Buying And Selling Carbon Credits
Buying And Selling Carbon Credits === https://urlin.us/2tm2Ok
Buying And Selling Carbon Credits
Indigo Ag works with farmers on climate-friendly strategies to pull carbon dioxide into the soil and capture emissions. The firm funds its work by selling carbon credits to companies. Farmers get 75% of the proceeds and Indigo AG gets the rest.
Here's how it works: Indigo Ag takes measurements to determine how many carbon credits each farm would produce, and therefore how much money the farmers would get. Then, it pre-pays the farmers an amount that is then verified by the Climate Action Reserve, a California-based environmental organization that monitors the North American carbon market to ensure integrity, transparency and financial value. The amounts differ depending on the farm and the current price in the carbon credit markets.
Indigo AG introduced its first tranche of farm soil carbon credits just a few weeks ago, with its program producing 20 thousand tonnes in credits, or emissions offsets. Buyers so far include JPMorgan Chase, The North Face and Barclays.
Indiana family farmer Lance Unger was one of the company's first clients. He said he made about $52,000 in the first year. He expects to make more going forward as carbon credit prices rise due to higher demand. He's now reducing his tillage and planting cover crops after the normal harvest.
Purchasing carbon credits is one way for a company to address emissions it is unable to eliminate. Carbon credits are certificates representing quantities of greenhouse gases that have been kept out of the air or removed from it. While carbon credits have been in use for decades, the voluntary market for carbon credits has grown significantly in recent years. McKinsey estimates that in 2020, buyers retired carbon credits for some 95 million tons of carbon-dioxide equivalent (MtCO2e), which would be more than twice as much as in 2017.
While the increase in demand for carbon credits is significant, analysis by McKinsey indicates that demand in 2030 could be matched by the potential annual supply of carbon credits: 8 to 12 GtCO2 per year. These carbon credits would come from four categories: avoided nature loss (including deforestation); nature-based sequestration, such as reforestation; avoidance or reduction of emissions such as methane from landfills; and technology-based removal of carbon dioxide from the atmosphere.
However, several factors could make it challenging to mobilize the entire potential supply and bring it to market. The development of projects would have to ramp up at an unprecedented rate. Most of the potential supply of avoided nature loss and of nature-based sequestration is concentrated in a small number of countries. All projects come with risks, and many types could struggle to attract financing because of the long lag times between the initial investment and the eventual sale of credits. Once these challenges are accounted for, the estimated supply of carbon credits drops to 1 to 5 GtCO2 per year by 2030 (Exhibit 3).
These challenges are formidable but not insurmountable. Verification methodologies could be strengthened, and verification processes streamlined. Clearer demand signals would help give suppliers more confidence in their project plans and encourage investors and lenders to provide with financing. And all these requirements could be met through the careful development of an effective, large-scale voluntary carbon market.
Building an effective voluntary carbon market will require concerted effort across a number of fronts. In its report, the TSVCM identified six areas, spanning the carbon-credit value chain, where action can support the scaling up of the voluntary carbon market.
In the voluntary carbon market, the heterogeneity of carbon credits means that credits of particular types are being traded in volumes too small to generate reliable daily price signals. Making carbon credits more uniform would consolidate trading activity around a few types of credits and also promote liquidity on exchanges.