Month: April 2022

A vision of transparency, integrity, and confidence in the global carbon market

Earlier this month, I was thrilled to reunite (in person!) with friends and colleagues after a long two years at the North American Carbon World (NACW) conference in Anaheim, California. This three-day event brought together leading minds in the world of carbon to discuss, analyze, and critically map the path forward for the global carbon market. 

I took part in both high-level musings and detailed, esoteric discussions spanning the many new policies, market trends, and global current events that intersect with carbon markets. There were some common threads woven through the many plenaries, breakout sessions, and hallway conversations. In this blog, I will review a handful of those themes, and share some of my insights as I closed out my experience at NACW 2022.

The challenges and unknowns

War in Ukraine
Beyond the atrocities that are being waged against the people of Ukraine, the unfathomable suffering, and grave human toll there has also been economic shockwaves that have rippled through every global financial market. The voluntary carbon market (VCM) is no exception. Carbon prices have been extremely volatile in the wake of Russia’s aggression. In the early weeks of the war, prices fell nearly 42% within 7 days and before sharply rebounding.

Among other things, this war has highlighted the danger of fossil fuel energy dependence and underscored the need to accelerate the clean energy transition. In the near term, the demand for alternative sources of fossil fuels such as coal and liquified natural gas (LNG) is expected to rise resulting in a global increase in annual emissions. These increased emissions will inevitably result in more demand for offsets, specifically carbon removals as well as a more realistic price for carbon globally.

Article 6 and Corresponding Adjustments
In the months following COP26, the industry has been abuzz with commentary, predictions, and questions on how exactly to interpret the Paris Agreement’s Article 6 framework. Article 6 allows a country to use carbon credits issued for carbon reductions or removals in another country to count towards its own emission reduction target or nationally determined contribution (NDC). These credits will require “Corresponding Adjustments” (CAs) in order to ensure there is no double-counting between countries. The idea is that the “host” country must adjust its own emissions inventory to reflect the transfer of the emissions reduction to another country.

Photo of North American Carbon World Speakers.

Alexia Kelly Director of Net Zero and Nature at Netflix and Brad Shallert Director of Carbon Market Governance and Aviation at WWF lead a discussion on Driving High Quality Standards in Carbon Markets.

Many questions remain unanswered both from a global regulatory perspective as well as from a voluntary standpoint. Though Article 6 language does not require that CAs be issued for the VCM, this uncertainty leaves some buyers questioning the longevity and legitimacy of current voluntary credits and whether a “Paris-aligned” carbon credit will ultimately reign supreme to support global action toward 1.5 °C under Paris. 

The thematic undercurrent of these conversations is that while Article 6 uncertainty continues to loom large in the VCM, we cannot decelerate the financial support of global emissions reduction and removal projects. Every tool available must be leveraged. We must continue to scale capital in the VCM while continuing to construct the Article 6 marketplace.

Investment in Avoided vs. Removal Projects
This question of whether to pursue avoided emissions or carbon removal project investments came up repeatedly in the sessions I attended. It seems that while a rapidly growing number of organizations have formally committed to Net Zero emission targets, there remains little in the way of clear and consistent guidance on the type of credits that will be eligible under the various programs.

It seems some of the confusion lies in a concept that under SBTi’s Net Zero Standard, carbon credits are not permitted in any form to meet either near- or long-term targets. While at the same time, in SBTi’s Beyond Value Chain Mitigation FAQs, it states: “purchasing high-quality carbon credits in addition to reducing emissions along a science-based trajectory can play a critical role in accelerating the transition to net-zero emissions at the global level.”

Despite the rampant confusion over guidance and growing excitement over nascent carbon removal technologies, a consistent response to the repeated question was a “Yes, and”. We need both. We need every tool at our disposal to address the climate crisis. We must preserve existing carbon stocks and critical ecosystems as well as avoid short-lived climate pollutants such as methane from unregulated sectors, while we work to fund emerging carbon removal technologies that will be imperative in a net zero economy.

