Voluntary carbon credits — why we invested in BeZero

Can you imagine a world without credit rating agencies?

Picture this. You walk into a bank, and ask for a loan. The bank, instead of being able to check your credit rating, and by doing so, immediately understanding if you’re likely to pay back the money, has to take a guess.

Sure, the bank will be able to make judgement calls based on the information you provide, and they can perform some very gentle due-diligence by way of google searches. But at best, it’s a stab in the dark. They don’t know whether you’re a trustworthy custodian of the money, or if you are a shady character. For all they know, you’re immediately going to blow the cash and disappear into the ether.

Thankfully, credit ratings agencies do exist, and the loan and credit market isn’t based on hunches and crossed fingers. But… that’s essentially how the carbon credits market works today. Scary, right?

That’s why we’re excited by BeZero Carbon, as they are bringing the transparency of the credit ratings industry into the climate credit market.

To understand how smart their solution truly is, we need to lift the lid on the world of carbon credits.

Put simply, carbon credits fall into two categories — compliance-based, where government regulations force firms to reduce their emissions by bidding for carbon allowances — and voluntary, currently a non-regulated market in which companies participate due to self-imposed emission reduction goals, such as reaching net zero, by buying carbon credits.

In a Voluntary Carbon Credit Market (or VCC), one carbon credit represents 1 CO2 ton equivalent that has either been prevented from being emitted, or removed from the atmosphere using carbon-reduction projects. These credits can be bought and sold bilaterally, or traded on exchanges. These exchanges totally exploded in trading volume during 2021, FYI.

Companies may wish to take part in voluntary carbon credits markets for any number of reasons. But the fact that it’s voluntary means companies have ‘opted in’ to carbon cutting initiatives — and in so doing, have actively invested in the associated positive outcome. An important market such as this directly impacts the future sustainability of our planet, so needs to function effectively and efficiently.

But, currently, the Voluntary Carbon Market is struggling to price and manage risk. At present, there is no agency that ‘rates’ the projects, and helps companies understand what they’re buying into. This is important, as a lack of understanding of the carbon offsetting projects that are being traded on exchanges can lead to money being funnelled into ineffective projects — or worse — to greenwashing.

For the companies buying the credits, getting involved in a below-par project would represent bad value for money, and would likely discourage future investment in carbon credits.

This is where BeZero comes in, the ratings agency for voluntary carbon credits. The BeZero Carbon Rating (BCR) of voluntary carbon credits represents the company’s current opinion on the likelihood that a given credit achieves a tonne of CO2e avoided or removed.

The need for ratings will only increase as demand for carbon offsetting rises. It is estimated that demand for voluntary carbon credit markets will rise $30–100b per year by 2030, and grow three to six times that number by 2050.

BeZero is setting out to become the leading source of information for carbon markets, and we believe this is a worthwhile and important mission.

We welcome Sebastien, Tommy and the BeZero team to the Norrsken family!