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ESG drives booming carbon credit market to all-time highs

Kitco News

As the 26th UN Climate Change Conference wraps up, ESG is becoming an increasing driver in how companies operate, leading them to buy credits to offset their current carbon emissions as they target sustainable reduction of greenhouse gases. The voluntary carbon credit market has hit all times high in volume, and is on track to be worth a billion dollars in 2021. “There are many high value carbon credits that are emerging with the voluntary market,” emphasized Lionel Kambeitz, Executive Chairman of Delta Cleantech.

Carbon credits are certificates representing the quantities of greenhouse gases that have been kept out of the air or removed from it.

Kambeitz spoke to Michelle Makori, Lead Anchor and Editor-in-Chief of Kitco News. Delta Cleantech provides clean energy engineering services in response to environmental, social and corporate governance (ESG).

Voluntary Carbon Credit Market to Hit $1 Billion in 2021

Kambeitz explained why there has been a recent boom in voluntary carbon credits. “Many responsible corporations want to reduce their carbon emissions or go to net zero by 2030, 2040, or 2050, he said. “Some businesses do not have the opportunity to install technology to do their own carbon reduction as aggressively as their ESG internal governance objectives direct, so they have to go out and buy those.”

Kambeitz gave as an example a company that uses thousands of delivery trucks but is having difficulty reducing their carbon footprint. “How are they going to lower the footprint of the entire company?” he questioned. “Those organizations have to go to the voluntary carbon offset credit market to acquire them.”

Similar to the compliance carbon credit market, the voluntary market is governed by independent third parties following their rules and procedures. “I like calling voluntary carbon credits by a different name -- the carbon offset market. There’s clean development mechanisms or joint implementation projects that are involved,” Kambeitz explained. “Together about 80 percent of the offsets in the voluntary market are governed by those independent third parties.”

In the carbon credit market, there are originators, aggregators, and retail speculators. Kambeitz broke down how the chain works. “They start at the originator level. The farm gate, the forestry gate, the mining gate and the concrete industry, are all examples,” he said. “They have made an investment, and that investment has created an ability to lower emissions, capture carbon dioxide or something else that is lowering their emissions.”

“They then go to an aggregator who will go to an industry, and that corporation will collect a variety of carbon credits and move them into blocks. It’s nice to be able to trade blocks, and arbitrage blocks of carbon credits,” Kambeitz continued. “It creates more fungibility. Those blocks are sold through the 29 plus markets that are available around the world. Then the aggregator will sell directly to the end corporation who wants to lower its footprint.”

Kambeitz explained what Delta Cleantech is doing with carbon credits. “Our objective is to originate carbon credits and build them. We will construct the carbon credits we need,” Kambeitz said.

Kambeitz discussed the new investment opportunities in the carbon offset market compared to the compliance market. “There’s an evolution of dozens and dozens of new companies that are out there that have secured the capital and want to be traders for carbon credits,” Kambeitz said.

High Fidelity Credits in Carbon Credit Market Create Arbitrage Opportunities

“The high fidelity credits tend to be associated originally with the compliance markets, because the government has approved them and they can be used as an offset against taxation,” Kambeitz emphasized. “There’s a chance for two opportunities in arbitrage -- to be able to buy carbon credits that are newer and have less fidelity.”

“Then, of course there’s the general supply-demand of where carbon credits are simply going to go up in value because they are required. There’s an opportunity for double arbitrage,” Kambeitz added.

There are three avenues to get exposure to the voluntary carbon credit market, Kambeitz explained. “On the very top end, one avenue is the buyer and the reseller. We call it the arbitrager of the credit,” he said. “You can buy the credit from an aggregator, take it to an exchange, and you can try to make money on the arbitrage there. We call that the trading market.”

Extremely Wide Price Range for Carbon Offset Credits

The price of carbon offset credits will vary widely, Kambeitz said. “If I said $2 to $50 you would think I am a real politician but there will be a wide range in price. There’s going to be voluntary offsets that are going to be priced in the $2 and $3 a ton range to begin with,” he said. “As they gain fidelity, they may be worth more, and they will also track the compliance market up.”

Tokenizing Carbon Credits on the Blockchain

Kambeitz revealed that Delta Cleantech is in the process of putting voluntary carbon credits on the Blockchain. “The key is being able to put carbon credits on the Blockchain, and to be able to relate a high fidelity carbon instrument into the Blockchain. This will create and complete an easily transferrable fungibility,” Kambeitz said. “We will have a high fidelity Blockchain, and carbon instrument married together. We will create a new opportunity by putting them together on the Blockchain.”

New Investment Opportunities in the Voluntary Carbon Credit Market

“This is emerging as we speak almost week by week. It’s an emerging market with voluntary credits. It’s on the frontier, and it needs a lot of breathing room early to create the right carbon credits for the voluntary market,” he emphasized.

In terms of other investment vehicles for the carbon offset credit market, Kambeitz discussed ETFs. “I would look for a balanced ETF, because some of these silos within this sector are simply going to parabolically soar, and you want to be covering all of those” he added. “I think certain types of origination are going to be very dramatic and are going to be very accelerated in the value they are creating.”

For more on Kambeitz’s views on carbon credits, please watch the full video above.

Follow Michelle Makori on Twitter: @MichelleMakori

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