Offset buyers face a challenging and uncertain environment, says Gareth Turner, co-founder of Numerco – putting a premium on due diligence and direct participation.
Environmental Finance: Numerco won the Best Trading Company, Wholesaler and Broker categories in the Voluntary Carbon Market Rankings. Can you introduce the company?
Gareth Turner: We were founded in 2013 and are holistically involved in environmental markets in the areas of renewable energy, low hydrocarbon fuels and the voluntary carbon market. In the latter, we are somewhat of a hybrid. Our approach is to develop projects in partnership and support the financing of them by either directly off-taking the resulting credits or placing them within our existing corporate customer network. Numerco is headquartered in the UK, with representation in Latin America, the USA, Europe, the Middle East and Asia.
EF: How has client demand for voluntary carbon market offsets evolved over the last 12 months?
GT: We are seeing less liquidity, with demand becoming more client-specific. There are large volumes of credits in the market, following a period of rapid growth from new trading entrants buying and rolling around the price risk in units. However, many of the organisations consuming these units have been daunted. This is partly the result of negative media stories and evolving interpretations of best practice from industry bodies. We are also seeing cases where the same project is rated very differently by project rating agencies, which has resulted in additional consumer caution.
Ultimately, these factors are making it difficult for companies to know how to proceed. They want to reduce emissions, and clean up their transitioning supply chains, but they worry about getting it wrong. Either they are faced with a choice of buying extremely expensive offsets, trying to get involved in project development to some extent, or simply doing nothing.
There are positives with the development of the carbon removals space, with demand focusing on nature-based removals over technology-based removals currently, although that has as much to do with the price differential in those categories as it has with project preference.
EF: How do you recommend that buyer's respond to these challenges?
GT: The more experienced customers are taking a deeper dive into individual projects, relying on experienced market participants to provide guidance and access. This has slowed the transaction process, with site visits and lengthy due diligence occurring prior to orders being placed. Requirements for more recent commissioning dates and nascent methodologies are driving development for high-quality projects with a clean slate.
We stress the importance of doing your due diligence, and not writing off any project type. For example, there are some highly additional renewable energy projects in developing countries with very carbon-intensive electricity grids. Other projects can deliver fantastic sustainability co-benefits that might not be captured by the rating. It is important to assess the quality of individual projects rather than making assumptions about methodologies, locations, vintages, etc.
EF: Are you hopeful that the market will see consensus forming around a particular standard?
GT: There is a part of the market that would like things to become simpler – so they can click on a button to buy something on an exchange that will allow them to green their portfolio or fuel purchases. We are not against that idea, but we recommend caution about attempting to commoditise this market so much that it compromises its ability to deliver against social and sustainability goals. For many companies, they can tailor their offsets to their specific purchasing or production centres, or to their supply chains; if you standardise the market too much, you will lose those possibilities.
However, we understand the reasons for wanting the market to go in this direction, to enable greater liquidity and greater market access. We just have to find a balance.
In terms of the standards, the Gold Standard and Verra have been continuously improving. There have been numerous steps forward, in terms of registries, serialisation, contracts, alignments, transparency, etc. Over time, there has been enormous progress. However, everyone needs to understand that this is still a nascent market, with new technologies and project types coming forward. Implementations and improvements take time. We have also started to see more enquiries about removal credits, and technology-based removals in particular. Here you are, in essence, dealing with scalable infrastructure style projects that remove carbon dioxide and have investment needs accordingly.
EF: What trends do you expect to see in the market over the next 12 months?
GT: We expect to see a greater focus on direct development among corporate offset buyers. Because of the negative publicity in the marketplace, we are seeing customers who want more direct involvement in project development from an early stage. It gives them the opportunity to develop projects in specific regions, using technologies that fit with their business.
Given that it can typically take three-to-five years before projects are generating offsets, these customers might also go into the market to buy offsets for their near-term needs and will potentially look for guidance from experienced market participants.
EF: What's next for Numerco as a business?
GT: At the moment, our focus is on continued expansion within our current business. We have grown over the last three years, and I think we can attribute that development to having stayed focused on our customers and the niche areas that we operate in, regardless of prevailing market conditions. Nonetheless, we are looking at new areas and our focus remains on decarbonisation initiatives, such as in the carbon removals space.
For instance, we are an official partner of the Puro.earth standard and the first project developer under its new framework. We also look at a range of new technologies, including direct air capture, and other decarbonisation pathways with synergies with our wider business areas.
For more information, see: numerco.com