US equity giant Blackstone invested $400 million funding to carbon offset commodity exchange Xpansiv.

The investment is part of Xpansiv’s long term financing arrangement with Blackstone.

Xpansiv is the leading market platform that allows firms to trade carbon offsets so that they can meet their climate goals. The exchange connects buyers and sellers of ESG-focused commodities like carbon. It also provides market data for voluntary carbon offsets and renewable energy credits.

Xpansiv’s software provides the underlying data backing up the assets linked to green projects. Investors can then use the corresponding credits to offset their carbon emissions. Thus, it supports companies that seek to meet their emissions reduction goals.

For Blackstone’s Managing Director, Bilal Khan:

“We believe environmental commodities are a critical new asset class that must scale exponentially to meet climate change mitigation targets… Xpansiv is a leader in this space, and we are delighted to provide the capital and resources to help them further expand their offerings and accelerate their growth…”

Blackstone is the world’s largest private-equity firm. Its funding with Xpansiv is through its energy-focused equity business Blackstone Energy Partners. It’s a leading energy investor with a proven track record in the global energy industry.

Blackstone’s $400 equity investment will help Xpansiv pursue its strategic growth.

Blackstone Funding Arrangement with Xpansiv

Xpansiv’s CEO Joe Madden said that Blackstone’s support is a major milestone for the exchange’s vision for commodity markets that value ESG. He also added that:

“This partnership will help us solidify our leading position in carbon and leverage our platform to scale markets and products… to speed up the energy transition across renewable energy, digital fuels, and beyond.”

In 2021, Xpansiv acquired SRECTrade, HVB, and OTX. The present funding from Blackstone is for acquiring 100% of APX.

APX is a registry provider for commodities markets. Acquiring it will enable Xpansiv to further expand its market and product offerings.

Trading carbon credit offsets

Xpansiv’s trading platform is hosting over 90% of all voluntary carbon credit transactions.

In 2021, Xpansiv recorded $305 million in revenue (~300% higher than 2020). And carbon trading volume was 4x more than 2020 levels (over 120 million tons of carbon).

The carbon exchange provides the tools vital for standardizing prices of carbon in the financial system. Experts say that is crucial to spur emissions reductions by big companies.

Xpansiv’s partnership with CME Group, in particular, was for its carbon offset futures contracts. They allow traders to wager on what a ton of carbon will cost years from now. Entities use carbon offsets to mitigate their carbon emissions.

The exchange says that carbon trading is growing in a fast pace. In fact, Xpansiv reported that they got about 150 more customers in the 1st quarter of this year.

As more companies make net zero pledges, there is a growing need to connect them with the developers of CO2 reduction projects.

Xpansiv works with carbon offset programs such as Verra and Gold Standard that register projects and verify their climate impact. Their oversight is expanding.

Meanwhile, Xpansiv helps address market issues by centralizing data about those projects.

Other backers of Xpansiv include S&P Global and venture funds from large firms. These include the BP PLC and Occidental Petroleum Corp.

As per David Foley, Global Head of Blackstone Energy Partners:

“Xpansiv has a first-mover advantage, and Blackstone’s investment will enable them to capitalize upon that lead… creating a uniquely positioned company with ownership of technology and a scalable exchange for trading voluntary carbon offsets…”

Foley, along with many others, believe that the offset market will witness huge growth over the next decade.

The partnership continues Blackstone’s thematic investments in climate solutions space. The investor said it will pour money into firms that limit fossil fuel investments. It’s raising energy funding that’s not allowed to invest in oil, coal, or gas exploration.

Blackstone believes that the demand for energy transition is exploding and Xpansiv is in a sweet spot for it.

The funding arrangement has an initial 6-year term and may grant Blackstone certain governance rights. That will be decided upon during Xpansiv’s shareholder’s meeting next month.

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Carbon credits market is a dynamic, complex system and so the pressure is high when it comes to its governance. But governing carbon markets can be tricky.

Upstream – credit buyers which are usually large firms are using the market to offset their own emissions.