The solutions – TSSQ (because we all need more acroynms in our lives)

Transparency & Simplification
Many buyers cite lack of transparency as a key contributor to the level of difficulty encountered navigating the carbon markets, specifically the voluntary market. By-and-large, there are very few bad actors that are in the business of trading dodgy credits. And, as someone who develops carbon credits for a living, I would be remiss not to point out that the verification process is extremely rigorous! We conclude that buyers are simply confused. The level of education, time, access, and scrutiny required to screen projects across the market would be a daunting task for most buyers. Straight-forward and unfettered access to project-level information will allow buyers to “get under the hood” on their project investments and help instill a higher level of confidence in the marketplace.

Standardization
Another common theme at the conference was a need to build more standardization across the voluntary carbon market – from project screening, reporting and claims on the buy side, to validation criteria on the sell side. Some in attendance theorized that at some point in the not-too-distant future, the compliance markets and voluntary markets will converge into one universal compulsory market, bringing to bear a much clearer and unified framework.  Absent that, market experts see technology playing a large role in bringing about this standardization. By converging disparate platforms, we can build a common language spurring further confidence and capital in the VCM.

Quality
Without confidence in the market, there is no market. Confidence is earned by ensuring that the VCM consists of high-quality, high-integrity attributes. By staying laser-focused on upholding carbon credit quality, institutional investors will be further incentivized to participate in the VCM. More unlocked capital means more investment in the innovative technologies that are needed to accelerate the pace to global net zero.Programs like the VCM Integrity Initiative and The Carbon Credit Quality Initiative are building systematized ways for buyers to better understand the projects they are investing in and providing clear guidelines for making solid, credible claims. These measures provide the assurance necessary to build the internal business case and mobilize financing at scale.

Parting thoughts from North American Carbon World

I left NACW with renewed excitement and a solid belief that the state of the market is strong. With unprecedented new carbon investments, strong and growing market prices, and the emergence of game-changing technologies, it feels as though we’re at an inflection point.

Like any market, there are many complex factors that can sharply influence stability or volatility within the VCM. I find comfort in distilling these factors into simple, digestible terms. The simplest and most sound vision for building a thriving VCM was outlined by Alexia Kelly, Director of Net Zero & Nature at Netflix in her session Driving High Quality Standards in Carbon Markets. She described achieving scale in the VCM through three key pillars:

To 1) Ensure high quality credits are 2) traded in markets with high integrity and transparency and are 3) moved in ways that are universally accepted.

The market is primed, we have the tools, and I am excited to see how this market grows and matures on our collective path to meeting the challenge of 1.5 °C.

Rising Sun expands its impact in climate resilience

Rising Sun Center for Opportunity is a nonprofit organization working at the intersection of economic equity and climate resilience. With offices in Oakland and Stockton, their workforce development programs specialize in preparing youth, women, people of color, and individuals in reentry for high-road careers and green pathways that offer family-sustaining wages across the greater Bay Area.

3Degrees is a global climate solutions provider that seeks to accelerate a clean energy transition in a manner that builds the economic and political power of historically disadvantaged communities, such as low-income communities and people of color, who are disproportionately impacted by the climate crisis. Because of Rising Sun’s leadership on many climate and DEI-related initiatives, 3Degrees identified Rising Sun as a partner and offered the non-profit, pro-bono climate consulting services. The 3Degrees and Rising Sun teams identified the following priorities to build on Rising Sun’s existing services and expand its impact:

  • Explore ways to bring climate resilience into existing resident-facing programs
  • Investigate opportunities for potential development of a resilience hub 
  • Offer support for a greenhouse gas (GHG) inventory so Rising Sun could understand its own carbon footprint

Challenges

3Degrees is quickly growing its knowledge on the subject of climate resilience, and is aware that it’s critical to create ample opportunities to listen to many different voices in the community. As the team dove into the project, it learned that there are a variety of approaches – or frameworks – to structuring resiliency programs. Since a core principle of effective resilience planning is recognizing community members as leaders and experts in their own resilience needs, community engagement was critical before any final recommendations on the frameworks could be presented. To honor this principle and ensure 3Degrees delivered recommendations that would resonate with directly impacted individuals, it held a series of conversations with the Rising Sun team members, who work closely with community members in Oakland and Stockton, as well as other subject matter experts working on community resilience on the ground.

