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(Bloomberg) — As the carbon offset market gets a new lease on life from the COP28 climate summit in Dubai, bankers from Wall Street and the City of London are positioning themselves to get a piece of the deal. they say it will come.
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Banks collecting carbon trading and gas funds include Goldman Sachs Group Inc., Citigroup Inc., JPMorgan Chase & Co. and Barclays Plc. They are looking to finance the development of carbon-neutral projects, credit trading and advise commercial companies to invest. They are also willing to support local projects in emerging markets that lack the financial strength to expand their operations.
“Most of the project developers don’t have a lot of balance sheets and it’s hard to get money,” said Sonia Battikh, Citi’s global head of carbon offsets trading. “Working on how to bridge the gap between financing and transferring money to projects is where a bank like Citi can play a role.”
Wall Street is scrambling to gain a foothold in a market that could reach $1 trillion, as offsets offer a way for companies to achieve net zero without destroyed all their fires. Rich Gilmore, chief executive of investment manager Carbon Growth Partners, said it has long been clear that there will soon be a short supply of high-quality debt, given the demand.
In that regard, “the Wall Street giants will need to balance speed in the market with a deep understanding of the rules, norms and expectations” of how to develop the voluntary carbon market, he said.
For now, a market that is still trying to rise from a long list of conflicts.
Many of the conclusions drawn have drawn criticism from climate scientists because they show an inability to live up to the environmental claims made. by those who bought it. Last month, the CEO of South Pole – the world’s largest seller of carbon offsets – resigned as the company pledged to look into allegations of greenwashing and “learn from experience.”
The bankers who are studying the market of such parts can not be allowed to destroy the confidence in the future of the use of carbon. “It would be a shame if the criticism, although good, destroys the money flowing into these projects,” said Kiru Rajasingam, the head of European electricity, gas and shop at Citi.
And in his speech at the COP28 Summit in Dubai, John Kerry, US Climatoria, described himself as a “strong believer in the power of carbon markets to stimulate ambition and action.”
Ingmar Grebien, who manages the Sustainable Solutions Unit at Goldman Sachs, said that the markets he sees “remain fragmented and in their infancy in terms of efficiency and transparency.”
In Goldman, which hired the former Gazprom manager Leigh Smith last year with an investment that includes carbon credit trading, the “focus on expanding trading and financing solutions on sustainable products to like carbon, renewables and other environmentally friendly products,” said Grebien.
JPMorgan hired its first independent debt broker in Houston earlier this year, according to a person familiar with the matter who asked not to be identified. A JPMorgan spokeswoman, who declined to name the new hire, said the company was “adding trading capabilities.”
The largest American bank offers trading in carbon finance as well as capital, advisory and marketing services. It’s an “increasingly important” area of focus for JPMorgan, the spokesman said.
For some, the arrival of the world’s banks in a market that has not been properly regulated marks a potential crisis.
“After a year of revelations about the terrible nature of voluntary forest projects,” it is “amazing that people are saying again that we need this without a complete overhaul,” the article said. said Michael Sheren, a former senior adviser at the Bank of England. is a fellow of the Cambridge Institute for Sustainability Leadership.
“The VCM is like a snake with many heads that reappeared at COP28,” he said.
Although scientists have long warned against relying on disposable income to produce zero emissions, they also point out that such products are important if when it comes to solving the problems left in the hard parts to reduce.
Limiting global warming to 1.5C above industrial levels “requires significant carbon reductions,” said Carbon Direct, a carbon management company, in its annual report. The voluntary carbon market “is an important tool in bringing carbon dioxide solutions to scale,” it said.
And in the name of exorcising the ghosts of the past, a new era of cooperation took place during the first week of COP28. A number of voluntary carbon accounting schemes have agreed to use best practices and improve transparency, but key organizations plan to establish a fully transparent framework for programs. carbon credits.
The US Commodities Futures Trading Commission, which regulates commodity futures, used the COP28 summit to announce standards for futures trading. Representatives of the United Nations in discussions in Dubai are expected to introduce new barriers to the voluntary market that will be based on guidelines written by experts last month.
Voluntary carbon credits “will not solve the climate problem,” Rajasingam said. “But at the same time, we don’t want funding for important projects to go because of popularity.”
For now, carbon prices are at historic lows. Last year saw a 12% drop in demand, with a 5% decrease seen in 2023, according to BloombergNEF.
“But the main drivers supporting demand have not changed,” wrote BNEF’s Layla Khanfar in a recent research note.
The drivers include the fact that many companies will not be able to achieve the goals without the use of sanctions, with the aim of national restrictions. Such movements set the stage for a major inflationary trend by mid-century, BNEF estimates.
How offsets work:
The measure of the voluntary carbon market is the creation of carbon credits, which are often bought by companies to reduce their emissions. A carbon credit is a security document that represents one tonne of CO2 reduced or removed from the atmosphere, generated by projects such as wind farms or solar plants. team. The project developers are working with middlemen like South Pole to sell the credits. Customers can trade the units or use them to fine their own equipment, in which case they must cancel the credit to avoid the used twice.
Citi’s carbon markets team currently includes a broker based in London and four traders covering the voluntary carbon market. Barclays hired a business expert from Shell Plc, Oliver Morning, to run its trading operations, Bloomberg reported last month.
Among the long list of unknowns surrounding the carbon offset market is the element of technological innovation, which may suddenly turbo-charge the field of carbon use. That could reveal some of the project’s financial implications as “financial policy risk,” Rajasingam said.
“Earnings are best when prices and methods are stable, not for technology that continues,” he said. “That said, we hope to be very actively involved in the removed when measured.”
Michael R. Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News, is the UN secretary general’s special representative for climate and solutions. Bloomberg Philanthropies often partners with the COP Presidency to promote climate action.
Bloomberg LP, the parent of Bloomberg News, partners with the South Pole to buy carbon credits to finance global travel.
(Additional information from Carbon Direct in paragraph 18.)
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