Downstream – governments are imposing fees or rents from the sale of carbon credits.

Midstream – brokers and financiers facilitate the exchange between buyers and sellers with market securities.

And to top it all off, these dynamics play out in different layers from regions, nations, and international bodies.

Hence, governance frameworks and initiatives emerge to bring integrity and clarity in carbon market.

This article will identify what are the various governance bodies and initiatives that provide carbon credit quality guidelines and how they do it. It also explains why they encourage companies to pay more attention to carbon removal credits.

But before that, let’s bring more light to the context by explaining the rules of Article 6 of the Paris Agreement – where all governance came from.

The Article 6 Rules

After nations met in 2015 at Paris, they agreed on the guidelines for carbon market at COP26. This is what they call the Article 6 rules.

The rules allow countries to voluntarily cooperate with each other to hit their emission reduction goals. This means that they’ll be able to transfer carbon credits earned for reducing their own emissions to help others meet their targets.

In other words, entities from one country can buy the carbon credits generated by another country.

Under these rules, governments can decide the type of projects they can develop in their countries. They can also have control over whether to allow the emissions reductions from those projects.

As such, it will likely lead to further differences in approaches, credit types, and prices.

But the Article 6 rules also set strict guidelines to prevent double counting of carbon credits. This accounting mechanism is also known as “corresponding adjustment”.

While a country can sell the credits to another, only one of them can account for the emissions reduction toward its NDC, or the nationally determined contributions. This is critical so that global reductions do not count twice and so are not overestimated.

Otherwise, emissions reductions will not reflect the actual amounts of carbon avoided or reduced.

Within Article 6 are also non-market approaches to promote climate mitigation. Entities can work together in the areas of finance, technology, and capacity building.

With these rules, a couple of governance and market initiatives came about to guide carbon credit quality assessments. Let’s explain major examples of them.

Key Governance Bodies for Carbon Credits Quality

There remain debates about how to ensure the quality and integrity of carbon credits. The biggest challenge is that the climate benefits from carbon credits can only be measured against a baseline.

Ensuring integrity is very crucial but is also too hard to do at the same time. Robust and correct quantification of emission reductions is a must.

And thus, a range of carbon credits market governance emerge to tackle this concern and guide the market to trade high-integrity credits.

The Role of TSVCM

The Taskforce on Scaling Voluntary Carbon (TSVCM) is a private sector-led initiative launched in September 2020. It seeks to scale an effective and efficient voluntary carbon market to help meet the Paris Agreement goals.

The TSVCM was initiated by Mark Carney, UN Special Envoy for Climate Action and Finance. The Institute of International Finance (IIF) sponsored it while McKinsey & Company provides knowledge and advisory support for it.

The TSVCM’s over 250 member institutions represent buyers and sellers of carbon credits. They also represent many other market players including:

standard setters,
financial sector,
market infrastructure providers,
civil society,
international organizations, and
academics.

Also, this governance body brings together some of the world’s most experienced and knowledgeable experts in various sectors. These range from forestry management to emissions reduction technologies.

The first priority of the TSVCM is to complete the creation of the Core Carbon Principles (CCPs). The CCPS act as a set of major standards to lay down a global guide for carbon credit quality.

Projects that comply with CCP have to show clear and measurable impacts in reducing carbon emissions. They may also prove full environmental and social integrity.

Here are the CCPS in detail:

In January 2021, the TSVCM published its blueprint on creating a large-scale, transparent carbon credit trading market. With this report, the Taskforce suggests that all project types need financing now to meet the carbon budget to limit warming to 1.5°C.

To meaningfully support a 1.5°C pathway, VCMs need to grow by >15x by 2030 according to the TSVCM survey.

The Taskforce works to take count of existing voluntary carbon offsets. It then identifies key challenges like double counting to scaling them up while ensuring credibility. It addresses many pain-points by outlining 6 areas for action.

The Sylvera Way

Allister Furey and Sam Gill are the founders of London-based Sylvera. They both believe that VCMs won’t scale to their true potential without proper data infrastructure. And so, they form Sylvera to tackle this concern head-on.

