INTERVIEW: Carbon insetting key tool for shipping's decarbonization pathway: 123Carbon MD

Carbon taxes and carbon insets are both vital to hasten shipping's decarbonization momentum, with the former mechanism acting as a push to comply with environmental rules, particularly for shippers who are laggards, and the latter being an instrument for cargo owners to outperform their peers through voluntary emissions reductions, 123 Carbon Managing Director Jeroen van Heiningen said.

"It's essentially two complementary streams of financing that need to go into decarbonization; one is mandated and allocated to everyone as it serves as the baseline, while the other allows companies to invest on top of that voluntarily," van Heiningen told S&P Global Commodity Insights in an interview.

Shippers need to cut their Scope 3 emissions and companies typically use science-based target initiatives, or SBTI, to achieve and validate that claim. However, SBTI is moving away from traditional offsetting and require companies to invest in their own supply chain, he said, noting that carbon insets allow shippers to invest in low carbon marine solutions and claim the verified carbon reductions, accelerating the shift from offsets to insets.

123Carbon is the first independent blockchain-based carbon insetting platform for multimodal transportation and presently has about 15 active users, van Heiningen said.

"We just don't issue a carbon reduction certificate stamped by an auditing firm. The company's platform provides the tools to generate and transfer these insets safely and transparently," he said.

123Carbon handles all the underlying data of the intervention, the emissions models, the route, the vessel, the baseline, the emissions reduced and the ton kilometers covered, he added.

"123Carbon's methodology is based on the Book and Claim methodology of the Smart Freight Center, responsible for the GLEC framework and the ISO 14083...They set the standard; we provide the tools that abide by the standard," van Heiningen shared.

The platform also provides integrity and safeguards by offering a legal framework, avoiding double claiming, he noted.

All the parties involved in an intervention agree and sign waivers, warranties and protocols that need to be in place for an inset to maintain its integrity. That legal structure is imperative, especially when you look at what's happening in the offset market, he added.

Harnessing carbon insetting

"We are a lean platform operator; we don't do carbon accounting as there are solution providers for that with whom we will integrate. We have external assurance too through our partners Verifavia and Bureau Veritas and have AllChiefs as an implementation partner as well," van Heiningen said.

Carbon insetting is also a way for businesses to move forward regardless of the technology.

"We see new technologies emerging and being proven -- hydrogen, wind propelled, bio-LNG, bio methanol, ammonia," he said.

"We don't make a statement on what technology is the silver bullet. We depend on the ISCC [International Sustainability and Carbon Certification] and RSB [Roundtable on Sustainable Biomaterials] to provide emission factors and LCAs [life cycle assessment] that allow us to understand what the reduction and impact is of a given fuel," he noted.

In August, 123Carbon said it had partnered with clean fuel supplier Titan and had issued the first LNG-based carbon insets, readily available to the market.

In April, 123Carbon announced a collaboration with Danish ship operator Norden. With the platform, Norden will now be able to tokenize CO2-equivalent reductions made on biofuel voyages and allocate them to industry customers who are looking to reduce their maritime Scope 3 emissions, 123Carbon said in a statement at the time.

Moving forward

The company's current focus is carbon insetting for the transportation sector -- primarily road and marine. However, its technology can also be used for insetting in steel, plastics, chemicals as those are all viable markets, van Heiningen said.

123Carbon is also collaborating with ports who want to become a carbon reduction hub, he shared.

It is also important to draw small and medium shippers in the carbon insets program, as there is a risk that insetting is an instrument for large fleet owners, van Heiningen noted.

"We currently see demand aggregation initiatives that will lead to large insetting contracts that are likely a prey for the big shipowner. This means that the physical vessels owners operating that freight will no longer receive the funding they need to decarbonize their fleet."

"We therefore need to make sure that inset products are also developed that support the small- and medium-sized operators," van Heiningen added.

Platforms like 123Carbon could do that aggregation and create a forward market for insetting where an investment or longer-term commitment can lead to the purchase of a new ship, van Heiningen said.

"That's a great form of additionality, if a fossil fuel vessel was taken out and a cleaner fueled ship was introduced...We are actively looking into that space," he added.