund projects with other benefits, not just emission reductions.

Through the GCT, private institutions, carbon registries and verifiers, brokers, and exchanges will all continue to play their vital roles in the functioning of the VCMs.

Key Functions of the GCT

Through the following functions, the Global Carbon Trust hopes to be a source for transparent carbon market data.

Addressing the need for fungible carbon credits:
The GCT will address the need for term-limited, fungible carbon credits backed by enforceable contracts. This will help the VCM capitalize in the urgency of delivering climate action and aligning financial incentives with climate targets.
Creating standardized carbon credit contracts:
The GCT will create standardized contracts for carbon credits as well as embed third party monitoring and verification of project performance. It will also develop arbitration and compensation processes for credits that fail to meet targets.
Increasing supply of carbon credits:
The GCT will boost supply of credits including those from emerging economies by reducing barriers to entry. It will do this by bolstering innovation and enhancing the capacity for long-term carbon removal and storage.

With the above tasks, the GCT aims to minimize greenwashing, mitigate risks, and improve market credibility.

Three Cairns Group and Bloomberg Philanthropies look forward to engaging with various parties inside and outside the COP27 summit as they establish the GCT and the Governing Council.

Both initiatives will start working in the coming months, with more updates expected in 2023.

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