‘Build with integrity and scale will follow’: Visions for the Voluntary Carbon Market
with Patch, BeZero Carbon, Treeconomy, Baringa Partners and the MCJ London community
There’s no lack of conversation surrounding the voluntary carbon market (VCM), with over a quarter of the 3500+ MCJ community members in one of our 3 related Slack channels. In January this year, The Guardian ran an article questioning the validity of offsets which rocked confidence across the industry. Keen to look to the future of the VCM, on Thursday 13th July Patch, BeZero Carbon and the MCJ London community came together to share their thoughts.
Here’s a recap of everything you missed…
Carbon removal, corporate caution and cheap credits:
The first of our four lightning talks to kick off the evening, Joe Cruttwell (Europe GM, Patch) gave us a VCM 101. Explaining how we all need to drive emission reductions and scale carbon removals to remain on a 1.5C pathway, Joe highlighted that the latest IPCC estimates require global carbon removal capacity to be 10 billion tonnes annually by 2050 to achieve this. With the reality that carbon removal capacity is currently ‘orders of magnitude away,’ strong demand signals are required to start scaling - especially given the slowed growth of the VCM in 2022. From Joe’s perspective, we need corporate carbon market buy-in alongside driving reductions, greater transparency in project impact, trust in integrity, and increased speed in the development of new projects.
Next up to speak to the ‘supply’ side of the VCM, Harry Grocott (CEO and Co-founder, Treeconomy) explained that despite quality issues it is dominated by nature-based reduction and avoidance credits. Predicting a greater share by volume (and far greater by value) of carbon removal credits, Harry called for greater interplay of biodiversity in the conversation around ‘carbon’ credits, a shift that governments and the Taskforce on Nature-related Financial Disclosures should take responsibility for. Finally, foreseeing the entrance of sophisticated investors on the asset side which would rely less on trade finance to finance projects, an increase in transparency and risk quantification were forecast too.
Detailing her viewpoint as a buyer of credits, Laura Woodhams (Senior Manager, Sustainability and Climate Risk at Baringa Partners) shared how corporations are ‘trying to balance credibility, impact, and cost in a murky world.’ Once corporations have developed a robust internal strategy, ‘getting excited about the range of removal projects’ leads to the realisation that they’re ‘prohibitively expensive’ and that there’s huge price volatility. Swinging to nature-based solutions shows there’s not a lot of supply, with the next realisation being that whilst standards for engineered solutions like Puro boost confidence there’s doubt around many others - so getting sign-off internally is a huge challenge (although platforms like BeZero do ‘help to provide that extra layer of audit’). Laura’s suggestions? Accessible guidance on navigating pricing as a ‘credit,’ comparable analytics across both nature-based and engineered solutions, alignment of projects to wider strategy and goals, and greater confidence in the delivery of credits.
In our final lightning talk, Tommy Ricketts (CEO and Co-founder, BeZero Carbon) brought both supply and demand sides together by digging into the market infrastructure landscape in-between. Describing how it’s an ‘incredibly complicated’ space, which is ‘ultimately a really good thing,’ Tommy reminded us that the macro backdrop is hugely challenging. As a result, we’re seeing:
Prices collapse yet increased transactions, with projects that ‘could’ve demanded $10-14 a year ago now trading at ~$2.’
Weak price quality signal, with no significant correlation between price and quantity either.
Increase in supply, alongside a natural increase in retirements, so whilst the ‘difference between supply and demand is tightening’ the trend here is opposite to the price signal to the market, showing that ‘something is fundamentally broken, which isn’t good for the people in the middle.’
Nods of agreement meant Tommy’s suggested next steps - which included market initiatives providing necessary guardrails, ratings acting as a proxy for quality to drive powerful price signals, and pre-issuance innovations helping mobilise finance towards project development - hit home the importance of this moment in time for the VCM. ‘Build with integrity and scale will follow’ hung in the air.
