Annual Market Rankings 2021

Finding opportunity in offsetting

Glasgow has boosted an already buoyant voluntary carbon market, while compliance programmes from California to China demonstrate growing support for carbon pricing, says ClearBlue Markets' Michael Berends

Environmental Finance: It's been a year of solid growth in the voluntary markets – what effect do you expect the outcome at COP26 to have on them?

Michael BerendsMichael Berends: Although historically COP doesn't always necessarily have a direct impact on the markets, including the voluntary markets, we can confidently say that the outcomes that we saw here in Glasgow can be considered strong for both voluntary and compliance carbon markets.

Specifically, rules on corresponding adjustments in Article 6 transactions were seen as positive to ensure market integrity by preventing double counting. The consensus seems to be that Article 6 rules are likely to develop in a market-friendly way.

Some countries may require corresponding adjustments for voluntary carbon markets transactions from projects within their borders. Some, such as Colombia and Costa Rica have already indicated that they will mandate adjustments for all voluntary activities. Similarly, some buyers may demand credits that come with corresponding adjustments.

Given the success in recent years of the voluntary market and how much finance it is directing to countries to help them to reduce emissions, I would be very surprised if decisions are made that hinder those monetary flows.

EF: What trends are you seeing in demand for nature-based solutions?

MB: Both before and after COP, offsets from nature-based solutions projects have been the most popular with corporate buyers. We believe this part of the market is enormously important. We have just hired Sheldon Zakreski as director of nature-based solutions. He brings more than 20 years of carbon market and policy experience, and we've also just appointed Loni Pierce as forest carbon analyst.

But despite the popularity of nature-based solutions, they are only one part of the solution. We are still seeing enormous volumes of emissions from sources that are not currently regulated: the voluntary carbon markets can help to cut these emissions at source. It's better to stop emissions going into the atmosphere now than having to remove them later.

EF: Among other categories, ClearBlue Markets was voted Best Advisory/Consultancy in North American markets. Is US re-engagement internationally also mirrored in domestic activity?

MB: It's been very exciting in North America to see the changes that are happening following the election of President Biden which, for example, has encouraged Canada to be more ambitious. The Canadian government has committed to having a carbon price of C$170/tonne by 2030, which is the highest future committed carbon price in the world.

At the same time, we're seeing prices rise in The California/Quebec WCI carbon market and in the RGGI market in the US north-east. We're also seeing the emergence of new compliance markets, such as that in Washington State. It reflects the embrace of carbon pricing by emitters, as well as the confidence of investors to believe in these markets and back them with their investments.

EF: You also won the Chinese markets advisory category. What are your expectations for China's ETS?

MB: Our team has experience of carbon markets in China stretching back 20 years, to the early days of the Clean Development Mechanism [CDM] there, and we're really bullish about the market. What we're seeing in China now has its roots in that experience. That's not to say the introduction of a traded market into such a large economy, and with such levels of emissions, doesn't face challenges. But a number of our clients have operations and emissions in China, as well as in emissions markets in Europe and North America, and they are keen to understand how the ETS will work compared with their other carbon pricing obligations.

As for opportunities for financial participants, our view is that the Chinese regulators understand the role that liquidity providers can play and the benefits they can bring. I also think that, in the context of discussions in the EU and North America about introducing carbon border adjustment mechanisms, there is clear value in having a liquid, transparent carbon price in China that can be used to demonstrate equivalent carbon pricing.

EF: What upcoming markets are on the radar at ClearBlue?

MB: We've been very pleased with the growth we've achieved over the five years since we launched. We're seeing enormous demand for advice around offsetting, how to incorporate offsetting into rigorous net-zero strategies and, of course, where to procure good quality offsets. Clients are increasingly turning to digital solutions, such as our Carbon Market Client Portal, to get price discovery insights and environmental markets context as they develop these strategies.

The next stage for us is to apply the core experience of our team, which is in offset project development, portfolio management and commercialisation. We are doing this by going upstream, working with and providing capital to project developers to ensure a supply of those offsets. Our recent appointment of Nina Zetsche, a former EcoSecurities colleague of ours, as Director of Projects, adds significant capacity to the team as we develop offset projects globally. Furthermore, we are launching an offset fund which will aim at voluntary and compliance offsets, as well as the new Article 6 market. There is such enormous demand, and real need, and we feel it's a part of the market where we can add meaningful value.

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