Sylvera is a carbon intelligence platform that helps entities assess and invest in high quality carbon credits. It leverages proprietary data and machine learning technology to produce valuable insights on carbon projects.

What Moody’s ratings are to bond credits, Sylvera’s ratings are to carbon credits.

A Sylvera carbon credit rating assesses the likelihood that the credits issued by a carbon project have reduced/removed a metric ton of carbon or its equivalent.

This Sylvera rating is reflected on a scale from most likely to have delivered on its claims (AAA) to least likely (D). This rating is a combination of 3 core scoring pillars – carbon, additionality and permanence.

After calculating a project’s carbon score, Sylvera compares it to the achieved emissions reductions reported by that project. This ratio is expressed as a percentage in its carbon score. Then the team tracks the project using the Earth’s visual and scientific data.

The project’s additionality is also checked. It’s additional if the project would not happen without the fund from carbon credits.

While for permanence, it refers to the degree of confidence that the carbon stored by the project will remain for a long time.

The entire carbon credit rating consists of two stages:

The development of a robust project-type-specific rating framework
The application of this framework to an individual project to create a Sylvera carbon credit rating

The Sylvera process takes between 60-120 hours for each carbon credit rating but it depends on the complexity of the project. In general, this involves the following steps:

With such initiative, Sylvera aims to get clarity on carbon credits quality and value. Its platform works for carbon credit traders, brokers, and corporate emitters.

The BeZero Carbon Framework

Like most carbon credits market measures, BeZero Carbon also works to scale the VCM. Founded in 2020, it’s a global ratings initiative the same with Sylvera. Its ratings help all market players to price and manage the risks.

BeZero’s subscription based platform supports credit buyers, investors, project developers, brokers, carbon trading houses and exchanges.

It does so by providing access to the world’s biggest coverage of carbon credit ratings and the corresponding data and research. Users can then search, understand, and compare hundreds of carbon credits and over 240 projects around the world.

Projects must meet the following criteria to be eligible for a BeZero Carbon Rating (BCR):

The project must have applied an additionality test or provide sufficient information on how it is deemed additional.
The project must be audited by a recognized third party auditor in order to ensure the robustness of the data and information published.
Sufficient information on the design and ongoing monitoring of the project must be available in the public domain at all times.

The BCR uses alphabetic scale across three categories: AAA, AA, A.

The BCR follows a robust analytical framework. In particular, it involves a detailed assessment of six risk factors that affect the quality of carbon credits issued by the project.

BeZero’s focus is to help deliver net zero emissions. The firm does that in two ways:

Through a data analytics platform providing research ratings and market views on the VCM.
Help businesses transition to net zero through monitoring, reduction and implementation strategies.

Major Initiatives for Setting and Meeting Climate Goals

Entities are using carbon credits to offset their carbon emissions either voluntarily or as required by the law (regulatory). Doing so calls for certain standards and carbon credits market governance or initiatives to follow. They’re important to ensure proper and correct offsetting.

Using the credits for compliance purposes is even more critical. Companies need to accurately account for the offsets the carbon credits represent. 

But this should not be too much of a burden as there are major initiatives that help entities set their climate targets and how to reach them. Let’s discuss three popular examples one-by-one starting with SBTi.

SBTi: The Most Scientific Way

The Science Based Targets initiative (SBTi) drives ambitious climate action in the private sector by enabling firms to set science-based emissions reduction targets. It’s a partnership between CDP, the United Nations Global Compact, World Resources Institute (WRI) and the World Wide Fund for Nature (WWF).

More than 3,200 businesses around the world are already working with the SBTi. 1503 of them have science-based targets while 1194 committed to net zero goals.

What are “science-based targets”?

Science-based targets provide a well defined pathway for companies to reduce their carbon emissions.

Targets are ‘science-based’ if they are in line with what the latest climate science deems necessary to meet the goals of the Paris Agreement. They are:

limiting global warming to well-below 2°C above pre-industrial levels and
making efforts to limit warming to 1.5°C.

