BeZero Carbon Closes $50M for Expanding Carbon Rating Platform

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
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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Nations Strike First-Ever “ITMO” Emissions Trading

Ghana and Switzerland, along with Vanuatu, have approved at COP27 the first-ever voluntary cooperation under Article 6.2 of the Paris Agreement called the Internationally Transferred Mitigation Outcome (ITMO).

ITMO is a carbon emissions trading system where countries can purchase or trade carbon credits from other countries. This can open the door to creating new carbon markets and larger reductions in global GHG emissions.

The countries showed during the summit how the pioneering ITMO transaction will enable the reduction of greenhouse gas (GHG) emissions while promoting the Sustainable Development Goals (SDGs) in developing nations.

According to the United Nations Development ProgrammeCommenting on this collaboration, UNDP Administrator said that:

“This initiative is an example of UNDP’s ‘future-smart’ approach to development, which aims to use innovative financial mechanisms and partnerships with governments and the private sector to empower countries to follow a sustainable development pathway, leaving no one behind…”

The First-Ever Approved ITMO

Article 6 of the Paris Agreement replaces previous forms of international carbon credits.

It recognizes that some countries may enter voluntary cooperation in implementing their Nationally Determined Contributions (NDCs) to allow for higher climate mitigation ambition and actions and promote sustainable development.

Apart from cutting emissions, climate mitigation projects can also deliver many development benefits. These include gender empowerment, food security, access to energy, livelihood support, job creation, and more.

ITMO trading allows countries in under-compliance to buy ITMOs from countries in over-compliance.

At COP27, Ghana presented the landmark bilateral authorized project under ITMO deal with Switzerland. Meanwhile, Vanuatu also did the same for the first-ever unilateral ITMO projects.

By entering into bilateral agreements with Ghana and Vanuatu, Switzerland will reduce its GHG emissions by using ITMOs. Doing so will help the implementation of projects with development benefits.

The project in Ghana will help thousands of rice farmers practice sustainable agriculture to cut methane emissions. These farmers cover about 80% of Ghana’s rice production.

Via the ITMO deal, those farmers will also get extra income with carbon revenues for increased resilience and more efficient water use.

A representative from Ghana, Dr. Kwaku Afriyie, remarked that:

“Ghana’s leadership in Africa on carbon finance with the landmark bilateral agreement with Switzerland is something we are proud of. We want to leverage this collaborative approach to crowd in more carbon revenue to accelerate the implementation of our national climate plan for the benefits of many communities…”

While the deal with Vanuatu will provide access to electricity to those who don’t have it through renewable energy sources. Vanuatu is a small Island Developing State (SIDS).

Creating Demand for ITMOs

The UN Development Programme (UNDP) is among the first to create strong demand for ITMOs via its Carbon Payment for Development facility. Through this initiative, the UNDP will help design and implement mitigation projects.

The goal is to leverage carbon markets to enable private investments to support SDGs. New projects can help reduce up to 2.3 million tCO2 equivalents. To amplify the impact of these projects, UNDP will focus on the ones supported by the private sector.

It will channel payments for ITMOs to project proponents who invest in low-carbon solutions that create additional revenue for investors.

Under this payment-for-result scheme, investments from the private sector will be up to 4x the carbon payments from the ITMOs.

UNDP launched at COP27 a new digital platform called Carbon Cooperation to help developing countries build capacity, enhance ITMO workflows, and improve their carbon market readiness. It will also make their ITMO projects become more efficient and transparent.

In partnership with UNFCCC, UNDP also introduced its Article 6.2 capacity development online course.

The course seeks to equip participants in making decisions related to cooperative approaches such as the first-ever ITMO agreement between Ghana and Switzerland. It will also help policymakers understand the vital components of executing this new carbon market mechanism in their country.

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Fossil Fuels and Coral Reefs: 4 Key Takeaways From COP27 Summit

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.

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Ontario Teachers’ Invests Billions to go Net Zero

The Ontario Teachers’ Pension Plan (OTPP) continues to look for positive environmental impacts of their investments.

The Fund’s recent climate report shows great progress on its net zero by 2050 plan. The Chief Investment Officer, Ziad Hindo said:

“We are increasingly evolving our thinking to consider how we can use our capital in a way that has clear and measurable real-world environmental and social benefits while creating value for our members.”

Indeed, one of the world’s biggest pension funds has been making huge strides on its net zero targets.

