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INTERVIEW: Carbon offsets demand to grow despite COVID setback: Verra CEO


Carbon compliance systems, corporate demand driving market

Oversupply of credits not likely to last, says CEO

Verra welcomes Taskforce report on scaling market

  • Author
  • Frank Watson
  • Editor
  • Alisdair Bowles
  • Commodity
  • Coal Electric Power

London — The voluntary carbon market is likely to see continued growth in 2021 despite the economic hit and resulting drop in industrial CO2 emissions due to the coronavirus pandemic, the CEO of global non-profit standard-setter Verra said in an interview Feb. 11.

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Recent growth in demand for carbon offsets is expected to continue despite a slow start to the United Nations system for offsetting airlines' emissions, he said.

"Voluntary carbon markets are driving huge amounts of finance into other countries through the use of standards like the Gold Standard and the Verified Carbon Standard (VCS) program," said David Antonioli, the CEO of Verra, which operates the VCS program.

National carbon taxation systems in countries including Colombia and South Africa are helping to power demand for carbon credits by allowing regulated companies to buy offsets as an alternative to paying the domestic tax.

"Companies in those jurisdictions love offsets because they can pay less than the tax, but also because they know their money is being invested in real projects on the ground," he said.

"Outside of these compliance systems, there is peer pressure among corporates to reduce emissions, and if you report your annual greenhouse gas emissions, there is a growing awareness that you have an obligation to take responsibility for that," he said.

CORSIA demand delayed

These engines of growth are expected to underpin demand for carbon offset credits in general, even as the market for aviation offsets under the UN's Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) remains sluggish in the wake of the coronavirus pandemic, he said.

"The CORSIA market is not really going to happen until we get back to 2019 emissions levels, and that might not be until 2022-2023. So we might not see that kind of movement for a while," he said.

Verra is the administrator of the Verified Carbon Standard, one of the carbon offsetting standards recognized by the CORSIA program.

The CORSIA system requires airlines to offset any CO2 emissions above the 2019 base year, starting in a pilot phase in 2021. The sector's emissions fell sharply in 2020 due to widespread travel restrictions around the world and this has pushed expected demand for credits back by a few years until the sector recovers and emissions begin to exceed the baseline.

Nevertheless, CORSIA-eligible carbon credit (CEC) prices increased from a low base in early February, rising to an all-time high of $1.47/mt CO2 equivalent Feb. 9, according to S&P Global Platts daily assessments.

Antonioli declined to speculate on whether airlines could be buying the credits now in anticipation of future demand.

The wider market for carbon offsets continues to see relatively low prices, reflecting a well-supplied market, said Antonioli.

"It's a market at the end of the day. Right now, there's an oversupply -- probably because there's a surplus overhang from historic vintages," he said.

"Some people won't want to buy those credits anymore and you'll have a tightening as people focus on newer vintages. There are technologies coming through, like pulling carbon out of the atmosphere," he said, in reference to direct air carbon capture and storage projects, for example.

The voluntary carbon markets had a focus on renewable energy projects in the early years, which relied on additional finance at the time, he said. However, the market was looking beyond renewable energy as those projects have become mainstream as they become competitive with fossil fuel-power energy, he said.

While Verified Carbon Unit (VCU) issuances fell early on in 2020, the VCS program ended 2020 with a record-setting 140.5 million VCUs issued, an increase of more than 20 million mt compared with 2019, Verra said in its Q4 2020 market report.

"We see this growth as an indicator that the private sector is following through on its climate commitments -- in spite of a global pandemic that is overshadowing everything," it said.

Demand set to increase: Taskforce report

Antonioli also welcomed the report released Jan. 27 by the Taskforce on Scaling Voluntary Carbon Markets, a private sector-led group seeking to sharpen standards in the VCM to enable needed growth by a factor of at least 15 by 2030.

"I think it will help underpin the market and improve confidence. Private sector finance channeled through the voluntary carbon market can have a measurable impact on climate change," he said.

"We are fully behind most of the things they are recommending, and they make a lot of sense," he said.

In its report, the Taskforce said a much larger voluntary carbon market is needed to play a meaningful role in reducing global greenhouse gas emissions to net-zero by 2050, with a goal to limit global temperature increase to no more than 1.5 degrees Celsius from pre-industrial levels.

"As the decarbonization of the global economy accelerates in the coming years, demand for carbon credits will likely increase," the Taskforce said.

"That demand is more likely to be met if a large-scale voluntary carbon market takes shape, which is able to help companies achieve carbon neutral, net-zero and net-negative goals," it said.