UK's Net Zero Markets launches bid for carbon credit benchmark

UK-based Net Zero Markets has teamed up with commodities exchanges AirCarbon Exchange and European Energy Exchange to launch a contract aimed at becoming a global reference price for voluntary carbon credits.

The Global Emission Reduction aims to make carbon offsetting simple, more accountable, transparently priced and accessible for corporates by offering a single global reference price for the voluntary carbon market.

"Harnessing the efficiency of markets is the key to tackling the climate crisis," Net Zero Markets CEO Louis Redshaw said.

"The only way we can do this in the case of the voluntary carbon markets is through inclusive commoditization. We are taking what the market is doing today and distilling it into something more accessible, understandable and transparent," Redshaw said in a statement June 17.

Four 'buckets'

The GER contract -- which Net Zero Markets has described as "the future of the voluntary carbon market" -- is a hybrid carbon offset made up of four 'buckets' encompassing different elements of the voluntary carbon markets.

It will consist of:

• Base Carbon Contract which covers the renewables and energy efficiency sector
• Forestry Carbon Contract which encompasses the agricultural, forestry and land-use sectors
• Prime Carbon Contract for projects with additional benefits that meet at least three of the United Nations Sustainable Development Goals
• Carbon Capture Contract which covers projects that provide long-lived removal of carbon emissions such as biochar projects.

The GER contract launched as a spot contract on Singapore-based AirCarbon Exchange June 16, while EEX's US subsidiary Nodal exchange will offer a futures contract. EEX itself will also list GER futures contracts in Europe later in 2022.

All projects included in the various sub-contracts will involve credits that meet globally recognized standards bodies such as Verra and Gold Standard, the company said.

The proportional composition of the various credit types in the GER contract will be linked to actual retirement of credits in the previous calendar year, reflecting the reality of how carbon offsets are being used by the market, the company said, while the price of the GER will be determined by buyers and sellers on the exchanges.

The product has a built-in pathway to net-zero emissions by 2050 and will increasingly boost investment in carbon removal projects -- currently a small part of the overall global VCM.

In the absence of a broad and liquid market for carbon capture credits, the GER will use EU carbon allowances in its contract as a proxy for the carbon capture element.

The proportion of the GER made up by removals is programed to increase, gradually at first, until it hits 100% by 2050, Net Zero Markets said.

By combining the current mixture of standards, jurisdictions, project types and vintages into a single price, the GER will help increase both liquidity and transparency in the often-opaque voluntary sector and make it much easier for corporates as well as small and medium-sized enterprises to offset the carbon emissions they are unable to reduce, the company said.

Exceptional growth

The value of the VCM exceeded $1 billion for the first time in 2021 and is set to expand by a factor of at least 15 by 2030, according to the Integrity Council for the Voluntary Carbon Market -- an independent governance body.

Carbon credit prices showed exceptional growth in 2021 as companies increasingly set targets to reach net-zero emissions by 2050.

Prices were further bolstered in the run-up to the UN COP26 climate summit in Glasgow in November 2021 where nations reached a deal on the rules governing international emissions trading under the Paris Agreement.

Nature-based carbon credit prices gained 199% in 2021 and reached a high of $16.01/mtCO2e on Jan. 21, 2022, according to Platts assessments published by S&P Global Commodity Insights. Prices have since pulled back from the record highs and were assessed at $9.35/mtCO2e at the close June 16, according to S&P Global data.

Net Zero Markets' GER contract does not seek to create a new standard for carbon credits and will use the existing and widely recognized standards already in place under the VCM, the company said.

"In line with the Voluntary Carbon Market Integrity Initiative's recently published Claims Code of Practice, retirements of GERs and the carbon credits that underlie them will be tracked and published by Net Zero Markets to ensure carbon neutral claims using the GER are fully accountable."