Internal Carbon Pricing Guide for Companies 2023

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Companies with internal carbon pricing say this tool allows them to assess the financial implications of their carbon emissions and incentivizes them to shift to low-carbon initiatives. It also complements the emissions reduction regulations by governments under which businesses are subject to.

Others even lauded that an internal carbon price or tax helps them in achieving their climate goals while addressing shareholders’ concern about disclosure. While some businesses use it to help them prepare for future policies on carbon emissions.

So, what is internal carbon pricing (ICP)? How does an internal carbon price work for a company? Do businesses really pay for their emissions via a carbon tax? This comprehensive guide will answer all these questions and more about internal carbon pricing.

What is Internal Carbon Pricing?

The heavy emitting sectors have been using a business carbon pricing as part of their risk mitigation strategy since the 1990s. In particular, firms in the oil and gas, minerals and mining, and the power sectors are using this pricing tool to place a value on their carbon emissions in a manner that drives positive change in their business.

When an internal carbon price is set, a cost is assigned to every ton of carbon emitted. Companies can then factor that cost into their business or investment decisions, encouraging efficiency and low-carbon innovation.

According to 2016 disclosures to CDP (Carbon Disclosure Project), over 1,200 companies worldwide are either looking to set an internal business carbon pricing or preparing to do so. Most of them are in Europe and North America but businesses in emerging economies such as China, India, and Brazil have seen the highest increase in ICP use.

And as companies are getting more serious about taking climate actions, internal carbon pricing also becomes more vital in helping the world transition to a low-carbon economy in 2023 and beyond.

If your company is also considering having an internal carbon price in place, then you need to know that it comes in three major types.

3 Types of ICP

There’s no definitive answer on what your company’s carbon price should be. Plus, there are also many different ways that the cost of carbon can be integrated into your business operations.

That only means that the best starting point for your business when pursuing internal carbon pricing is to understand your own drivers for it. To help you with this, here are the forms of internal carbon price you can consider.

Internal Carbon Tax

An internal carbon tax is a monetary value on each ton of carbon emitted by your business activities. This is readily understandable throughout your company. You just have to keep a record of and report those activities.

The collected fee becomes a revenue that your company can use to fund its emissions reduction efforts. While there’s no exact amount of tax to follow, the internal carbon fee you can charge ranges from $5-$20 per metric ton.

Setting the fee requires consideration of all internal factors across the business impacting the tax levied. The practicalities involved as to how the money can be collected should also be considered.

An alternative to imposing an internal carbon tax is designing an emissions trading system such as the EU ETS. It works like the cap-and-trade schemes used by the governments today.

It’s basically placing a limit or cap on how much carbon can a business unit or activity emit. Any excess will be charged accordingly by how much is the value of each ton. Typically, the price is set much lower than a shadow cost price.

Shadow Carbon Price

This internal carbon pricing sets a theoretical or assumed cost per ton of carbon. Not being a real price, this may be easier to implement as there’s no need to make changes in your business unit budgets or financial allocations.

Under this pricing method, a cost of carbon is determined within business processes which include:

business case assessments,
procurement procedures, or
business strategy development.

The goal is to show the cost of the carbon implications of those business decisions, which can then be communicated to stakeholders.

Usually, a shadow price is set higher than an internal carbon tax to reflect the expected future price of carbon. It varies a lot, from $2 to ~$800 per ton.

Shadow cost pricing helps your business understand carbon risk and prepare appropriately. And that’s before the hefty shadow price becomes a real carbon price.

Implicit Carbon Price

An implicit price is based on how much a company spends to cut carbon emissions on projects like renewable energy. It also takes into account costs of complying with certain government regulations.

Any firm with climate related goals has an implicit price on carbon emissions. The prices can even appear several times within the same company. You can use them to specifically identify which costs to minimize and better know your emissions.

You can even use this price as a basis for determining and launching an internal carbon price for your business.

Though each type of internal carbon pricing varies, many companies use a hybrid of approaches combining their different attributes.

But how exactly does an internal carbon price work for your company? Why is establishing it important for your business? Let’s break it down in the next section.

How Does an Internal Carbon Price Work For a Company?

Right now, there are no international standards that businesses should meet when setting up their internal price on carbon. So how it works for your company is really up to you.

And despite lack of standards and regulations, opting to implement an internal price is beneficial for many reasons.

After all, there are some helpful guides and initiatives you can still look to such as the Caring for Climate initiative from the UN Global Compact. It encourages firms to become a Carbon Pricing Champion by setting an internal carbon price, communicating progress, and advocating for its importance.

Also, Canada recently launched its Global Carbon Pricing Challenge at COP27 climate summit in Egypt. It makes existing pricing systems more effective and support other nations when adopting carbon pricing.

Internal carbon pricing helps companies in managing their climate-related business risks. ICP can also serve as an important risk-mitigation tool with multiple benefits beyond your company’s operations, customers, and communities.

The signals are out there that carbon risks are real and they’re coming fast.

Last year, the Bank of England warned businesses to be ready to pay for carbon prices that can soar up to $100/ton. Likewise, the UK government also requires companies to report on their carbon-related risks by 2050.

Moreover, governments have been busy closing deals in line with their Paris climate goals. And the recent COP27 summit closed a lot of those deals, prompting countries to introduce carbon pricing mechanisms as part of their decarbonization strategy.

What that means is that the timeline for a change is now clearer than ever.

The best part? Your company will not only be prepared for that change but will also enjoy the benefits of having an internal carbon pricing system.

The Benefits of ICP

The drivers of ICP are specific to each company but in general, it brings the following major advantages.

Prepares for future regulation

Firms that track their GHG emissions and implement an internal price on carbon are better prepared for a regulatory future in which carbon is priced. In a sense, the mechanism helps your company in de-risking against future carbon price and future-proofing its business strategy.

Addresses sourcing requirements

Companies that source or operate internationally are exposed to certain carbon pricing standards. This makes them a subject to the existing global patchwork of carbon emissions regulations. So, if you intend to operate globally, it’s a good idea to start calculating, monitoring, and pricing carbon emissions to make it easier to work your way around international pricing policies.

Promotes carbon innovation and efficiency

Pricing carbon bolsters innovation and efficiency improvements, provides a new lens for capital investment decisions, and inspires carbon efficient technologies. It also makes emissions intensive business practices more costly, urging firms to avoid them.