How we helped

Objective: Climate Resilience

3Degrees kicked off the engagement by exploring how Rising Sun’s successful community-based Climate Careers program that educates households on energy efficiency could be expanded to build resilience in the communities where Rising Sun works. The first step was to facilitate discussions with Rising Sun team members to define what they meant by resilience. Collectively, the group landed on “the ability to withstand, recover, and build back better from shocks, such as impacts of climate change.” 

Next, based on this definition of resiliency, 3Degrees conducted an analysis on how Rising Sun could make this resilience a reality in their community. The teams looked at which climate impacts are expected to pose the most severe threat to the well-being of individuals in the communities where Rising Sun works in the coming few decades. The group then held a brainstorming session and workshop to leverage the Rising Sun team’s knowledge of the priorities and needs of these communities. Simultaneously, 3Degrees conducted expert interviews with people working in the area of climate resilience. The whole process culminated with Rising Sun’s decision to focus on providing intervention bundles for the threats of extreme heat and air pollution as its first resident resilience program. The recommended interventions for household visits included data gathering on vulnerable individuals, which could be leveraged to support government programs in the future, as well as educational components like how to check air quality and what to do on a poor air quality day.

Objective: Resilience Hubs

To support another phase of the project, 3Degrees worked to assess opportunities to develop a resilience hub in Stockton, where Rising Sun already has a small office. Once again, the team began by facilitating alignment on a shared definition for a resilience hub: a community center that serves many functions to everyone in the community, including under normal, disruptive (i.e. a significant weather event), and recovery conditions. 

Next, 3Degrees conducted research and community interviews in Stockton, which informed the development of a roadmap with high-level phasing on how Rising Sun could make its resilience hub vision a reality. The roadmap included a library of resources that Rising Sun could utilize, including a climate assessment of the region, a list of potential community partners, and various funding opportunities.

Objective: GHG Inventory

The third component of 3Degrees’ work with Rising Sun was an inventory of the non-profit’s GHG emissions footprint, since Rising Sun wanted to lead by example and implement sustainability improvements for its own organization. Throughout this work, 3Degrees engaged the Rising Sun staff to ensure they understood the GHG inventory process and could take actionable next steps using the data. At the conclusion of the project, Rising Sun had established an emissions baseline, made initial progress toward reductions, and learned how to replicate the GHG inventory in future years.

Results

Rising Sun received specific support for each of the three priorities it outlined at the beginning of the project: 

  • Actionable recommendations for new programs that include climate resilience for extreme heat and air pollution, so the organization can help prepare the communities where it works to withstand and recover from extreme climate impacts; 
  • A roadmap tool and set of resources that Rising Sun can use to establish a well-funded climate resilience hub in an area of need, including programming and services provided by the community and for the community;
  • The organization’s first GHG inventory and an understanding of how to repeat the process in future years, enabling Rising Sun to continue making progress toward its sustainability goals year over year.

Your RNG purchase: benefits, impact, and Green-e Certification

A successful clean energy transition must include near-term decarbonization of the gas sector, which will be underpinned by a number of complementary solutions. In addition to expanding electrification, investing in energy efficiency, and addressing pipeline leakage, we also need to shift necessary near-term natural gas usage toward renewable resources. Also known as renewable natural gas (RNG), biomethane is chemically equivalent to fossil natural gas and can provide a range of economic and environmental benefits in the energy sector. This article highlights the benefits of RNG and describes how a new Green-e certification program helps ensure the integrity and impact of RNG procurement.

