A new carbon credit settlement platform, Carbonplace, has just run a pilot transfer with VISA (NYSE:V). With backing from major financial institutions, this could mark a new phase for the carbon markets and pave the way for credible, real-time, secure and transparent cross-border carbon credit settlements.
Demand for carbon offsets is predicted to grow rapidly, especially following agreement on carbon market rules at COP26.
Ambitious decarbonisation targets
The release by the Intergovernmental Panel on Climate Change (IPCC) of the AR6 Synthesis Report in 2021 and the Working Group II report on climate impacts, adaptation and vulnerability in 2022 highlighted the importance of decarbonisation, and in turn, the fact that scalable carbon innovation is critical to limit the worst impacts of the climate crisis.
This has led corporations around the world to set ambitious climate action pledges in the drive towards a net-zero economy.
Carbon credits will play an important, complementary role in these commitments by compensating for unavoidable emissions. As a result, the voluntary carbon markets (VCM) have continued to grow rapidly, surpassing $1 billion in 2021, according to information and analysis group Ecosystem Marketplace.
The carbon offsets challenge
The challenge for the voluntary carbon markets is credibility, verifiability and scale. Research from research group BloombergNEF has estimated that the 18 oil majors that have so far announced net-zero goals will need to manage 3.3 billion tonnes per year (tpy) of CO2. That is around 18 times the amount of credits issued in 2020.
The volume required under the Science Based Targets Initiative is immense. Only 5-10% of annual emissions should be offset by carbon credits (and only where all other approaches to cutting emissions have been exhausted).
There are question marks over large parts of the VCM (voluntary carbon market). Offsets have always been criticised as a means of offshoring responsibility for cutting emissions – for example, when consumers were offered the opportunity to offset their aviation emissions through a credit that possibly came from a forest in Indonesia. Few of these credits, however, were verified.
Non-profit research group (carbon) plan published an analysis in 2021 which reported $400 million in carbon credits had been sold in the US without affecting emissions at all.
Meanwhile, analysis from Finnish advocacy group Compensate Foundation said around 90% of credits either failed to offset emissions or had negative consequences, stating: “Only a few carbon projects meet basic criteria for climate integrity, human rights and more.”
What is Carbonplace?
The Carbonplace platform is offering a solution which takes the question of credibility off the table.
As David Gall, group executive, Corporate and Institutional Banking at Australian’s largest business bank, National Australia Bank (ASX:NAB), explains: “Only carbon credits verified to internationally recognised standards will be available on the platform, e.g. Verra or Gold Standard.
The system flags which standard the specific project has been verified to and makes all project details transparent. Also, Carbonplace will only be partnering with registries, exchanges and marketplaces that adhere to internationally recognised standards.”
VISA takeover of Sustainable Carbon
VISA’s pilot transaction saw the global payments technology group buy Verra-certified credits from Sustainable Carbon, a leading Latin American carbon credit project developer.
Sustainable Carbon works mainly with renewable energy, fuel switch, composting, avoided methane, biomass and forestry projects, and has a portfolio with more than 50 projects already verified.
It also had the first SOCIALCARBON® project validated as far back as 2008 and hosted the first Gold Standard project for the voluntary market in Brazil in 2011.
A Carbonplace spokesperson said of the pilot: “It demonstrates the capability of Carbonplace’s unique settlement technology to significantly increase the speed, efficiency and security required to support the growing demand for voluntary carbon credits, and in doing so, to more effectively drive private sector capital towards global climate solutions.”
Carbonplace has high-profile investors
Carbonplace was founded with the backing of NAB, Itaú Unibanco (BVMF:ITUB4), BNP Paribas (EPA:BNP), CIBC (NYSE:OUNI), NatWest Group (LON:NWG), Standard Chartered (LON:STAN) and UBS (SWX:UBSG).
The goal is for the platform to act in a similar fashion to the international SWIFT financial transfer system, the member-owned messaging system that allows financial transactions to be communicated around the world in a way that is standardised and secure.
The Carbonplace platform will similarly allow the financial institutions involved to collaboratively leverage their existing infrastructure (including compliance issues around know-your-customer and anti-money laundering procedures), to address some of the challenges that have held back the development of the voluntary carbon market.
Carbonplace will be open to all financial institutions
And it’s not a closed group. Gall said: “Carbonplace welcomes interest from other financial institutions.
Having more financial institutions on the platform leads to more customers settling carbon credit transactions on the platform, which means greater investment in climate action.”
Carbonplace to go live in 2022
Carbonplace is expected to be fully operational by the end of 2022. Gall says: “We are planning a number of pilot transactions prior to the system being operational, focusing on testing new functionality with each transfer.
In this phase, a typical pilot transaction is very small, i.e. 100 credits. Our aim right now is to learn from our pilots so that we can ensure the platform is as secure and efficient platform as possible before it becomes operational.”
Growing demand for carbon offsets
As demand for climate action and rigorous measurement and accounting of ESG metrics spreads throughout the supply chain, demand for carbon credits is only going to grow. That could prove a major resource challenge outside global companies.
While corporations like Unilever and BP may have in-house teams sourcing carbon credits, this is a luxury that most can’t afford. Carbonplace could well prove an effective way of cutting access barriers to credible, verifiable carbon credits.