What did the room think? 30 minutes of discussion later…
Suitably inspired, all attendees then jumped into 3 asynchronous 30-minute discussion groups covering supply, demand and market infrastructure. Groups discussed both current challenges and opportunities for collaboration, then we popcorned between the expert facilitators of each to hear the takeaways collected. Let’s take a look…
Supply Side: Harry (Treeconomy), Rosanna (Patch).
Key challenges; knowledge gaps, operators not understanding how structured financing works, a lack of government subsidies (in the UK) supporting industry development, and indecision from governments such as Indonesia increasing uncertainty for supply-side coordinators.
Opportunities for collaboration; mapping disciplinary skills gaps, establishing a common language, policy alignment, reducing knowledge silos between industries, re-using stranded assets for new industries to emerge, and tech-enabled verification.
Demand Side: Laura (Baringa), Joe (Patch), Louisa (BeZero).
Key challenges; corporate investors feel like volume isn’t moving the dial, no standardised model for pricing, little public information, uncertainty around policy changes leads to stalling, and SBTi guidance makes corporates think they can wait until 2050.
Opportunities for collaboration; cross-industry education to increase accessibility, greater engagement of hard to abate industries, and general simplification. One participant suggested that we need to ‘shift the conversation about price and cost into opportunity and value.’
Market Infrastructure: John (Toucan), Adam (Toucan), Tommy (BeZero), Aarthi (Patch).
Key challenges; a lack of ‘sense-making’ due to different claims labels, certifiers, rating agencies, ‘new integrity councils everyday at the local, regional, national and international level’ - all alongside different financing mechanisms, media reports, watchdog agencies and more. In addition, a lack of trust, access and knowledge.
Opportunities for collaboration; making sense of the policy and regulatory environments, data standards harmonisation, a shared language with which we can better engage the public, integrating the VCM as part of financial norms, better integrating carbon management systems with credit marketplaces to support the flow of data.
It was an evening rich with learnings, which hopefully will have an impact far beyond the walls of the BeZero offices and beyond the inspiring group of attendees. Laura’s closing lightning talk remarks brilliantly summed up the evening’s sentiment:
“It sounds like there’s a lot to do but actually I am hugely hugely optimistic. Our experience tells us that it’s possible, but it’s hard. It’s essential for Net Zero that the VCM market scales in size, credibility and accessibility to help close the gap between where science tells us we’re heading and where we actually want to be. It’s not about offsets or credits being the solution, it’s a combined solution with innovation and decarbonisation, so it’s really important we find a way to bring all those things together.”
A huge thank you to every facilitator, speaker, attendee and organiser involved.
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The Earth is a living organism. The beauty of the symbiotic relationship between its plants and animals is one of its most fundamental. Plants provide all of the oxygen needed for the animals to exist while they (we) provide the carbon dioxide they need to exist.
Levels of carbon dioxide have fluctuated greatly over millennia. The ice cores from the Antarctic and Greenland show a cyclical pattern that has been more or less consistent over millennia. Some of these cycles cover thousands of years while other shorter cycles occur over hundreds. It was only a few hundreds of years ago that we were in a”little ice age”
The levels of carbon dioxide are currently near the lower end of this cyclic process. Recent increases in carbon dioxide have enabled plants to grow in places not seen in recent history. This increase in plant life is providing corresponding increases in oxygen emissions. The Earth doing its thing. Why anyone should fear the natural cycles is beyond my understanding. Taking all of the attention and human energy that is, to me useless and directing it to the real issues of pollution, water desalination, and tapping the natural heat energy under our feet seems to me to be the most useful focus of our time and resources.
Rory OBrien
Interesting insights. And, like beauty, integrity is almost always in the eye of the beholder... I might suggest that a primary constraint on scaling the market is that there is very little correlation between the cost of producing a ton of offset C (either nature-based or engineered) and the price. As long as the market is structured as if C is a commodity, balancing supply and demand will be driven by the mis-match in market participation (between buyers, sellers, and market makers) than by true costs of "integrity"...