To date, OTPP delivers retirement security to 333,000 members and pensioners, invests in 50+ countries worldwide, and manages C$242.5 billion in net assets (as of June 30, 2022). 80% of those assets are managed in-house.

Ontario Teachers’ Net Zero Pathway Progress

Ontario Teachers’ has put 2025 and 2030 targets in place to cut its carbon emissions to reach net zero investment activity by 2050.

OTPP aims to reduce portfolio carbon emissions intensity by 45% by 2025 and 67% by 2030, compared to its 2019 baseline. These emission reduction targets cover all the Fund’s assets, resources, and holdings.

Also, OTPP has an ambitious plan to achieve $300B in net assets by 2030 and $50B in green investments by 2050.

Since their net zero 2050 announcement last year, Ontario Teachers’ saw a significant drop in their emissions due to its investment shift from passive to active exposure.

Currently, the Fund’s private assets that represent 72% of its PCF (portfolio carbon footprint) holdings continue to achieve lower emissions intensity than other asset classes. Its wholly owned subsidiary Cadillac Fairview, for instance, has been taking actions that further reduce carbon emissions.

2021 Key Highlights

The following table shows Ontario Teachers’ progress in cutting its PCF as of 2021.

While here’s the sector-based carbon footprint contribution of the Fund.

Regarding other performance metrics, Ontario Teachers’ achieved the following results.

The annual total fund net return has been 9.7% since the pension plan started in 1990.

The Fund’s Climate Strategy

Ontario Teachers’ climate strategy reflects its commitment to reducing the environmental impact of its portfolio. Its decarbonizing strategies also capitalize on opportunities supporting the transition to a net zero future.

Decarbonizing portfolio:

The Fund calls its net zero by 2050 plan “PART” short for Paris Aligned Reduction Target. One key element of the PART is decarbonizing OTPP portfolio companies. And so in 2021, Ontario Teachers’ set a target to align net zero goals of companies with significant stakes.

By providing resources to and working closely with its portfolio companies, they’ve made progress with PART by creating a “decarbonization playbook”. It’s a guidance for portfolio companies detailing:

The case for change, including board and management education
Carbon footprint baseline development
Decarbonization levers identification and assessment
Target setting, validation, and communication
Guidance on what a credible net-zero plan entails

They’re now engaging the first wave of select portfolio companies to implement the decarbonization playbook. By prioritizing those firms, it helps OTPP to focus its efforts on the highest-emitting companies where they influence emissions.

Decarbonizing high-emitters:

Part of this strategy is to make an initial investment of about $5 billion over the next few years toward “High Carbon Transition (HCT) assets”.

High Carbon Transition assets are very high-emitting companies with credible decarbonization plans that Ontario Teachers’ can accelerate via their capital and expertise.

To support the transition of select HCT assets, their approach will include:

Clear investment criteria. HCT assets as businesses with significant carbon intensity. That means ~10x the average of the Fund’s portfolio carbon footprint, or around 300 tCO2e/CAD MM.
Initial allocation of $5 billion to HCT assets.
Enhanced transparency.
Maintaining targets and commitment to net zero.

Increasing green investments:

In 2021, OTPP reached ~$33 billion in green investments. These include investments in low-carbon transportation fuel and carbon credits.

In December last year, Ontario Teachers’ invested $250M in Sydney-based carbon credits developer, GreenCollar. The generated carbon credits are sold by GreenCollar to first and secondary markets.

OTPP invested in GreenCollar because they see the positive impact of its carbon credit projects that align with their long-term return goals.

To date, the developer produced +126 million Australian Carbon Credit Units and prevented 30,000+ kg of nitrogen from entering the ocean.

Interests in environmental programs such as ESG investing are growing fast and carbon credits have been the focus of these investments. In fact, industry estimates expect to see carbon markets hitting $22 trillion by 2050.

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What is Carbon Financing?

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.

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Debt-for-Nature Swaps Are Drawing Attention, Carbon Credits Play A Role

Debt-for-nature swaps or debt-for-climate swaps are now getting more attention from the world’s developing countries who have around $500 billion of debt servicing payments.

According to the Nature Conservancy, debt restructurings tied to nature or climate-friendly outcomes present a multi-billion-dollar possibility.

While the instruments have been around since the 1980s, they start to gain more traction once again following the deals made by the Nature Conservancy.

