ImpactAlpha, Jan. 27 – Think all those corporate 2050 net-zero pledges are nothing but hot air?
The price of carbon credits in voluntary markets has risen to $15 or even $20 per ton, driven by corporate efforts to meet their net-zero pledges by locking in offsets with contracts of a decade or more.
BlackRock, the $9 trillion asset manager, is adding, uh, fuel to the fire.
“We are asking companies to disclose a plan for how their business model will be compatible with a net zero economy,” BlackRock’s Larry Fink wrote in his annual letter to corporate CEOs. “We are asking you to disclose how this plan is incorporated into your long-term strategy and reviewed by your board of directors.”
The stick: face BlackRock votes against management and, ultimately, divestment.
More than 1,500 companies have adopted targets to zero out their emissions by 2050 or sooner. While some companies, such as Walmart, have pledged to do so entirely by cutting emissions and shifting to renewable energy, many others are relying on carbon offsets to fulfill their net-zero pledges.
Boom in carbon
Voluntary carbon markets (as opposed to mandatory compliance markets in California and elsewhere) let companies pay for forest protection and restoration, regenerative agriculture and other carbon-reducing projects to offset their own greenhouse-gas emissions.
The market for offsets is expected to grow from less than a half-billion dollars last year to up to $25 billion a year by the end of the decade and perhaps $480 billion by 2050, according to Trove Research.
“We will need tens of billions of dollars, eventually hundreds of billions of dollars, to transfer from people like us to people who are actually able to make a difference in terms of affecting the ultimate outcome of carbon emissions,” Standard Chartered’s Bill Winters said at this week’s virtual Davos conference.
Winters chairs the Taskforce on Scaling Voluntary Carbon Markets, created by Mark Carney, ex- of the Bank of England and now a UN special envoy, is expected to release its final report today.
Soil wealth
The demand for carbon credits from technology companies alone already outstrips the current supply of credits in the voluntary markets. One reason for the rush: expectations that prices will go higher as regulations and mandates ratchet up.
“It’s an astute financial move,” says Greg Landua of Regen Network, which has sold the first credits (from an Australian rancher) on its blockchain-based carbon exchange.
Indigo Ag claims a long list of corporate buyers for its agricultural carbon credits at $20 a ton, including Barclay’s, JPMorgan Chase and IBM.
Cargill is the biggest buyer of credits from ReHarvest Partners, a spinoff of Quantified Ventures that is paying Iowa farmers to reduce carbon emissions and fertilizer use.
The carbon marketplace Nori in October sold its first 5,000 credits to Shopify for $15 per ton.
General Mills, Nestlé and McDonald’s are founding members of the Ecosystem Services Market Consortium, which is provisioning its own credits.
Mission Possible
Steel, aluminum chemicals, cement, shipping, planes, aviation and trucks account for 30% of global emissions. A new coalition launching today at ‘Davos’ aims to accelerate the decarbonization of critical, but heavy-emitting sectors.
The Mission Possible Partnership, which includes the Energy Transitions Commission, Rocky Mountain Institute, the We Mean Business coalition, and the World Economic Forum, will help companies create their own net-zero plans within three years.
It will showcase some initial the net-zero agreement “breakthroughs” later this year.
Leaders and laggards
Fink outlined plans for climate-tilted indexes, metrics to capture the Paris agreement-alignment of equity and bond funds and economic projections that incorporate climate considerations.
BlackRock’s move follows last month’s launch of the Net Zero Asset Managers initiative with 30 asset managers representing $9 trillion in assets, including AXA, Legal & General, and Wellington Management.
In turn, Fink’s letter puts pressure on Vanguard and State Street, the Nos. 2 and 3 asset managers.
“We have only seen initial climate steps from State Street and nothing from Vanguard,” said Mary Cerulli of Climate Finance Action. If climate has become a legacy issue for Fink, she says, State Street’s Ronald O’Hanley and Vanguard’s Tim Buckley, “are now falling woefully behind.”
Red flags
Carbon credit markets have been dogged by a lack of transparency and suspicions about greenhouse gas-reducing projects that may be receiving offset fees for measures that were planned anyway.
And purchasing credits for third-party projects can let companies delay carbon reductions in their own operations.
“Reducing emissions is the No. 1 strategy,” Kirsten Spalding of CERES told ImpactAlpha. Offsets, she says, should be “a last resort.”
More bad news: As many as 600-700 million tons of old carbon credits – seven to eight times current annual demand – remain to be claimed and could swamp the market with little to no additional climate benefits.
