Carbon Markets

Have you been paying attention to the carbon markets lately? It may be a good time to start or you may miss the train.

Chris Leeds, former head of emissions trading at Merrill Lynch was quotedCarbon could become one of the fasting-growing markets ever, with volumes comparable to credit derivatives inside of a decade.”

So why aren’t more businesses and investors jumping on board? When we think of carbon, we often think of the harmful effects it has on our atmosphere or the hype around climate change. What we often don’t think about is an emerging asset class that constitutes a broad range of environmental assets, usually in the form of financial instruments called “environmental mitigation credits.”

The current total estimated value of the environmental credits markets worldwide as a whole currently exceeds $200 billion USD. The most mature sector is the carbon emissions credit market. Other sectors include Water Credits, Biodiversity Credits and Conservation Landbank Easements.

“Carbon will be the world’s biggest commodity market, and it could become the world’s biggest market over all.” — Louis Redshaw, head of environmental markets at Barclays Capital [1]

According to a report published by environmental organizations that monitor corporate emissions pledges, nearly half of the Fortune 500 biggest companies in the United States have set targets to shrink their carbon footprints. These corporations are getting in for several reasons including tax credits, international regulations due to the UN Paris Agreement, and to attract socially conscious investors.

A few companies that have been on track in this market for awhile now include Tesla, Shell and Anheuser Busch:

Tesla has sold nearly $1B USD worth of excess EVC credits to major car manufacturers to date. All in thanks to The Zero Emission Vehicle regulation (a requirement that’s placed on the large auto makers to make and sell zero emission vehicles). The California Air Resources Board requires automakers to turn in a certain number of credits per year. An example would be if a manufacturer sells 1,000,000 vehicles in the state of California and the obligation is credits equal to one percent of their sales, they would be required to obtain 10,000 credits. If a company comes up short, it has to pay a penalty of up to $5,000 per credit or it can buy credits directly from a company such as Tesla, who happens to earn credits (and happens to have excess credits).

Shell has been a long time player in this market dating back to 2003. They have been an active participant in the European CO2 market for the past 16 years [2]. Shell also completed the very first trade on the European Union Emissions Trading Scheme (EU ETS) in 2003.

Anheuser-Busch has expressed strong commitments to reducing their carbon emissions. The president and CEO, João Castro Neves, has expressed: “As we strive to bring people together to build a better world, we at Anheuser-Busch are dedicated to reducing our carbon emissions. Helping to grow the renewable energy market is not only good for the environment, it is a strategic business move as we strive for long-term sustainability. Now more than ever, we are excited to lead our company’s global effort toward a renewable future.”

Cultural and demographic shifts are also driving significant change across today’s investment landscape. In the past, people invested purely for profit and donated to charity once they were comfortable. We are now witnessing the rise of an investor base that believes in social responsibility and return on investment doesn’t have to be mutually exclusive. Building social consciousness directly into a business is becoming vital for those who want to succeed.

Like consumers, investors are also now voting with their pocket books for socially responsible businesses. Fossil-fuel companies, technology firms, banks, and other big corporations are under increasing pressure from shareholders and boards to address their environmental impact, driving today’s market for voluntary carbon credits into a billion-dollar industry.

According to the US SIF Foundation, the total value of assets under management related to sustainable, responsible and impact investments rose by more than 33% from 2014 to 2016. One out of every five dollars under professional management belonged to these responsible and sustainable assets.

To recap, corporations are getting into this industry not just for the quick money grab, but rather for a long term strategy to meet regulations, to please investors, and attract socially conscious consumers.

To learn more about carbon credits: https://medium.com/veridium-labs/carbon-credit-markets-101-bc986eedabfa

To learn more about how Veridium is set to disrupt how carbon credits are purchased and traded using blockchain technology please visit: veridium.io

Sources:

[1]https://redd-monitor.org/2011/11/04/if-carbon-markets-boom-who-will-benefit-meet-the-trillion-dollar-club/

[2]https://www.shell.com/business-customers/trading-and-supply/trading/about-shell-environmental-products-trading.html