Setting a science-based target

Establishing targets with SBTi involves a 5-step process identified below.

The targets first go through an initial screening to ensure that basic criteria are met. After that, the SBTi will assess the submitted targets and communicate its decision within 30 days.

In case targets don’t get the approval, firms should review the feedback and resubmit their targets.

SBTi also established the Net Zero Standard. It’s the world’s first framework for corporate net zero target setting in line with climate science. It also includes guidance, criteria, and recommendations firms need to set their science-based net zero targets.

SBTI’s Net Zero Standard defines corporate net-zero as:

Reducing scope 1, 2, and 3 emissions to zero or to a residual level that is consistent with reaching net zero emissions in line with 1.5°C-aligned pathways
Neutralizing any residual emissions at the net zero target year and any GHG emissions released into the atmosphere.

This framework is critical for entities wanting to hit net zero emissions. They have to take note of the following key elements of the standard.

Climate Action 100+

Climate Action 100+ is an investor-led initiative to ensure the world’s largest corporate emitters take action on climate change. It was launched in December 2017 at the One Planet Summit.

In a snapshot, the initiative has:

700 investors: engaging the world’s largest GHG emitting companies
$68 trillion in assets: managed by investors participating in the initiative
166 companies: being engaged through the initiative across the planet
80%+ global industrial emissions: estimated to cover by focus companies

Investors participating in Climate Action 100+ know that decarbonization is complex. It also needs unique strategies across different sectors. But they also agree that there should be a broad common agenda across all businesses and industries.

And so, this initiative calls firms to commit to these 3 asks:

Implement a strong governance framework on climate change;
Take action to reduce greenhouse gas emissions across the value chain and;
Provide enhanced corporate disclosure.

Investors are responsible for engaging with specific focus companies. There’s a set of principles and processes to identify who will lead the engagement with firms on the initiative’s focus list.

The principles include engagement history, equity stake, investor capacity, and location.

Climate Action 100+ tracks the progress of focus companies against a number of key indicators. This happens through regular progress reporting and benchmarking.

In particular, the Climate Action 100+ Net Zero Company Benchmark is for assessing the performance of focus companies. It presents a key measure of corporate progress on climate action. More so with their transition to net zero emissions by 2050 or sooner.

Overall, this initiative came about so that investors can ensure that the companies they own cut emissions to help achieve Paris climate goals.

The focus companies are tested on their emissions reductions, climate-risk disclosures, and on how well their boards police those risks.

As the biggest investor initiative on climate change, Climate Action 100+ offers a window into how big financiers can pressure firms to cut emissions and influence the carbon market.

The Race to Zero

To win the race to zero emissions by 2050, the world must achieve near term successes across each sector of the economy. This is where the Race to Zero initiative comes in to make it possible by providing guidance and collaboration.

Race To Zero is a UN-backed campaign to rally support from firms, regions, and investors to transition to a zero carbon economy. It was launched in June 2020 comprising a group of net zero initiatives that represent the following members:

1,049 cities,
67 regions,
5,235 businesses,
441 of the biggest investors, and
1,039 Higher Education Institutions.

Together, they cover about 25% global CO2 emissions.

Through its “2030 Breakthroughs”, Race to Zero outlines specific tipping points for every sector. These breakthroughs clearly state what key actors must do and by when to achieve net zero in time.

To be able to join the Race to Zero initiative, entities must at least meet the criteria called the “Starting Line”. It has the following four major steps to follow:

Businesses can be in the Race to Zero by joining its partner initiatives. The biggest and high ambition option for businesses is the Business Ambition for 1.5C. While SMEs can join the campaign via the SME Climate Hub.

Why Companies Have to Go For Carbon Removal Offsets

Entities have been using carbon offsets to compensate for their unavoidable emissions. These offsets come in different types, depending on how they tackle emissions.

But most initiatives in the carbon credits market recommend carbon removal offsets the most.

That’s because carbon removal deals with emissions that have already been in the atmosphere. Carbon dioxide removal (CDR) technologies are advancing to remove more carbon from the air.