Plus investors are starting to prioritize ventures that promote corporate sustainability, including internal carbon pricing, and are increasingly investing in them. So, it generates finance for sustainability initiatives.

Broadly speaking, ICP also helps make carbon considerations more central to business operations while enabling companies to respond to investors’ concerns on climate.

Given these benefits, do businesses pay a carbon tax? Or better yet, do they really have to pay for their carbon emissions with a tax?

Do Businesses Pay a Carbon Tax?

A carbon tax is considered as an essential policy tool to control carbon emissions: high prices for carbon-emitting products and services reduce demand for them.

A carbon tax is generally levied on fossil fuels that businesses have to pay. While most companies are emitting carbon and other GHGs, not all of them are paying carbon taxes.

According to the World Bank, there are 68 direct carbon pricing instruments operating as of June 2022 in 46 national jurisdictions around the world. These comprise 36 carbon tax regimes and 32 emissions trading systems (ETS).

Source: World Bank

ETS are tradable-permit systems which set a cap on the amount of greenhouse gasses that can be emitted. Businesses and entities have the flexibility of buying and selling emissions units, popularly known as carbon credits.

Some countries have already adopted a carbon tax while discussions are ongoing in others. There are also proponents of setting up a global carbon tax. But governments often prefer to use measures other than a tax to contain emissions for some reasons.

For example, mandating carbon taxes can be politically difficult because some sectors of the business community may oppose such a tax for financial reasons. Carbon taxes are also often regarded as regressive as they can penalize poorer members of society by contributing to price rises.

Another complicating factor is the so-called “carbon-leakage”. This means businesses may try to move their operations to other countries with less strict emissions policies. This can still increase the countries’ total emissions.

And among countries that have a carbon tax, the levels vary a lot and other measures exist alongside it. ETS is one of them as aforementioned as well as internal carbon pricing.

So what companies have an internal carbon tax or price in place?

Companies With Internal Carbon Pricing Programs

Business carbon pricing becomes most meaningful if it’s embedded into a company’s business strategy.

Some firms use revenue from its internal carbon tax to fund projects that reduce emissions such as renewable energy and energy efficiency. Popular names include Microsoft, Shell, BP PLC or British Petroleum, and more.

Others are also embedding a shadow price in their strategies by shifting investments into low-carbon assets. More and more businesses follow in their footsteps and experiment with internal carbon pricing.

In Europe, ICP was a key factor in an energy firm’s decision to close several of its power plants. In the U.S. some financial services companies use internal carbon pricing to identify high-return, low-carbon investment opportunities.

But a question rises if their pricing thresholds are correct.

A leading management consulting firm McKinsey & Company looked at data from companies that have disclosed internal carbon pricing programs. Their analysis revealed that there’s growing interest and varied ways in how companies use these pricing mechanisms.

In particular, 23% of around 2,600 companies said that they’re using an internal carbon tax or fee while 22% of them plan to do so in the next 2 years.

The top firms that reported the most were from the energy, materials, and financial industries, and then followed by the technology and industrial sectors.

A geographic analysis shows that 28% of companies in Europe are using an internal carbon price. Japan (24%), the UK (20%), and the U.S. (15%) have the highest percentages of companies using the pricing mechanism.

The findings also show that price thresholds per ton of carbon used vary widely by industry and region.

For instance, in Asia it’s only $18/ton while it’s higher in Europe, $27/ton. With this, companies are choosing values that are most useful for their regions and business contexts.

The chart below reveals the high variability of internal carbon prices within and between regions and industries.

To address this huge difference in the internal cost of carbon, attempts are underway to help firms determine optimal pricing standards. Some industry groups suggested potential pricing levels ranging from a few dollars to above $100/ton.

Yet, the issue remains a topic for debates.

Nonprofits argue that the social cost of carbon is far above $50/ton of emissions. Others further said that such a number is far lower than it should be as it doesn’t include significant impacts of climate change.

In the U.S., researchers determined that the social cost of carbon in the country should be at $185/ton. That’s over 3x than the current social cost of carbon which is a $51/ton.

Meanwhile, an expert group estimates that companies need to set internal carbon pricing between $40/ton and $80/ton in 2020. But that should go up between $50/ton and $100/ton by 2030 to reduce emissions in line with the Paris Agreement.

In contrast, the majority of the companies that have internal carbon pricing in place have thresholds at about $40/ton only.

Accounting for carbon emissions and paying for it is just one way for companies to manage climate-related risks, strengthen corporate values, and improve their investment decision making. But it’s a good step to take.

To date, internal carbon pricing initiatives by companies impact 22% of global GHG emissions, up from 15% in 2017. But as the analysis suggests, their pricing thresholds are far lower than they should be to account for all the costs of emitting carbon.

So, if companies want their business decisions to completely reflect the real costs of carbon emissions, they should take a closer look at their existing internal carbon pricing programs and then re-assess them.

This means you should do more research and analysis of your own business operations before deciding how much to pay and then make the first move, which is calculating the price of carbon your company should set internally.

Calculating Internal Carbon Price

This can be done in many ways. One way is by referencing externally published sources to reflect the associated risks. Examples of these are the UK Green Book guidance or the CDP Carbon Pricing Corridors.

You can also link them to determining the cost of carbon offsets you plan to use. They are credits you can buy to neutralize emissions that your company can’t avoid or reduce. This can go when considering a shadow price.

When it comes to measuring an implicit carbon price, it is based on an understanding of how much your company spends on reducing GHG emissions. This is necessary to know where carbon is emitted the most in your business and cut them appropriately.

If you want to go for a more complex method of including the social cost of carbon in your internal pricing, then you have to factor in all the quantifiable costs of emitting a ton of CO2. This method will take in a much wider range of social impacts into your calculation.

Overall, regardless of which form of internal carbon pricing your company chooses to take, pursuing it may worth your time and effort. After all, setting a price on carbon seems to be the inevitable future of doing business to keep the planet from heating up.

Should you want to learn more about carbon pricing in general and how it works, just take a few more minutes and read our guide here.

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EU Makes New Deal to Reform its Carbon Market

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The European Union (EU) striked a new deal to reform its carbon market, the centerpiece of the bloc’s Green Deal that aims to cut emissions and reach net zero by 2050.

The EU Emissions Trading System (ETS), created in 2005, is the world’s biggest carbon market. It covers around 40% of total EU emissions.

