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Published 4 months ago
on October 14, 2021
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The following content is sponsored by Carbon Streaming Corporation.
A Complete Visual Guide to Carbon Markets
Carbon markets enable the trading of carbon credits, also referred to as carbon offsets.
One carbon credit is equivalent to one metric ton of greenhouse gas (GHG) emissions. Going further, carbon markets help companies offset their emissions and work towards their climate goals. But how exactly do carbon markets work?
In this infographic from Carbon Streaming Corporation, we look at the fundamentals of carbon markets and why they show significant growth potential.
What Are Carbon Markets?
For many companies, such as Microsoft, Delta, Shell and Gucci, carbon markets play an important role in offsetting their impact on the environment and meeting climate targets.
Companies buy a carbon credit, which funds a GHG reduction project such as reforestation. This allows the company to offset their GHG emissions. There are two main types of carbon markets, based on whether emission reductions are mandatory, or voluntary:
Compliance Markets:
Mandatory systems regulated by government organizations to cap emissions for specific industries.
Voluntary Carbon Markets:
Where carbon credits can be purchased by those that voluntarily want to offset their emissions.
As demand to cut emissions intensifies, voluntary carbon market volume has grown five-fold in less than five years.
Drivers of Carbon Market Demand
What factors are behind this surge in volume?
- Paris Agreement: Companies seeking alignment with these goals.
- Technological Gaps: Companies are limited by technologies that are available at scale and not cost-prohibitive.
- Time Gaps: Companies do not have the means to eliminate all emissions today.
- Shareholder Pressure: Companies are facing pressure from shareholders to address their emissions.
For these reasons, carbon markets are a useful tool in decarbonizing the global economy.
Voluntary Markets 101
To start, there are four key participants in voluntary carbon markets:
- Project Developers: Teams who design and implement carbon offset projects that generate carbon credits.
- Standards Bodies: Organizations that certify and set the criteria for carbon offsets e.g. Verra and the Gold Standard.
- Brokers: Intermediaries facilitating carbon credit transactions between buyers and project developers.
- End Buyers: Entities such as individuals or corporations looking to offset their carbon emissions through purchasing carbon credits.
Secondly, carbon offset projects fall within one of two main categories.
Avoidance / reduction projects prevent or reduce the release of carbon into the atmosphere. These may include avoided deforestation or projects that preserve biomass.
Removal / sequestration projects, on the other hand, remove carbon from the atmosphere, where projects may focus on reforestation or direct air capture.
In addition, carbon offset projects may offer co-benefits, which provide advantages that go beyond carbon reduction.
What are Co-Benefits?
When a carbon project offers co-benefits, it means that they provide features on top of carbon credits, such as environmental or economic characteristics, that may align with UN Sustainable Development Goals (SDGs).
Here are some examples of co-benefits a project may offer:
- Biodiversity: Protecting local wildlife that would otherwise be endangered through deforestation.
- Social: Promoting gender equality through supporting women in management positions and local business development.
- Economic: Creating job opportunities in local communities.
- Educational: Providing educational awareness of carbon mitigation within local areas, such as primary and secondary schools.
Often, companies are looking to buy carbon credits that make the greatest sustainable impact. Co-benefits can offer additional value that simultaneously address broader climate challenges.
Why Market Values Are Increasing
In 2021, market values in voluntary carbon markets are set to exceed $1 billion.
| Year | Traded Volume of Carbon Offsets (MtCO₂e) | Voluntary Market Transaction Value |
|---|---|---|
| 2017 | 46 | $146M |
| 2018 | 98 | $296M |
| 2019 | 104 | $320M |
| 2020 | 188 | $473M |
| 2021* | 239 | $748M |
*As of Aug. 31, 2021
Source: Ecosystem Marketplace (Sep 2021)
Today, oil majors, banks, and airlines are active players in the market. As corporate climate targets multiply, future demand for carbon credits is projected to jump 15-fold by 2030 according to the Task Force on Scaling Voluntary Carbon Markets.
What Qualifies as a High-Quality Carbon Offset?
Here are five key criteria for examining the quality of a carbon offset:
- Additionality: Projects are unable to exist without revenue derived from carbon credits.
- Verification: Monitored, reported, and verified by a credible third-party.
- Permanence: Carbon reduction or removal will not be reversed.
- Measurability: Calculated according to scientific data through a recognized methodology.
- Avoid Leakage: An increase in emissions should not occur elsewhere, or account for any that do occur.
In fact, the road to net-zero requires a 23 gigatonne (GT) annual reduction in CO₂ emissions relative to current levels. High quality offsets can help meet this goal.
Fighting Climate Change
As the urgency to tackle global emissions accelerates, demand for carbon credits is poised to increase substantially—bringing much needed capital to innovative projects.