Reducing future emissions is an important step to limit the impacts of global warming. But removing existing CO2 actually reverses or mitigates them.

Climate scientists also believe that CDR projects that produce carbon removal credits are key in cutting emissions. They’re crucial to achieving the Paris climate goals.

Not only do they remove present emissions but they also address future emissions via offsetting. In fact, over a billion dollars of investments were made for CDR offset projects. This calls for stronger carbon credits market governance.

Here is a complete guide to know all about carbon offsets and the types of projects that produce carbon removal credits.

The post Carbon Market Governance and Initiatives (The What, How, and Why) appeared first on Carbon Credits.

Is the plastics industry set to become the next big thing in carbon capture?

One of the major issues the world is facing today is the growing piles of plastic waste. The same is true with the carbon emissions that continue to rise and cause global warming.

As firms and governments are looking for ways to reduce carbon emissions, there have been plenty of projects and ideas being tossed around with potential solutions.

The Carbon Capture Utilization and Storage (CCUS) industry has been looking for a cost-effective solution for a while. Some believe that turning carbon dioxide waste into polymers holds lots of promise.

Polymers are substances made from long chains of repeating groups of atoms.

Examples of manufactured polymers include PVC, nylon, and many types of plastics.

Natural polymers are materials such as silk, rubber, and cellulose (the main component in textiles and paper).

Making Plastics from Carbon Dioxide

According to a study by OECD, humans produced about 460 million tons of plastics in 2019. This consumption rate will further rise despite the increasing use of plastic recycling technologies.

CO2 emissions are also increasing, and that spawned the Carbon Capture and Utilization (CCU) market. Research forecasts this market to exceed $285 billion by 2042.

CCU technologies refer to the productive use of atmospheric CO2 to make value-added products. Common ones include building materials, synthetic fuels, chemicals, and plastics.

Carbon Capture and Utilization is seen as a crucial tool to decarbonize the world’s economy. Innovative companies across the world are developing CCU technologies to improve the efficiency of CO2 conversion processes.

While there are some challenges that carbon companies have to tackle, polymer CCUs might hold the solution for both pollution problems (plastic and carbon) by using CO2 waste to create useful polymers.

How to make polymers from CO2?

Successful deployment of CO2-based polymers has been growing in recent years. Over 250,000 metric tons of CO2 annually are being used as a raw material in polymer manufacturing worldwide.

This sector could soon balloon as more firms struggle to meet their climate targets.

Converting CO2 into polymers is possible in three major pathways:

Electrochemistry

Biological conversion

Thermocatalysis

Thermocatalysis is the most mature process. Through this method, plastics from carbon emissions can be made directly or indirectly.

Direct CO2 conversion to plastics involves producing biodegradable “Linear-chain Polycarbonates”.

The indirect method uses a chemical like ethanol or methanol to create polymers.

Manufacturers can use the plastics from carbon waste to make different consumer products such as electronics, foams, medical devices, clothes, shoes, and a lot more.

Many projects are currently underway across the globe, being supported by public and private investments.

Though fossil inputs are still necessary, manufacturers can replace some of it with CO2 waste. This saves firms costs while also helping them cut carbon emission.

Biological conversion (microbial synthesis) is also advancing, it is almost at an early-commercialization stage. Genetic engineering has enabled the use of microorganisms to transform CO2 into chemicals, fuels, and proteins.

California-based Newlight is bringing a new biological pathway to making polymers. The firm’s microbes turn captured carbon, air, and methane into degradable polymers.

Scaling Up CO2-based Plastics

Right now, the scale of CO2-based polymers is still in its infancy. But a handful of successful commercial examples are around already.

More recently, the US-based company LanzaTech is using microbes to convert captured carbon into polymer precursors like ethanol.

Fashion and apparel companies are using the finished product to make textiles, shoes, packaging, and more. Famous brands such as Unilever, L’Oréal, Zara, and Lululemon are doing it.

This forms part of their ESG goals to make business operations become sustainable.

So even though it’s still in its infancy, the CCU market growth is coming from the consumers. Businesses and individuals alike are demanding low-carbon products.

