Environmental Market Rankings 2023-2024

A new era for carbon markets

Angela Schwarz, CEO of Anew Climate, speaks to Environmental Finance about key developments in the compliance and voluntary carbon markets (VCM) and why she's confident the latter is entering its next meaningful era.

Environmental Finance: What are you watching in the compliance and voluntary carbon markets?

Angela SchwarzAngela Schwarz: With a new low carbon fuel standard in New Mexico and cap-and-invest programs in Washington and New York, subnational jurisdictions continue to lead the way in embracing market-based approaches for decarbonisation. One crucial issue moving forward is to ensure harmonisation between compliance markets at different levels of government or across borders, as we see unfolding in Canada and the EU, respectively.

Anew will continue to be an active participant and thought leader in compliance markets, be it through establishing the reduced carbon intensity of commodities or accurately measuring and reporting the greenhouse gas reductions and removals achieved by both nature-based and technological interventions.

Turning to the VCM, From 2017 to 2022, the VCM was robust, demand was growing, development capital was being allocated across a wide variety of project types and pricing was strong. Hundreds of millions of dollars were flowing into much-needed project development.

Then in early 2023, media outlets began to run stories about potential over-crediting. While the data was limited and without peer-reviewed facts, the same basic stories with sensational headlines appeared in multiple outlets. Looking back at when the question of carbon credit integrity came up, the VCM participants, at large, should have responded quicker to provide counterpoints to the biased data that was out there, and we saw the large voluntary buyers, who tend to be publicly traded companies, paused their procurement efforts to determine if there was any truth to the over-crediting claims.

Most large corporates that have climate commitments with a 2030 target date have maintained their strategies – which include an "all of the above" approach with verified reductions a part of their net zero goals, and our conversations with them have project integrity sat the front and centre.

We are entering the next generation of the VCM where we have a new level of science, technology, and data analytics available to us to drive transparency, financial additionality, and more frequent reporting to ensure credit generation is always underpinned by real-world conditions.

EF: Where are VCM markets heading over the next year?

AS: While 2023 was a difficult year for most VCM project developers, I believe we are on the right path for a robust market going forward. The advancements that we are making in project development, reporting and transparency allows companies to resume their diligence and commitments. We are restoring confidence to the VCM so that much-needed project development, especially in the global south, will resume.

We work with clients in tech, finance, and industrial sectors that have the resources to engage companies like Anew and conduct their own deep dive diligence on projects rather than rely on rating agencies that primarily perform cursory data reviews. These companies are coming back into the market and providing confidence to smaller buyers by demonstrating they've done the diligence and are buying verified emission reductions or carbon credits from next-generation projects.

EF: How is Anew looking to lead that?

AS: As the largest generator of offsets, we are in a unique position to build and utilise technology that wasn't available a few years ago. Leveraging our deep expertise and working with other scientists, academics, and industry thought leaders, we developed and recently launched the Epoch Evaluation Platform. Epoch provides an advanced level of data transparency and analytical rigor for nature-based forest carbon projects to significantly enhance credit integrity at a critical market juncture.

We have one of the largest data sets of historical project performances and are training our models to incorporate real-time data. We are using data and technologies, initially developed by the military, aerospace programs, and academic institutions, and AI to simulate real-world project environments.

One of the major criticisms of the VCM has centered on counterfactual baseline development or static baselines We are replacing these static baselines with dynamic baseline modelling. We're going to a very deep level – I would call it almost real-time assessment, of the carbon value that that project creating. This is completely unique and new to the industry.

Our models look at projects frequently and adjust the amount of carbon credits that are generated based on the actual surrounding environment of the projects. Our approach enables for baselines to be calibrated based on real-world conditions, such as forest health, operations of nearby sawmills, policies that relate to the protection of lands, and the price of timber that could be extracted from the forest property in the project area.

We are incredibly optimistic about the next era for the VCM. The VCM has a relatively short history, and this next phase will see further market evolution while providing buyers with even more confidence that carbon projects are a valuable part of their overall climate action plans.

EF: Has the Inflation Reduction Act in the US and the war in Europe significantly affected the Renewable Natural Gas (RNG) market?

AS: With the global RNG market, we have believed for a long time, that there needs to be a measurement of carbon intensity of all fuels in the market, whether it's fossil, renewable, or syngas, we need to be able to calculate what is the true carbon reduction or carbon displacement in each of the different types of fuels.

The carbon intensity conversations are starting to take place globally. For the first time in the US, the IRA addresses the carbon intensity of fuels. It makes a clear distinction between the different sources of the fuels and the impact that they have. That's critical for getting this right and to make sure that we're investing correctly. So, I think that's a huge change for the market at large.

In Europe, there was obviously all the disruption of the pipelines and the concern around energy security. The result of that was an acceleration of the biogas markets because the European countries recognised they had a source in agriculture, in the thousands of small farms. That was an untapped resource that has now been marshalled, and we're seeing an incredible development of the biogas market in Europe. What has come out of the horrible situation in the Ukraine is a recognition that there is a natural source of gas in Europe that not only provides energy security but also is a huge win for the environment.

For more information, see: anewclimate.com