It permits industries with high energy demands like steel and cement to use the “polluter pays” approach to cover their emissions by buying ‘free allowances’ (or carbon credits).

The credits work like quotas meant to reduce emissions over time to propel those industries to emit less and invest in green technologies. The goal is for the EU to achieve its net zero targets.

Negotiators of the political deal went through heated talks for about 30 hours before agreeing to the EU carbon market reform. One negotiator remarked:

“The deal is a success for the EU and will provide certainty to companies and investors even if some compromises had to be made as the economic environment is very challenging.”

EU Carbon Market Reform: The New Changes

Last June, the European Parliament (EP) had rejected the bill to reform the ETS.

The new agreement seeks to achieve three key changes to the EU carbon market, according to the EP’s statement:

aims to accelerate emissions cuts,
phase out free allowances to industries, and
targets fuel emissions from the building and road transport sectors.

Under the previous system, the EU requires around 10,000 entities to buy carbon credits when they pollute. This is critical to meeting the bloc’s target to reduce net emissions 55% by 2030 compared with 1990 levels.

Under the new deal, that target now becomes 62% reduction from 2005 levels by this decade. Industries covered by the EU ETS must reduce their emissions by that amount.

EUA Out, CBAM In

The new plan also aims to speed up the timetable of phasing out the free allowances. 48.5% by 2030 and a complete removal by 2034.

In particular, it will remove 90 million carbon credits from the EU ETS in 2024 and 27 million in 2026. Then the rate at which the cap on EU allowances (EUA) falls is cut by 4.3% from 2024-2027 and 4.4% from 2028-2030.

The price of EUA has been soaring in recent years as seen in the chart below.

That could be due to the expectation that stricter EU emissions targets will lower the supply of carbon credits under the scheme. It reached a record high this year – 99.22 euros/tonne.

President of the EP’s environment committee, Pascal Canfin, said the carbon price for industries affected by the ETS would be around 100 euros/tonne. He posted on his social media that there’s no other continent that has “such an ambitious carbon price”.

The reduction in free EUA will be compensated by another landmark measure agreed by the bloc – the CBAM or Carbon Border Adjustment Mechanism. It’s a “carbon border tax” that will impose a pollution price on imports of certain goods to the region.

CBAM will help protect domestic producers from cheaper rivals in countries with less strict environmental standards. One of the negotiators noted that CBAM can be “a catalyst for global carbon pricing”. But it requires diplomatic skills to work.

New Market Inclusions

Lastly, the EU carbon market reform aims to include the maritime sector as well as intra-European flights. Plus, there’s a possibility to also cover waste incineration sites from 2028. But that depends on the report from the EC.

What’s for sure is to make households pay for emissions on their gas heating and road fuels from 2027. The price will be capped until 2030. Suppliers of fuel and gas need to buy carbon credits to cover their emissions.

But this change raises concerns households are already struggling with high energy prices. The MEPs argued that it should apply to offices and large vehicles only.

If energy prices remain high, this part of the plan will be postponed for a year, from 2027 to 2028. Revenues from this second EU carbon market will go to what the bloc called “Social Climate Fund”. It will be a 86.7 billion euro fund that will help households and businesses cope with the carbon costs and soaring energy prices.

As for Peter Liese, the head negotiator, this new deal will:

“…give breathing space for citizens and industry in difficult times and provide a clear signal to European industry that it pays off to invest in green technologies [until 2026].”

A conservative MEP added that after such period, it will be “the moment of truth: we must reduce our emissions by then, or pay dear”.

The deal is still provisional and needs formal adoption by the European Parliament and the European Council.

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Xpansiv New Carbon Credit Rival “Carbonplace” to Launch Soon

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Carbon credit transaction network Carbonplace formed by nine global banks including UBS Group AG and Canadian Imperial Bank of Commerce will launch early 2023 after going through pilot trades.

The new platform, Carbonplace, is a global carbon credit transaction network that will enable the simple, secure, and transparent transfer of certified carbon credits. It has settled pilot trades of environmental credits in Australia, Brazil, Singapore, and the UK.

Carbon credits can help channel large-scale investments needed to fund carbon reduction and removal projects.

As per BloombergNEF, demand for carbon credits can grow ~40x in the next three decades. This is due to companies’ use of credits as part of their 2050 net zero emissions strategy.

Unfortunately, the business of trading the credits has been criticized because of some firms using low-quality carbon credits to offset their emissions. Plus, the voluntary carbon market (VCM) relies on bilateral trading that’s often slow, opaque, and risky. These reduce trust in the market.

This is where Carbonplace comes in. The platform will only settle trades of credits that are verified by top carbon registries, such as Verra and American Carbon Registry.

Carbonplace and How it Works

Carbonplace’s unique blockchain-enabled technology will significantly change how carbon credits are bought and sold. It works similarly to Xpansiv CBL carbon market platform, the most dominant player today.

The trading process of Carbonplace includes procedures dealing with money-laundering and anti-fraud regulations.

Backed by large banks with a global client base, Carbonplace will have the ability to connect the markets, registries and exchanges of the VCM directly to millions of customers in various markets as shown in the map.

The carbon credit network’s member banks or founding partners include:

National Australia Bank
CIBC
UBS
Natwest Group Plc
Itaú Unibanco
Standard Chartered
BNP Paribas
Sumitomo Mitsui Banking Corporation (SMBC)
BBVA

They all share a common ambition to support urgent, large-scale climate action. They recognize the need for strong collaboration between the financial sector and other carbon market participants to bring trust, transparency, and accessibility to the VCM.

As to how Carbonplace works, the product’s chief officer Robin Green said:

“Think of it like eBay… We are just broadening the access to the market by providing transparency and trust. It’s not that you can’t buy credits right now, but we are really simplifying the process.”

The network will deliver those essential elements of a growing VCM with these three values:

It’s simple. The Carbonplace Rulebook will see to it that all members of the platform follow a single set of prudential rules, which removes the need for bilateral contracts between buyers and sellers. This makes it possible to retire credits within minutes and reduce the burden of individual transactions.

It’s secure. The network’s robust KYC will deliver another level of security. It enables customers to rely on the banks they already trust for settlement purposes.

It’s transparent. Carbonplace’s full ledger, audit, and reporting functionality will manage the carbon credit lifecycle from inception until retirement. This provides reliable records of ownership of carbon credits and reduces the risks of double counting.