RNG provides a range of benefits, and consumer demand is growing quickly

According to the U.S. EPA, almost 30 percent of human-caused methane emissions in the United States come from organic wastes that are managed at farms, landfills, and water resource recovery facilities. Emissions from these sources of waste can be captured and upgraded to RNG, which can then be used to displace fossil natural gas in common carrier pipelines. In addition to the resulting greenhouse gas emission benefits, this process also helps address local air and water pollution by creating incentives for improved waste management processes. Additionally, fuel-switching to RNG supports opportunities for local economic growth and supports energy independence.

RNG plays a unique role in deep decarbonization initiatives by providing a proven solution for difficult-to-electrify sectors, and it is becoming increasingly intertwined with state regulations and incentives focused on designing pathways to carbon neutrality. Utilities are also under increasing pressure from customers to offer solutions that allow customers to address emissions caused by their use of natural gas. The past few years have brought an influx of natural gas utilities developing, filing, and implementing voluntary programs that meet this demand. There are also growing opportunities for corporates to purchase RNG certificates for book-and-claim accounting. However, until recently, these transactions lacked standardization for credible claims, supply quality, and impact.

Green-e® certification sets a standard for high-quality, verifiable RNG transactions

The Green-e Renewable Fuels Program fills this gap in the market and seeks to accelerate the adoption of biomethane across the United States and Canada. It was developed by the non-profit Center for Resource Solutions (CRS) in consultation with other environmental NGOs and market participants, including 3Degrees. CRS has a long track record in this space, having operated the Green-e Energy certification program for over 20 years, and in 2020, the organization certified over 90 million MWh of retail renewable energy sales. 

The fundamental goal of the Renewable Fuels Program is to ensure that RNG supply is sourced from sustainable and renewable resources that meet the highest environmental standards, and that customers are protected in their purchase and their ability to make verifiable usage claims. The primary document governing this program is the Renewable Fuels Standard. The Standard sets a common unit for RNG transactions – the Renewable Fuel Certificate – and contains requirements regarding the environmental and transactional criteria that RNG supply must meet in order to be eligible for certification. The following fuel pathways are permitted, subject to specific environmental impact criteria for each feedstock: wastewater, municipal solid waste, vegetative matter, crop residue, and animal waste. Anaerobic digestate must also be sustainably managed, for example, by utilizing the American Biogas Council’s Digestate Certification Program.

Furthermore, upstream emissions from eligible fuels must be at least 10% lower than the carbon intensity of fossil natural gas up to the point of injection. Carbon intensity calculations must be made using CRS-approved methodologies and verified by a third party. There are also vintage matching criteria to ensure credible usage claims. With some minor exceptions, until 2026, RNG injected into the common-carrier pipeline during the reporting year or the four preceding calendar years will be eligible for certification. Beginning in 2026, the vintage window will narrow to the reporting year and the previous calendar year, intending to drive new project development over time.

The second governing document for this program is the Renewable Fuels Code of Conduct, which details requirements for product marketing, consumer disclosures related to supply characteristics, and disclosures related to price, terms, and conditions. The intention of the Code of Conduct is to ensure that end-use consumers understand what they are paying for, and that when they do receive a certified product, they can verify what they have purchased and claimed. All requirements related to the Green-e Renewable Fuel Standard and Code of Conduct are audited by third parties and then approved by CRS on an annual basis.

Procurement opportunities are growing both in the U.S. and abroad

RNG supply is increasing around the world and presents an opportunity for us to address local environmental concerns, mitigate climate change, support local business owners, and establish independence from fossil fuels. Currently, the Green-e Renewable Fuel Standard only covers transactions in the U.S. and Canada, but similar biomethane products are available in several European countries (see this article for more information). If you are a utility or a corporate customer interested in leveraging RNG as a near-term solution to address your natural gas emissions, feel free to reach out for further information on options that are available to mitigate your environmental impact.