Not only do carbon credits fund nature-based projects, they also finance technological advancements and new innovations in carbon removal and reduction. For companies looking to reach their climate ambitions, carbon markets will continue to play a more concrete role.
Get your mind blown on a daily basis:Sign upRELATED TOPICS:Carbon FootprintNet ZeroParis AgreementNet-Zero TargetCarbon MarketsVoluntary Carbon MarketsCompliance Carbon MarketsCarbon RemovalCarbon SequestrationCarbon CreditCorporate Climate TargetsCarbon Market DemandCarbon OffsetsCarbon-StreamingUP NEXTVisualizing the Global Silver Supply ChainDON’T MISSVisualizing the Journey of a Mining EntrepreneurCLICK FOR COMMENTS
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Understanding Global Demand for Steelmaking Coal
As demand for steel grows in the low-carbon future, so will steelmaking coal’s role in sustainable production.
Published 1 day ago
on February 2, 2022
Understanding Global Demand for Steelmaking Coal
Global population growth, increased urbanization, and a growing middle class will continue to drive long-term demand for steel and the steelmaking coal required to produce it.
The above infographic from Teck outlines the mineral’s key role in the low-carbon future.
A Vital Ingredient
Steel is the most commonly used metal and fulfills a variety of structural and construction needs, along with being an essential material for the production of vehicles, mechanical equipment, and domestic appliances.
Clean and renewable technologies also require steel to build wind turbines, solar panels, tidal power systems and bioenergy infrastructure.
| Application | Quantity of steel (kg) | Quantity of steelmaking coal (kg) |
|---|---|---|
| Refrigerator | 69 | 48 |
| Microwave | 13 | 9 |
| Gas Stove | 68 | 48 |
| Vehicle | 900 | 630 |
| 1 km of Light Rail Track | 112,000 | 78,400 |
| 40-Foot Shipping Container | 4,000 | 2,800 |
| Boeing 787-10 Aircraft | 13,500 | 9,450 |
| High-Voltage Transmission Tower | 27,000 | 18,900 |
| Wind Turbine | 260,000 | 170,000 |
While some kinds of steel can be made using recycled metal, roughly 72% of global steel production relies on steelmaking coal and certain higher grades of steel can only be made using the ingredient.
How is Steel Made?
Also known as metallurgical coal or coking coal, steelmaking coal is mined to produce the carbon used in steelmaking. This is fundamentally different from thermal coal, which is used to make steam that generates electricity.
To make steel, the coal is first heated at around 1100°C to remove water and other chemicals, without the presence of oxygen. The result is a lump of near-pure carbon which is called coke.
Then, individual layers of coke, iron ore, and limestone are added to a blast furnace to make hot metal that is finally refined into steel.
Reducing Emissions
The steel sector is taking action to reduce its carbon footprint. One solution that has been used in the last couple of years is Carbon Capture, Utilization and Storage (CCUS).
CCUS consists of capturing carbon dioxide (CO₂) during the steelmaking process, then transporting the CO₂ via ship or pipeline, and lastly reutilizing it in other industrial processes, such as producing fuels or as input into chemical production. The CO₂ can also be permanently stored deep underground in geological formations.
Supported by cleaner production, the global steel market is forecast to grow by 557 million tonnes during 2021-2025, progressing at a compound annual growth rate (CAGR) of 6.32%.
As demand for steel grows, so will steelmaking coal’s role in sustainable production.
Teck is one of Canada’s leading mining companies committed to responsibly producing steelmaking coal needed for a low-carbon future.CONTINUE READING
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A Visual Guide to 5 Types of Climate Indexes
What are the different types of climate indexes? We show their key metrics and how they can help investors align with net-zero goals.
Published 2 days ago
on February 1, 2022
A Visual Guide to 5 Types of Climate Indexes
If average temperatures continue to rise at their current rate:
- 10% of the world’s economic value could be lost by 2050
- A sea level rise of over 8 feet could flood coastal cities
- 420 million people could be exposed to extreme heat waves
To prevent the worst effects of climate change, climate experts believe we need to drive carbon emissions down to net-zero.
This infographic from MSCI shows five climate indexes that can help align investor portfolios to the goals of the Paris Agreement, mitigate emissions, and reduce fossil fuel exposure.
What is Net-Zero?
Net-zero targets are a clearly marked pathway for companies to reduce greenhouse gas (GHG) emissions in line with the Paris Agreement.
The Paris Agreement’s goal is to limit global warming to well below 2°C, preferably no more than 1.5°C above pre-industrial levels. Investors have a critical role to play in this transition to net-zero.
5 Types of Climate Indexes
First, here are the key metrics used to assess the environmental profile of indexes:
- Carbon emissions: Based on tons of carbon dioxide across all constituents divided by millions of dollars invested in the index (tons CO2e/$M invested).