Where Two Worlds Meet: Carbon Markets and Banking

Carbonplace is a place where the emerging world of carbon markets meets the established world of banking. How that looks is like this.

The instant, secure, and traceable settlement of carbon credit transactions via a secure, distribution network is critical in scaling the VCM.

The pilot trades on the Carbonplace network involved selling carbon credits from Carbon Growth Partners in Melbourne and Sustainable Carbon in Sao Paulo to banks.

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Carbon Removal Startup Mombak Launches $100M Reforestation Project

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Mombak rolled out a $100 million reforestation project in the Amazon rainforest for carbon removal. While the main goal is to remove carbon from the atmosphere, it also has other important benefits.

Restoring native species will improve biodiversity and soil quality. The project also aims to generate economic opportunities for the local community.

Mombak’s Reforestation Project

The reforestation project will plant 60 native Brazilian tree species on degraded pastureland. The project protects the trees forever, ensuring they are not cut down for timber. Reforestation projects need to ensure that trees store atmospheric carbon dioxide forever.

Mombak employs a diverse mix of experts in various fields. This includes scientific research, forestry, technology, and finance.

Mombak’s founders are Peter Fernandez and Gabriel Silva. Peter was the former CEO of Brazil’s first technology unicorn (99). Gabriel Silva was the CFO of Brazil’s Nubank.

The reforestation project of Mombak has several high-profile investors. These include Bain Capital Partnership Strategies, Byers Capital, and Union Square Ventures.

Every aspect of the project, such as selecting land and plant species will use innovative technology to optimize results. The project will use drones to measure carbon baselines. It also uses satellite imagery and bioacoustic sensors to check biodiversity.

For the project, Mombak has partnered with non-profit organization Conservation International. They specialize in areas like carbon accounting, community engagement, and conservation design.

Permanent Carbon Sequestration

The world’s mission to achieve 2050 net zero emissions will need sustainable carbon removal strategies. Current carbon emissions rates are too high.

Hence, it is no longer enough to reduce carbon emissions. It is necessary to remove existing carbon dioxide from the atmosphere as well.

One of the most effective carbon removal solutions is large-scale reforestation.

Compared to other carbon removal methods, it is easier and cheaper to put in place. They also generate high-quality carbon credits. This is because most reforestation projects offer permanent carbon sequestration.

The market for carbon credits has been quite favorable recently. This has increased the number of reforestation projects worldwide.

We can look to past reforestation projects to judge the potential of new ones. There are similar reforestation projects that have been around for decades.

One such example is the 20-year old Peugeot-ONF Forest Carbon Sink project. It is in the northwestern Mato Grosso state.

The project reforested 2000 hectares of degraded pasture land on the São Nicolau Farm. It has, to date, sequestered 394,000 metric tons of CO2 (equal to taking off 85,000 cars from the road every year).

The reduction in CO2 from the Verra-certified project generates carbon credits. They use Pachama, an online marketplace to trade carbon credits.

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Top 5 Carbon Sequestration Companies in 2023

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The market for carbon sequestration has enjoyed an exponential growth in recent years, attracting vast interest from investors and governments. The main reason is that carbon sequestration technologies are not just beneficial to honoring our climate commitments, but crucial.

The Paris Agreement signed in 2016 set out an ambitious goal: to ensure that an increase in the average global temperature stays under 2C, ideally 1.5C. This means that we can only afford to emit 400 gigatons of carbon emissions to stay under this limit.

What countries around the world have discovered is that this goal is not achievable by implementing renewable technologies alone. The pace of developing renewable technologies cannot keep up with the rate at which the world is emitting carbon dioxide.

Hence, carbon sequestration and removal needs to scale up significantly to remove existing emissions and halting continuing carbon emissions.

Scientists estimated that the world has to remove up to 10 GtCO2 annually from the atmosphere by 2050 to decarbonize. That removal capacity should double per year by 2100 as shown in the chart below.

Source: IPCC Report

The current carbon removal and sequestration market explores a broad range of technologies. This includes capturing carbon dioxide using large fans, changing the pH of the ocean to store more CO2 to recycling carbon emissions in cement production.

Here are the top 5 carbon sequestration companies to watch for in 2023:

Aker Carbon Capture

Location: Norway, Northern Europe

Founded: 2020

A subsidiary of Aker Solutions, Aker Carbon Capture is one of the largest and most established of the carbon sequestration companies.

It is one of the few publicly traded companies in the sector. It was listed in the Oslo Stock Exchange in 2020, and has a current market cap value of $750.65 million.

The company uses their proprietary carbon capture solution to capture CO2 from waste flue gases from a variety of industries such as oil refineries and cement plants. Its key offerings include modular solutions that are easy to transport and install. They also offer offshore and integrated solutions.

Though it was only established in 2020, it uses technology that has been developed by Aker for over 10 years. One of their current key projects is the Brevik cement plant which has a CO2 sequestration capacity of 400,000 tons per annum.

Climeworks

Location: Switzerland

Founded: 2009

Climeworks is another established carbon sequestration company that uses direct air capture (DAC). The company recently raised $650 million in funding, the largest ever for a startup in the carbon removal sector.

It uses its modular CO2 collectors, where large industrial fans draw in CO2-containing air into the plant, and a CO2-selective filter separates the carbon dioxide.

So far, Climeworks has sold the collected CO2 to greenhouses and carbonated beverage companies. Recently, it has taken a step further and partnered with another carbon sequestration company called Carbfix to permanently store this CO2 instead of reselling it.

It launched its carbon capture and storage facility called Orca in 2021, in partnership with Carbfix. The facility has the capacity to capture around 4,000 tons of carbon per annum. To date, it is the only direct air capture plant that permanently sequesters the CO2 instead of recycling it.

Carbon Clean

Location: London, UK

Founded: 2009

To date, Carbon Clean has used its proprietary carbon capture process technology to sequester 588 metric tons of CO2. It has raised a total of $212 million in funding.

One of its key partnerships is the industrial-scale carbon capture and utilization plant in Chennai, India which has an annual capacity to capture 60,000 tons of CO2.

In 2021, the company launched its new solution, CycloneCC, which can achieve over 90% carbon capture rates. The company also prides itself on being cost-effective, as they claim they can capture CO2 for less than $30 per metric ton.