The recent debt crises for developing nations due to COVID-19 pandemic, Russia’s invasion of Ukraine, and rising interest rates also prompted climate swaps to resurface.

What are Debt-for-Nature or Climate Swaps?

The vital role of forests in capturing and storing carbon dioxide has attracted renewed interest in debt-for-nature swaps.

They are deals that allow a country to restructure its debt at a lower interest rate or for longer repayment periods. And that’s in exchange for the debtor’s commitment to fund conservation or climate-related projects.

Debt-for-climate swaps usually involve countries that are financially distressed or have difficulties in repaying their foreign debts. The proceeds through the swaps go to conservation or green projects managed by local environmental trust funds.

The lenders can be developed country governments, commercial banks, or even private companies. Commercial climate swaps involve selling a commercial bank’s debt on secondary markets at discounted rates.

Bilateral debt swaps involve government debt, known as sovereign debt, and typically need a restructuring plan for the debtor. Here’s how bilateral debt-for-nature swaps work.

A portion of the capital that would have otherwise gone to paying off the original debt is channeled towards pre-agreed investments in conservation projects or implementation of environmental policies.

Debtors benefit by reducing their debt burden and opening fiscal space for dedicated investments in climate projects. They also benefit by decreasing pressures on the exchange rate as their new obligations are in domestic currency.

As for creditors, the lending developed countries that are parties to the United Nations Framework Convention on Climate Change (UNFCCC) benefit by accounting the climate swaps toward their commitment to provide $100 billion per year in climate finance to developing countries.

The Market for Debt-for-Climate Swaps

58 of the world’s developing countries most vulnerable to climate change collectively have around half a trillion of debt servicing payments due in the next 4 years. An adviser from a coalition representing those nations said in an interview that:

“This huge debt service payment could obstruct opportunities to invest in adaptation or the low-carbon transition… Debt swaps must scale. We’re just not in a situation where we can have austerity because we need to invest out of the pandemic and invest out of climate impacts.”

Since 2016, the Nature Conservancy has organized 3 debt-for-nature swaps involving the Seychelles, Belize and Barbados. For these deals, the organization was able to convert over $500 million of debt into $230 million of money for conservation.

Previous examples of bilateral debt-for-nature swaps from Latin America are as follows:

During a panel discussion at the COP27 climate summit, Jennifer Morris, CEO of Nature Conservancy, said that:

“The opportunity for conservation here is huge… We see $10 billion right now of opportunity that can turn $2 billion into conservation, with not one penny of new philanthropy coming from the private sector.”

But the market for climate swaps is a niche due to its high transaction costs. Plus, there’s a need to monitor climate projects as well as the need for the debtor to make a long-term commitment to the scheme.

What’s even more remarkable is that the world’s biggest bilateral creditor, China, hasn’t been a part of these swaps substantially. Still, there’s growing interest from the developing nations recently.

For instance, Gabon revealed plans last month for a $700 million debt swap to fund marine conservation. This could be the largest transaction to date.

The island nation of Cabo Verde also plans to do a debt-for-climate swap.

Last year, Argentina committed to linking a portion of its foreign debt to investments in green infrastructure. This year, the president of Colombia suggested a debt-for-nature swap to protect its Amazon rainforest.

And most recently at the COP27 summit, several developing countries also expressed interest in supporting this kind of climate financing. These include statements from Gambia, Sri Lanka, Pakistan, and Kenya.

The Role of Carbon Credits in Climate Swaps

Countries most vulnerable to climate change face many problems as they need to spend more to improve resilience and reconstruction and also have a higher cost of capital.

This is where climate swaps become crucial by offering those countries the chance to still make necessary climate investments. And carbon credits can be part of the swaps, according to the director, wherein investment from the private sector is the key to debt restructuring.

But this can be challenging because the private sector can’t relabel the debt as development assistance. The use of carbon credits addresses this by providing incentives for private stakeholders.

And with the surge of corporate net zero pledges, the use of carbon offset credits is also growing. They can make use of the swaps and link them to their ESG and sustainable financing schemes.

Private holders of sovereign bonds can get the offset credits in exchange for a debt-for-nature swap or restructuring. These credits are from nature-based and other emissions reduction projects.

International climate bodies are currently investigating climate swaps in the context of programs to support a greener and sustainable economy.

