Carbon Outlook

Newsletter Issue 01 2024

As selection carefully culls and prunes biological variation
Nature applies her filter to the fruits of gene mutation
Through the brutal and swift removal of the errors at adaptation
Life learns from death what not to do — and that’s knowledge creation.
Bobby Azarian, The Romance of Reality

If corporations stopped buying carbon credits tomorrow, would companies in the business of carbon removal still exist? There is good reason to believe they will. There is also good reason to believe that the voluntary purchase of carbon credits will not disappear tomorrow. Examples of the convergence between government run compliance markets and the voluntary carbon credit purchases are increasing. These examples, alongside corporate investment and government funding, point to continued demand for services in carbon removal and ecosystem restoration.

Throughout my journey into carbon markets and climate finance, I’ve heard that “buying a carbon credit would all be worthless if the government implemented a carbon tax tomorrow.” Admittedly, I’ve blatantly ignored the statement despite hearing it more than once.

Proponents of eliminating credit purchases hope to see higher levels of accountability for literally everyone. A purely government regulated system not only makes it easier to track emissions but also enforces accountability for pollution through fines. Additionally, the proceeds can be used to subsidize public infrastructure in communities that will be affected by climate change the most.

Those in favor of voluntary carbon credit purchases believe it attracts new investment to carbon removal and ecosystem restoration that would otherwise not exist. The VCM gives corporations the ability to act immediately on sustainability commitments. It also gives corporations the ability to invest in carbon removal and ecosystem restoration in areas that are relevant to their business. Think of a tourism company that wants to work with restoration projects in the areas where customers visit the most.

In addition to sustainability commitments, there are market dynamics that attract new investors and ongoing innovations. Financing in the form of banking, brokering, and equity investments are brought to companies or project developers who make revenue from the sale of carbon credits. Likewise, project developers are driven by buyers to increase transparency to reduce fears of reputational risk from their corporate customers. The recent uncertainty created by news of failing projects and increased scrutiny on companies that purchase credits, appear to have led to higher market standards, improved transparency, and a more valuable credit market.

Those in favor of allowing the voluntary purchase of credits believe that removing this market would reduce funding for carbon removal and restoration. A decision like this is a hard call when the International Monetary Fund (IMF) says $100B annually is needed to adapt to climate change, $1T annually, according to WTO. Whatever the number is, less funding for carbon removal and ecosystem restoration is not the goal.

Pros and cons aside, the credit market will continue to operate while the structural incongruities of the global carbon market get sorted out under the Paris Agreement. Countries like Singapore are setting examples of “corresponding adjustments” in government-run compliance markets. The agreement will give companies a discount on a national carbon tax if they purchase eligible credits. This approach aims to improve accountability by accepting credits that provide measurable evidence of their improvement according to the surrounding area or jurisdiction.

In Europe, Switzerland is also moving forward with a “bilateral agreement” by financing work in Ghana and Vanuatu with the help of financial institutions and asset managers. In the US, the global market is complemented by public financing for carbon removal and ecosystem restoration. IRA funding is finally starting to trickle down to project developers in the form of prizes, grants, and continual carbon credit purchases or “offtake agreements.”

A combination of increased investment from the financial sector, credit purchases, from corporations, national bilateral agreements, and an absence of a global carbon market under the Paris Agreement all imply a continued demand for services in carbon removal and ecosystem restoration.

Have a different opinion? Join our upcoming event on February 29th.

About NyxCarbon

NyxCarbon is a lending platform that makes it easy for financial institutions to provide loans to SMEs in carbon removal and ecosystem restoration. The end-to-end solution reduces the cost of underwriting providing targeted market intelligence and automating loan servicing.

Save your spot here.

​The carbon market has been around for a couple of decades, and has thus far played a key role in sustainable finance, but will it continue amid policy change and calls for greater transparency? Are there other, better, ways to finance carbon removal and ecosystem restoration? Listen to industry veterans talk about macro and micro forces driving demand for environmental services.

If you are in climate finance, CDR, restoration, or just curious about environmental markets, this one is for you.

THE CONVERSATION WILL BE LED BY

• Brittany Salas, CEO & Founder, NyxCarbon (that’s me!)
• Nate Wyne, CEO & Co-founder, Floodlight
• Randy Wilgis, COO, Earth Recovery Partners