Carbfix

Location: Reykjavik, Iceland

Founded: 2006

Carbfix is a leading player in the carbon sequestration sector due to its novel carbon capture and storage technology. Carbfix’s technology aims to permanently store captured CO2 underground in rocks. Unlike other solutions in the sector, where the CO2 needs recycling, Carbfix offers a more permanent carbon sequestration solution.

Its key projects and partnerships with Climeworks are the aforementioned Orca plant and the EU-funded Arctic Fox pilot plant. To date, the company has raised $117 million in funding.

Carbon Engineering

Location: Vancouver, Canada

Founded: 2009

Carbon Engineering is another big name in the sector that has raised a total funding worth $110 million. Its unique liquid DAC process that uses potassium hydroxide solution to capture CO2 has earned trusts and investments from Bill Gates, Chevron, Occidental, Airbus, Air Canada, and more.

Carbon Engineering licensed its DAC technology to 1PointFive, aiming to build a megaton scale plant in the Permian Basin, U.S., capable of capturing 1 million tons of CO2/year in 2024.

What makes it stand out from other carbon sequestration companies is that apart from its DAC plants, it also has air-to-fuels plants that can deliver global-scale quantities of clean fuels using captured CO2. These facilities will be operational in 2026.

Carbon Sequestration Companies for Net Zero

Carbon capture or DAC plays an important role in meeting net zero emissions goals. In fact, the world needs the services of the carbon sequestration companies to bring the global energy system to net zero by 2050. Here’s the potential of these technologies in reaching net zero.

Estimations by the International Energy Agency showed that DAC can capture over 85 million tons of CO2 in 2030 and 980 million in 2050. But that needs a lot of work to do from those top carbon sequestration companies to help scale up the sector.

The good news is that the mega trend today indicates high regard for more investments in the space both from the public and private sectors. And through these carbon capture and removal technologies, businesses can meet and perhaps exceed their net zero targets.

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Canadian Investors Launch CAD$115 Million “Inlandsis II Fund”

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Fondaction Asset Management (FAM), Priori-T Capital and partners launch one of the largest carbon funds with CAD$115 million to finance emissions reduction projects in North America – the Inlandsis II Fund.

The Fund will be managed by Fondaction’s new fund management platform, FAM, and its partners. The raised capital will be for projects that generate carbon credits both from compliance and voluntary carbon markets in North America.

Fondaction is the investment fund for those mobilizing capital for positive economic, social, and environmental outcomes. It manages net assets of over 3.11 billion dollars invested in the financial markets.

The COP15 is underway in Montréal as the launching happens. It’s another initiative in the financing sector that highlights the importance of pumping capital into climate change, biodiversity and nature conservation.

The Inlandsis II Fund’s $115 million capital is from 30+ investors, led by Fondaction, and includes these major ones:

Priori-T Capital,
Lucie and André Chagnon Foundation,
Sabius Private Institutional Mandate (Dalpé Wealth Partners),
Société Financière Bourgie,
HEC Montréal,
Horizon Capital Holdings,
Capital Benoit, and
Genus Capital Management.

The Inlandsis II Fund aims to reduce emissions by ~24 million tonnes over a 10-year period.

Fighting Climate Change, Protecting Nature & Biodiversity

Chairman of FAM and VP of Fondaction, Stéphan Morency said:

“In addition to financing corrective measures throughout industry to reduce GHG emissions, the Inlandsis II Fund will also deploy its capital on voluntary markets to ensure that efforts toward biodiversity and natural capital protection are more sustained as compared to its predecessor.”

Fighting climate change and protecting nature are closely related. That’s because nature gives us the solutions to lower our GHG emissions by sequestering carbon.

Forests are great carbon sinks, and if the trees are cut down, the capacity to store carbon is also lost. That doesn’t only impact climate change but also the local biodiversity. Thus, similar investments were meant to protect nature and tackle climate change.

According to Fondaction’s Deputy Chief Investment Officer “fighting climate change through forest preservation creates greater biodiversity, as forests often provide refuge to threatened species, but also more economic value for the forests and the communities that rely on them”.

Increasing Inlandsis II Fund’s Capitalization

Actions needed to reach the world’s 2050 net zero goals will require a huge amount of money. And so FAM and its partners expect another funding in the coming months. They anticipate that the Inlandsis II Fund’s capital will go up to $160 million.

Fondaction itself has invested a total of $54 million into the Fund, $24 million in Inlandsis I and $30 million in Inlandsis II. Commenting on the launch, CEO and co-founder of Priori-T Capital Jean-François Babin said:

“Inlandsis is one of the first investment funds worldwide to generate revenue with the carbon credits it makes available through the projects it supports. In addition to generating competitive returns for its investors, the Inlandsis Fund innovates by investing in several types of GHG reduction projects, including the reduction of methane emissions in agriculture and in abandoned coal mines.”

Priori-T Capital develops alternative investment solutions to fight climate change such as the Inlandsis Fund. It seeks to provide investors with opportunities that are carbon market-driven and open access to capital for a greener economy.

For the firm’s Chairman of the Board, launching Inlandsis II Fund gives them leverage in the impact financing ecosystem.

The Inlandsis Fund was established by Fondaction and Coop Carbone in 2017 and committed to harnessing markets to address climate change. It is the only Canadian fund, and one of the few worldwide, to exclusively finance carbon emission reductions.

The Fund provides a unique project financing solution that supplies initial capital in exchange for carbon credits — an innovation that’s vital to bringing carbon emission reduction projects to fruition. Here is Inlandsis Fund’s project map.

From Quebec to the Whole of North America

Carbon markets have grown a lot over the last 2 years as shown below. Thanks to the rising net zero pledges from large global companies. Most of these commitments include offsetting emissions by buying carbon credits.

The reason behind the carbon market growth is what inspires the creation of Inlandsis II Fund. The managing director of the Fund, David Moffat, said that the Inlandsis I Fund formed a pioneering center of climate finance expertise in Quebec.

Inlandsis I supports the following projects and initiatives:

Involvement in the area of agriculture
Installation of biodigesters on livestock farms
The capture of methane in abandoned mines and gas sites
CO2 sequestration through a large-scale forestry development
Permanent conservation of an old-growth forest

The Inlandsis II Fund further builds such expertise and significantly expands its impact to the entire North American markets.