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Bloomberg to Form Global Carbon Trust to Scale the VCM

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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Carbon Credits Take Center Stage at COP27, $580B for “Loss & Damage”

As world leaders gather at the COP27 summit in Sharm el Sheikh, Egypt, carbon credits take center stage as well as the push for the ‘loss and damage’ compensation from the largest polluters.

At the same time, the International Monetary Fund (IMF) chief says a $75/ton carbon price is a must by 2030.

As the latest climate change conference is happening this week, concerns about tackling the catastrophic effects of global warming have never been more urgent during COP27.

And as nations meet to address climate change, the U.S. aims to reassert its global leadership by working on a plan to develop a new framework for carbon credits.

Another critical question on the agenda is whether rich nations will pay for climate-related losses and damage.

U.S.’ New Framework for Carbon Credits

The U.S. plans to pool money from the world’s largest companies to help developing countries stop using fossil fuels. This would be under a new framework for carbon credits which proceeds will fund new clean energy projects.

Under this plan, state bodies can earn carbon credits by reducing their power sector’s emissions if they cut their use of fossil fuels and increase renewable energy use instead.

There will be an independent, accreditation body, which remains unspecified yet, that will certify the credits. Entities can then buy those credits to offset their emissions.

The scheme is considered a power-sector version of the so-called Lowering Emissions by Accelerating Forest Finance (LEAF) venture launched at last year’s COP26. Big corporations will back up the plan such as Nestlé, Amazon, and BCG. The credits will be from avoiding deforestation in countries like Brazil and Indonesia.

US president Joe Biden’s climate envoy John Kerry is to unveil this plan at the COP27 where over 110 heads of state are present.

Though it’s voluntary, the scheme will give the biggest polluters a means to address their footprint, according to Kerry. And so, it can entice participation from the private sector.

U.S. officials hope the plan will unlock ‘tens of billions’ of cash to fund the energy transition and said they would ensure the environmental integrity of the carbon credits.

Apart from the U.S., other world leaders are also racing to fund the shift to clean energy and reduce developing countries’ reliance on fossil fuels.

For instance, Mike Bloomberg, a billionaire special U.N. envoy on climate change, revealed a new initiative to help developing countries phase out coal by 2040.

Meanwhile, environmental activists at COP27 are calling for a “fossil fuel nonproliferation treaty.” They’re asking governments to promise an end to all new oil, gas, and coal projects. But such a “treaty” to end fossil fuel use is not on the agenda at the conference.

But there’s another big issue on COP27’s agenda for the first time – compensation for the “loss and damage”. That will be paid by the world’s largest polluters to the most climate vulnerable nations.

COP27 Agenda: “Loss and Damage”

Loss and damage refer to the concept wherein rich countries, who emit the most greenhouse gasses, should pay poorer nations that suffer the most from climate disasters.

Loss refers to economic impacts that are harder to quantify. For example, lost agricultural production due to extreme drought or rising sea levels flooding fields.

Damage, which means the destruction of homes, roads, bridges, and other infrastructures, is easier to calculate.

The funding needed to compensate for the loss and damage varies.

According to a study, it’s worth up to $580 billion annually by 2030, increasing to $1.7 trillion by 2050. The money differs from the funds to help poor nations adapt to climate change.

Asking for loss and damage compensation is not new. It was first championed by nations in the Pacific Ocean and then embraced by other developing countries. And real losses and damages keep on piling up.

Then came record flooding in Pakistan last month, which the World Bank estimated to incur economic losses worth $30 billion.

At this year’s COP27, “funding arrangements” for loss and damage were part of the formal agenda that overcame long-standing objections from the U.S. and the E.U.

The biggest debate at the summit will be over whether to create a dedicated financial mechanism for loss and damage. Or clarity on whether funds might come from new or existing sources.

While this agenda is a hot topic, talk about carbon pricing is also on the sidelines of the COP27 discussion.

IMF Managing Director Kristalina Georgieva said:

“Unless we price carbon predictably on a trajectory that gets us at least to [a] $75 average price per ton of carbon in 2030, we simply don’t create the incentive for businesses and consumers to shift…”

The problem is that the acceptance of pricing carbon is still low in many countries, as per Georgieva. The EU may already price carbon above that level, but other regions like California have much lower carbon prices under $30/ton. While some regions don’t even price pollution at all.

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Ex-Oil Exec’s form ZeroSix to Turn Oil & Gas Reserves Into Carbon Credits

Veterans from Shell and other oil majors have launched ZeroSix, which plans to tackle 1 gigatonne of carbon emissions from oil & gas wells and generate carbon credits.