- Carbon intensity: Based on tons of carbon dioxide per $1 million in sales (tons CO2e/$M sales).
Let’s look at five types of climate indexes from MSCI:
1. Climate Paris Aligned Indexes
Objective: Reduce carbon intensity by 50% compared to benchmark, annual decarbonization of 10%, increase weight in green solutions companies.
The indexes have also shown strong performance on the Climate Value at Risk (Var) metric.
Climate Var provides a forward-looking return-based assessment of how climate change could affect company valuations. For instance, a holder of MSCI ACWI would likely see an erosion of portfolio value by about 14.44% if the world were to decarbonize in line with a 1.5°C warming scenario.
A holder of a Climate Paris Aligned Index, by contrast, would see little to no erosion in value.
| Metric | Description | Climate Paris Aligned Index | Benchmark Index |
|---|---|---|---|
| What was the historical climate performance? | 88% lower carbon emissions than the reference index | 11 tons CO2e/$ million invested | 89 tons CO2e/$ million invested |
| Key climate feature* | Climate Value at Risk (Var) | 0% | -14.44% |
| Index performance (Five-year annualized return as of Sep 30 2021) | Outperformed benchmark MSCI ACWI Index | 15.40% | 13.80% |
*As of May 2021 semi-annual index review
2. Climate Change Indexes
Objective: Reduce carbon emission intensity by 30% compared to benchmark, annual decarbonization of 7%, increase weight in green opportunity companies.
Green opportunity companies may include green bonds, companies with low carbon patents, or provide exposure to UN Sustainable Development Goals. These are companies which see opportunity from the climate transition.
| Metric | Description | Climate Change Index | Benchmark Index |
|---|---|---|---|
| What was the historical climate performance? | 62% lower carbon emissions than reference index | 34 tons CO2e/$M invested | 89 tons CO2e/$M invested |
| Key climate feature | Carbon intensity is at least 50% lower than that of the benchmark | 32 tons CO2e/$M sales | 205 tons CO2e/$M sales |
| Index performance (Five-year annualized return as of Sep 30 2021) | Outperformed benchmark MSCI ACWI Index | 15.70% | 13.80% |
3. Low Carbon Target Indexes
Objective: Minimize carbon footprint by 50% based on exposure to carbon emissions and fossil fuel reserves.
The carbon footprint covers two key metrics:
- Low carbon emissions (relative to sales)
- Low potential carbon emissions (per dollar of market capitalization)
| Metric | Description | Low Carbon Target Index | Benchmark Index |
|---|---|---|---|
| What was the historical climate performance? | 78% lower carbon emissions than the reference index | 20 tons CO2e/$M invested | 89 tons CO2e/$M invested |
| Key climate feature | Minimize carbon intensity | 66 tons CO2e/$M sales | 156 tons CO2e/$M sales |
| Index performance (Five-year annualized return as of Sep 30 2021) | Performed equally to MSCI ACWI Index benchmark | 13.80% | 13.80% |
4. Fossil Fuels Exclusion Index
Objective: Represent broad market performance while excluding companies that own oil, gas and coal reserves.
| Metric | Description | Fossil Fuels Exclusion Index | Benchmark Index |
|---|---|---|---|
| What was the historical climate performance? | Carbon emissions were reduced by 34% compared to the reference index | 59 tons CO2e/$M invested | 89 tons CO2e/$M invested |
| Key climate feature | Proportion of index invested in fossil fuel reserves | 0% | 5% |
| Index performance (Five-year annualized return as of Sep 30 2021) | Outperformed benchmark MSCI ACWI Index | 14.30% | 13.80% |
5. Environment Indexes
Objective: Select companies that derive at least 50% of their revenues from environmentally beneficial products and services.
The green to fossil fuel-based net revenue exposure compares revenues from green companies in relation to companies with revenues from fossil fuel. This can be used as a metric to assess the shift from fossil fuel-related activities to greener alternatives.
| Metric | Description | Environment Index | Benchmark Index |
|---|---|---|---|
| What was the historical climate performance? | Included companies that derive at least 50% of revenues from green energy* | 99% | 9.10% |
| Key climate feature | Green/fossil fuel-based net revenue exposure | 192.7 | 3 |
| Index performance (Five-year annualized return as of Sep 30 2021) | Outperformed benchmark MSCI ACWI Index | 23.60% | 13.80% |
*Cumulative measure across holdings, includes alternative (renewable) energy, green buildings, sustainable water and pollution prevention
Climate Indexes: Tools for Addressing Climate Change
As investors integrate climate concerns in their portfolios, they can use indexes from MSCI to help make more informed decisions.
Climate indexes can help investors:
- Align with global climate goals
- Capture opportunities
- Mitigate transition and physical risks
- Reduce fossil fuel exposure
These climate tools can help investors with future investment strategies—and catalyze change.