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Alaska to Earn Revenue from A New Source: Carbon Credits

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Alaska is earning hundreds of millions of dollars every year through the sales of fossil fuels that contribute a lot to climate change, but it’s now looking to earn money by selling carbon credits.
 

Alaska only earned a few tens of millions of dollars in all the decades it has been selling timber. And the federal government has locked up the Tongass National Forest, drying up the timber industry in the state.

So, simply put, there were not enough forests to be commercially viable anymore.

Gov. Mike Dunleavy plans to raise money from a new source – carbon credits. For at least some of Alaska’s forested land that’s not harvestable. He said it will bring in hundreds of millions to a billion dollars of income each year.

A Bill on Carbon Sequestration

Carbon sequestration means capturing and storing carbon dioxide, preventing it from entering the atmosphere. It’s one of the commonly used methods in cutting down carbon emissions. It can be done using modern technologies or natural processes.
 
Gov. Dunleavy aims to introduce a bill to turn Alaska’s capacity to sequester carbon into a revenue stream. He said during a press briefing that:
 
“Alaska has a real opportunity to sequester carbon in many different ways in the state – through our forests, through our depleted oil and gas basins, as well as the potential for seaweed sequestration off our coasts.”
 
The governor also said that the state’s depleted basins are excellent carbon sinks. Cook Inlet, for instance, can store as much as 50 gigatons of carbon.
Can Alaska profit from this new business of carbon sequestration with carbon credits? The governor aims to know and he needs to pass a bill that will allow him to develop contracts.
 

He will propose to the Legislature a carbon credit program for forest lands, depleted oil basins, and even seaweed forests off of the Alaska coast.

The governor said this bill will be a starting point for how carbon sequestration would look in the state. It will also explore how the state can contract with potential credit buyers and what carbon sinks will be involved.

Alaska Forest and Blue Carbon Credits

Trees in forests sequester carbon from the air. This sequestration can generate income through carbon credits sold to entities wanting to offset their emissions.
 
Gov. Dunleavy disclosed that a firm has approached Alaska, saying that a carbon credit program can generate $30+ billion over 20 years. That’s if Alaska will leave some forests intact. It won’t prohibit other uses of the land like recreation, but the trees should not be cut in exchange for the billions.
 
Meredith Trainor, executive director for Southeast Alaska Conservation Council commented on this saying:
 
“From our perspective at SEACC, the easiest way to increase carbon sequestration in Alaska is to protect the Tongass National Forest. That’s not necessarily up to Gov. Dunleavy, but seeing the governor think more broadly about ways to protect forested areas over which the state does have influence would be critical...”
 
Some existing forest carbon projects were developed in the state several years ago. Developers such as Sealaska and Ahtna are a few of the Alaska Native organizations doing it.
 
But aside from forests, seaweeds can also be a carbon sequestration farm. Several initiatives were in place that used seaweeds to capture carbon and earn the so-called blue carbon credits.

Fast-growing seaweed like sargassum is an efficient carbon soaker, sequestering up to 20x more CO2 than a tree of the same volume.

Both of these carbon credits, from forests and seaweeds, will not “gore any ox”, according to Gov. Dunleavy. He said that Alaska now has a real possibility of earning revenue with carbon credits. With this, they don’t have to gore any ox (e.g., do an income or corporate taxes on the people).

Potential Carbon Credit Revenues

There was no revenue from carbon sequestration specified in the state’s proposed budget for 2023. But Dunleavy’s 10-year plan includes a target for potential revenue from carbon credits.
 
His plan projects the following carbon credit revenue generation:
$300 million in 2024
$500 million in 2025
$750 million in 2026
$900 million in subsequent years
Those figures, if they become a reality, will help balance out the finances the state needs to function. But some senators believe that such revenue will not come in that fast.
 
The bill will take careful analysis and discussion to become law. After all, if it turns into legislation, it can create an opportunity for ‘multigenerational contracts’ between the state of Alaska and the investors, as Senator Stedman said.

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Biodiversity Credits: A New Way of Funding Nature Protection

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Biodiversity credits are the latest tool in the climate action arsenal and the United Nation says that these credits can succeed where carbon offsets fail or don’t apply. So, the organization is backing them up.

But as it’s quite a new concept within the mitigation hierarchy, many people are asking what is a biodiversity credit, why does it matter, and how to earn it.

Meanwhile, others are also wondering how biodiversity offsets work and how they differ from biodiversity credits. If you also have the same queries in mind, this guide will give you the answers and more.

What is a Biodiversity Credit?

First things first – let’s talk about what a biodiversity credit is.

From polar bears to plankton, the breadth and variety of life and ecosystems on earth, or what we call biodiversity, is declining faster than at any other time in human history. This poses a threat not only to the planet but also to humans, the financial systems, while hastening the pace of global warming.

The World Economic Forum estimates that about half of global GDP, or around $44 trillion in figures, depends on the natural world in major ways. That means its degradation also carries a great toll on the global economies.

The world’s 7.6 billion people represent only 0.01% of all living things by weight, but humans have caused the loss of 83% of all wild mammals and half of all plants.

What causes this huge loss?

Same with climate change, human activities are eroding biodiversity and here’s how bad it looks.

Source: IPBES, “Global Assessment Report on Biodiversity and Ecosystem Services”, 2020

So protecting biodiversity is not only good for natural ecosystems, but also for the people that inhabit them. But there’s a huge financing gap to preserve and protect nature – that’s worth $700 billion annually.

And one mechanism that individuals and firms created to plug in the gap and reverse the loss is the biodiversity credits. Through these credits, entities can invest in environmental projects that contribute to a richer biodiversity.

Concept defined: A biodiversity credit is a legal document that represents the environmental action made, where it took place, who developed it, under what methodologies, and that has been certified following a specific system.

Biodiversity credits, or the so-called biocredits, are measurable, traceable, and tradeable units of biodiversity. They are instruments that offer a solution to financing conservation and restoration of nature.

Interest in biodiversity credits is “at a high level” and asset managers have also shown high regard to them. There are good reasons why investors are willing to pour billions of dollars into biocredits.

Biodiversity brings great benefits.

What Benefits Does Biodiversity Offer?

Biodiversity is crucial for health and food security

Biodiversity underpins global nutrition and food security as millions of species work together to provide humans with various fruits, vegetables, and animal products. All these are essential to a healthy and balanced diet but are now under threat.