ZeroSix offers a digital platform for a new era of high-quality carbon credits addressing accuracy, additionality, permanence, and transparency in the voluntary carbon market (VCM).

The company will convert unextracted, unburned oil and gas into protected carbon credits.

The new greentech venture will create, track, trade, and retire carbon credits on a decentralized digital platform.

This unique approach introduces a revolutionary kind of carbon credit. That’s an upstream carbon offset from fossil fuels that never burn while incentivizing oil and gas producers to shut their wells early.

ZeroSix Carbon Credit Solution

According to Greenpeace, “carbon stored in trees or other ecosystems is not the same as fossil carbon left underground.” And of global GHG emissions are from fossil fuels.

So, a team of energy and digital technology professionals from the oil and gas sector and sustainability initiatives, form ZeroSix to provide a solution that keeps fossil fuel reserves in the ground. The founders include Shell and other oil majors veterans.

As per ZeroSix’ CEO, Martijn Dekker:

“We believe the voluntary carbon market can be a critical driver of fossil fuel emissions reductions. But the market must improve in size, quality, and transparency to ensure carbon offsets are actually an effective tool. ZeroSix will contribute to all three areas of growth and improvement as we work to bring the world closer to net-zero.”

In the U.S. there were over 930,000 hydrocarbon-producing wells in 2020. And about 870,000 of them produced less than 100 barrels of oil a day (bottom-quartile).

Those wells with the lowest production contribute only 0.2% of oil and 0.4% of gas. But they account for a disproportionate 11% of annual methane emissions from all U.S. oil and gas production. This translates to 280,000 tonnes of methane per year.

For ZeroSix, that fact offers a huge opportunity for both an economic and a climate win.

The firm states in its analysis that in the U.S., early retirement of bottom-quartile wells can avoid 1 GT CO2e per year. That’s even more than the annual GHG emissions of Germany, the world’s 4th-largest economy.

To address the problem, ZeroSix creates a financial incentive for producers to “mine” their reserves differently. That’s by permanently protecting their wells from extraction via a new zero-carbon fossil fuel value chain.

The company calls it a new era of fossil fuel “prospecting” that leaves fossil fuel reserves unextracted and unburned. And that generates high-integrity carbon credits via ZeroSix platform.

How ZeroSix Platform Works

The new platform offers a robust digital solution to mint, sell, buy, hold, transfer, and retire ZeroSix token-based carbon credits. This solution involves two main users: project owners and token buyers.

Project owners refer to entities that produce the carbon credits. Token buyers are firms, individuals, and other entities looking to offset their emissions.

The solution follows a blockchain-based approach and other decentralized digital technologies. The system uses a ZeroSix token: 1 token = one tonne CO2e.

ZeroSix tokenized system provides a shared, immutable, tamper-proof digital record of events and transactions related to the creation, sale, and retirement of carbon credits.

The token uses the ERC-1155 multi-token standard. That means it includes both non-fungible (information that is unique and specific to a token) and fungible (information that is uniform across all tokens) components. This standard is the same approach adopted for digitalized renewable energy markets.

Following the stringent ZeroSix protocol, fossil fuel wells are shut-in forever. The forfeited reserves convert to carbon credits that can be used in the VCM. This solution fixes the four weak areas that put carbon credits under scrutiny:

Accuracy: ZeroSix carbon credits are based on government regulatory standards (SEC standard) in calculating hydrocarbon reserves emissions for precise measurements and reporting.

Additionality: Keeping oil and gas reserves from proven producing wells in the ground avoids all emissions related to their potential surfacing, processing, and consumption. ZeroSix carbon credits are only issued for those wells which would have otherwise resulted in extracting, refining, and burning of the oil or gas.

Permanence: ZeroSix carbon credits require that the fossil fuel reserves are never extracted, with insurance against event of reversals. The shutting in of oil and gas wells is irreversible.

Transparency: The decentralized, digital platform used by ZeroSix allows anyone to easily verify carbon credits, which are independently verifiable.

ZeroSix’s operating system will launch at the end of 2022 while aiming for a full carbon credit platform launch in 2023.

The company also plans to scale to take on other emissions reduction projects apart from oil and gas. These include other hydrocarbons and CO2 removal technologies such as direct air capture.

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