Firms can even generate additional revenue streams from carbon credits. By using CO2 waste as raw material for making plastics, companies can potentially claim a corresponding carbon offset as they reduce the amount of carbon entering the atmosphere.

The post Plastics From Carbon Emissions and Potential Carbon Credits appeared first on Carbon Credits.

Pfizer revealed its Net Zero path and plans to reduce GHG emissions by 95% from 2019 levels by 2040.

Pfizer is one of the world’s biggest biopharmaceutical companies and also aims to cut its value chain emissions by 90% by 2040.

This commitment is part of Pfizer’s Environmental, Social and Governance (ESG) priorities.

Other pharma companies that have made net zero pledges include Biogen, Bayer, AstraZeneca, Sanofi, Novartis, and J&J.

Pfizer also announced that it had signed a voluntary US Department of Health & Human Services pledge to cut emissions and ramp up climate action.

Pfizer Net Zero Commitment

Pfizer’s net zero pledge builds on more than 20 years of environmental sustainability. For the firm’s CEO and Chairman Albert Bourla,

“With urgency of action, we believe that our commitment to speed up decarbonization of our value chain and achieve the Net-Zero standard… (which aligns with Pfizer’s purpose and ESG priorities)… can help drive positive change and build a healthier, more sustainable world.”

The pharma firm has been delivering emissions reduction goals since 2000. In fact, it was the first in the sector to set up STBi-approved emissions reduction targets.

In 2020, Pfizer declared to become carbon neutral across internal operations by 2030. It also seeks to reduce Scope 1 and 2 GHG emissions by 46% by 2030 from its 2019 baseline.

The image shows the company’s 2019 GHG emissions baseline.

So far, Pfizer’s Scope 1 and 2 emissions for 2021 were 7% lower than its 2019 levels. Most of the reductions are due to COVID-19 responses such as a decrease in field sales operations.

In cutting emissions from its operations, the pharma company plans to achieve that by reducing its reliance on fossil fuels. It also aims to invest in a fleet of hybrid and electric vehicles.

To help reach its net zero pledge Pfizer plans to:

Design greener facilities or renovation projects with reduced environmental impact
Replace equipment at end-of-life with energy-efficient alternatives
Invest in no/low carbon technologies that enable sourcing energy from renewables
Undertake process enhancements within product manufacturing to reduce the resources needed

Pfizer further intends to purchase 80% renewable electricity by 2025, and 100% by 2030.

In 2021, it was able to use 6.5% renewable power. It also entered into a virtual power purchase agreement (PPA) with Vesper Energy for 310 MWh of renewable energy starting in 2023. 

Ramping up climate action across supply chain

Pfizer’s scope 3 (value chain) GHG emissions is over 4x greater than its direct operations. The procurement of goods and services (66%) for producing medicines and vaccines takes the most of its scope 3 emissions.

Other activities contributing to value chain emissions are shown in the graph below.

To reduce scope 3 emissions, Pfizer is urging its suppliers to also set their own STBi aligned reduction targets.

In 2021, Pfizer was recognized as a CDP Supplier Engagement Leader four times in a row for its work to measure and reduce environmental risks in its supply chain.

The company further seeks to tackle residual emissions with verified carbon credits. These are through investing in projects that avoid or reduce GHG emissions.

But the firm didn’t determine yet how much credits it will buy and where.

Other key environmental initiatives

Sustainable Medicines. Pfizer conducts life cycle assessments (LCAs) across its small molecule, large molecule, and device portfolios. It will help guide the company which areas to improve to reduce footprint of medicines.

Waste. Pfizer uses a metric that encourages the hierarchy of control of handling waste: reduce, reuse, recycle, disposal. Each site has targets to improve the circularity of its waste.

Also, its manufacturing sites look for opportunities to reduce, reuse and recycle other materials.

Water Stewardship. Responsibly managing wastewater discharges from internal sites and assessing discharges from supplier sites. Achieved 15% reduction in water withdrawal in 2021 compared to 2020.

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