As a result, ⅓ of the world suffers from micronutrient deficiencies.

Plus, there has been reduced resiliency in supply chains and what we put on our plates. For instance, the number of rice varieties cultivated in Asia has fallen from tens of thousands to only a few dozen. Likewise, in Thailand, 50% of land used for cultivating rice only produces two varieties.

Obviously, conservation of diverse species is critical for our health as well as feeding humanity.

Biodiversity helps combat disease

As humans encroach upon the natural ecosystems, we also reduce the size and number of species living in them. As such, animals live in close quarters with humans which create ideal conditions for the spread of diseases.

About 60% of infectious diseases are from animals. In other words, higher biodiversity rates are associated with better human health.

One obvious reason is that plants are essential ingredients for medicines; 75% of cancer drugs are natural or inspired by nature. So each time a species goes extinct, we’re also missing out on a chance for making new medicines.

Biodiversity benefits businesses

According to the WEF’s report, more than half of the world’s GDP is highly dependent on nature. Take for instance the case of pharmaceuticals – about $75 billion/year of its sales are based on materials of natural origin.

Companies in the food and tourism sectors are also dependent on nature. What this means is that businesses are at risk because of increasing biodiversity loss.

On the contrary, each dollar spent on restoring nature results in about $9 of economic benefits. It also helps avoid trillions of dollars’ cost of social and environmental damages.

Biodiversity brings more livelihoods

Estimates show that around $125 trillion of value comes from natural ecosystems each year. In fact, 3 out of 4 jobs involve water while agriculture employs ~60% of the working poor.

Plus, forests are the main source of livelihood for more than 1 billion people in the Global South.

We must, therefore, protect and restore biodiversity – not only for the good of nature but more so for the people whose livelihoods depend on it.

Why do Biodiversity Credits Matter?

Those four benefits of restoring ecology are good enough reasons to invest in biodiversity. But why do biodiversity credits matter, apart from the strong economic incentives involve?

The key driver behind market driven instruments for biodiversity restoration efforts is that their impacts can be measured and represented in credits. It simply means that they can be integrated into economic decision making.

In a business perspective, the owners can improve their reputation towards customers if they wish to voluntarily support projects that restore or conserve nature.

In the same way, landowners can gain profits from protecting or restoring a habitat. They can also provide more ecological protection than they would have done without the credits as compensation for their efforts.

An executive director’s statement may perhaps sum it all up – the importance of biodiversity credits. He said that “Biocredits offer a tangible solution to the challenge of how to finance the conservation and restoration of nature”.

That’s because the credits can meaningfully channel funds to communities that are the most effective stewards of biodiversity.

More importantly, biocredits can help bend the biodiversity loss curve as shown in the chart below.

Ambitious conservation efforts – in yellow line – are vital to bend the curve at the critical time requires (before 2050). But conservation actions plus sustainable production and consumption should go together for the world to succeed.

So where does the concept of biodiversity offset blends in? How does it work?

How Does Biodiversity Offset Work?

Biodiversity offsets work somehow similar to carbon offsets. They’re based on a premise that impacts from development can be compensated for if sufficient habitat can be protected, enhanced or established elsewhere. Project development can be in the form of land exploitation for building, mining, or any other activities that have negative impacts on nature.

Biodiversity offsets measurable conservation outcomes designed to compensate for material, residual biodiversity loss after reasonable prevention and mitigation steps have been done. And the need for equivalent ecosystems explains why biodiversity offsets are often entirely local.

The goal of biodiversity offset is to gain ‘no net loss’ of biodiversity.

An offset site is a place where vegetation and species habitat are protected and improved. Protection can be done in various means like fencing, weed and pest control, and planting native species.

The aim of biodiversity offsets is to let development happen in an ecologically sustainable manner, making sure it doesn’t have undesirable effects on ecosystems and species inhabiting them.

Biodiversity offsetting also provides an incentive to protect ecosystems on private land, provides an income for landholders, and achieves biodiversity conservation outcomes into the future.

Biodiversity offsets vs. credits

Offsets are economic instruments based on the “polluter pays approach”. They seek to factor in the external costs of biodiversity loss from development projects by quantifying the cost of activities that damage biodiversity.

Biodiversity offsets are often a legal requirement to get, for example, an exploitation permit by a state agency.

Biodiversity credits, on the other hand, are not a legal obligation owed by an entity. They are an instrument used to finance initiatives that result in measurable positive outcomes for biodiversity – be it the species or natural habitats – via the creation and sale of biodiversity units.

Biodiversity offsets and credits may seem to be similar in design. But what makes them different from each other is the intention of the purchase and the claims made around it.

Biodiversity credits are part of a company’s nature-positive journey. In other words, they are an investment in nature’s recovery, not an offset for any damage done.

Biodiversity Credits in Practice

There are some initiatives underway that design biodiversity credits to test the waters for them. New Zealand, Colombia, and Australia are popular examples.

1. New Zealand: “sustainable development units”

In July 2022, New Zealand launched its new biocredits product facilitated by Ekos with funding support from Trust Waikato, the Wel Energy Trust and the D.V. Bryant Trust.

These credits are called “sustainable development units” bought by a supply chain business (Profile Group Limited). They fund the conservation management of 83 hectares at Sanctuary Mountain Maungatautari. The biocredits are not offsets and were issued for short-term biodiversity outcomes.

2. Colombia: “voluntary biodiversity credits”

Colombia introduced its new biodiversity credits last May 2022 created by ClimateTrade and Terrasos. These biocredits are called “voluntary biodiversity credits” (VBCs) first issued by the Bosque de Niebla-El Globo Habitat Bank.

Each VBC, priced at $30, corresponds to 30 years of conservation and/or restoration of 10 square meters of the Bosque de Niebla forest. It’s a cloud forest home to a number of threatened species

3. Australia: “EcoAustralia credits”

In 2018, Australia introduced its unique EcoAustralia credits by developer South Pole. Unlike other biocredits, each EcoAustralia credit is a combination of one “Australian biodiversity unit” (ABU) and one carbon credit (issued by Gold Standard).

Each ABU represents 1.5 square meters of habitat protection.

An example of a project that issues ABUs is the Mount Sandy project. It protects a rare pocket of native vegetation in South Australia’s Coorong region under the care of the Ngarrindjeri people.

Buyers of EcoAustralia credits are Porsche Australia, the University of Melbourne, and CareSuper.

These examples show that biodiversity credits are very recent but they’re real. And you can expect that they will be the talk of the town soon just like how carbon credits became the craze.

So, if you’re interested to know how you earn biodiversity credits, let’s move into that.

How Do You Earn Biodiversity Credits?

A key concept you need to grasp if you want to learn how to get biocredits is biodiversity stewardship.

Concept defined: Biodiversity stewardship is an approach to enter into agreements with private and communal landowners to manage and protect land in biodiversity areas.

As a landholder, you must establish a biodiversity stewardship site on your land first then generate the credits to sell to those who need them.

Here are the four major steps to follow to earn and sell biodiversity credits. Australia is, by far, has the most experience in this space, being in the industry for four years now.

Step 1: Determine if you meet the eligibility criteria

The first thing you need is to establish that your land meets the eligibility criteria to be issued with biocredits. At this stage, you can solicit advice from an accredited assessor. They will identify the likely types of credits that will be generated on your site.

Before you formally apply, you may also want to advertise your site on the corresponding register to identify potential buyers of biocredits.

Step 2: An accredited assessor applies the Biodiversity Assessment Method

The accredited assessor will apply the Biodiversity Assessment Method (BAM) to your site and produce a Biodiversity Stewardship Site Assessment Report. It contains the type and number of biodiversity credits generated by having a Biodiversity Stewardship Agreement (BSA) on your site.

The BSA also outlines the proposed management plan for your site. These documents are then submitted to the responsible body.

Step 3: Enter into a Biodiversity Stewardship Agreement to sells the credits

After the relevant body assesses your application against the requirements and agrees on the terms of the BSA, the credits will be registered on the relevant registers, and on the title of your land.

You can then sell the biodiversity credits and the sale will be recorded in the public register of credit transactions.

Step 4: You receive payments and manage your biodiversity stewardship site

Once you receive your first annual management payment, your site turns into an ‘active management’. This means you must start actively managing the site as per the agreed management plan.

After the period of the BSA expires, you can re-apply to renew the active management plan or continue to receive payments to maintain the BSA site.

Biodiversity Credits: Role in Relation to Carbon Markets

Biodiversity protection and restoration is one of the key topics at COP27 in Egypt this year. Apart from the tragedy of flora and fauna species going extinct, this massive loss also hinders efforts to fight climate change.

That’s because natural ecosystems like forests, oceans, and peatlands are great carbon sinks. So losing them means the planet is also losing the chance to stop global warming.

In that sense, biocredits are closely related to carbon credits.

For instance, to make the REDD+ programs work, you need to show an imminent threat for the forest to generate carbon credits. And if no such threat exists, the projects can still offer other benefits to the communities such as livelihoods.

But that may lead to some difficulties in accessing the necessary carbon finance. This is where biodiversity credits come in to rescue and fill the gap. When it comes to where the demand for these credits come from, education and regulation will be the key drivers at this early stage.

But Verra itself has started to develop a framework around biodiversity credits to ensure that they can complement the carbon market.

As to when the biodiversity credits will hit the same maturity of the carbon market right now, others predict it will not be later than four years. Some say it depends. Depends on what?

Education. Regulation. Market dynamics. And having the right metrics and mechanisms that will allow investors to bet their money on protecting nature, with confidence.

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Earthshot Prize 2022 Winners: Five Winners Announced

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The Earthshot Prize awards ceremony for 2022 was recently held in the United States at the MGM Music Hall in Boston, naming five winners.

Each winner was awarded Earthshot prize funding of $1.2 million to develop their environmental solution. The winning participants were from Kenya, India, Oman, the UK, and Australia, with five categories available.

The five Earthshot Prize 2022 winners were selected for five categories, each representing a specific global environmental challenge. The five categories are:

Restoration and Protection of Nature,
Air Cleanliness,
Ocean Revival,
Waste-free Living, and
Climate Action.

These five categories were after the UN’s Sustainable Development Goals.

What is the Earthshot Prize?

The Moonshot challenge launched by President J.F. Kennedy in 1962 inspired the Earthshot Prize. The said challenge set out to reach the monumental goal of landing on the moon within 10 years.

Finding tangible solutions to looming environmental issues that will become critical in the next few years is the main objective of the Earthshot Prize.

Prince William and Sir David Attenborough launched the initiative in 2020 after two years of development, and the prize will run until 2030.

Five annual winners from 15 finalists, will each receive $1.2m in funding. The inaugural Earthshot prize awards ceremony was held in October 2021 at Alexandra Palace in the UK. 

The Earthshot Prize Council selected the winners, a thirteen-member council of global ambassadors in various fields of climate action and environmentalism. Some of the council members include Queen Rania of Jordan, Sir David Attenborough, Prince William, and Ngozi Okonjo-Iweala, the current Director-General of the World Trade Organization.

The Earthshot Prize 2022 Winners

The Earthshot prize winner for the ‘Protect and Restore Nature’ category was Kheyti. It’s an Indian startup that developed a ‘greenhouse-in-a-box’ solution to help smallholder farmers increase their yield. 

Mukuru Clean Stoves won the Clean Our Air prize award. They’re to develop clean and safe cooking stoves in Africa that do not emit harmful chemicals that cause respiratory issues.

The Revive Our Oceans category winner was the Indigenous Women of the Great Barrier Reef. It is an initiative led by the Indigenous women in Australia to protect critical ecosystems around the world.

The Build a Waste Free World Earthshot Prize winner 2022 was Notpla. The firm is a London-based startup that tackles the plastic waste issue by developing an eco-friendly seaweed-based alternative.

Finally, the Fix Our Climate part of the 2022 Earthshot Prize award went to 44.01, a novel carbon removal solution that permanently stores carbon dioxide by mineralizing it inside rocks. Permanent storage of carbon dioxide has been a critical issue in recent years as part of an effort to drastically reduce carbon dioxide from the atmosphere.

Some of the 2021 Earthshot Prize winners included the Indian-based Takachar, an agricultural waste recycling initiative, and Enapter’s green hydrogen solution, the AEM Electrolyser.

Meanwhile, the Earthshot Prize 2023 nominations are currently open. And the deadline for nominations is on the 31st of January 2023. Submissions can be made via the hundreds of global official nominators for the Earthshot Prize 2023.

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