The Evolution and Evolution of Carbon Markets

[Music] hello everyone are you all well thank you for sticking by okay so let's begin the topic that we're about to be discussing in this panel is controversial it is considered by the environmentalist as the Wild Wild West it is uh not understandable properly and there is a reason why not everyone understands it it's because it's super complicated first of all there's no standardization to calculate carbon or to buy carbon credits there is no technology yet or there is a technology but it's not been fully utilized to understand the transparency and Frankly Speaking when you're buying carbon credit you don't know the quality of the carbon you're buying and hence you might at be at risk of green washing and when you are buying carbon credit you might be buying someone else's carbon so you there is double um uh I forgot the word but you know the word anyways but before we begin um why should we care why are we all here we should care because if you are an organization in the the Middle East who is dealing with the European markets by law such as the cbam such as csrd you will need to start calculating and buying carbon credits and reducing and genuinely meeting your Net Zero agenda and this is why we're here now as a panelist so our my Este steam panelists they represent The Regulators they represent the technologists they represent the investors and they definitely in uh represent the founders of startups who are helping to solve this issue so without further Ado let's begin uh the introduction so Anna I'm going to start with you would you like to introduce yourself sure thank you guihan uh many thanks uh for having me here today it's a real pleasure my name is Anna Campbell I'm a director in the markets team at the financial services regulatory Authority here in the adgm thank you Anna hi uh hi everyone uh my name is Aaron bloard I'm the founding partner of climate Finance Partners I've been uh involved in carbon finance and climate uh carbon markets for about 25 years successfully deploying uh several billion dollars across both illiquid and liquid assets in in in carbon markets so pleasure to be here thank you Ivan hi everyone my name is Ivan I'm co-founder of offset 8 capital founded in adgm at cop 28 uh in partnership with fundra we announced the first carbon credit Fund in the Middle East uh the fund is seeking to finance nature-based Solutions in Africa and Southeast Asia toddington good afternoon everybody it's a pleasure and honor to be here uh my name is toddington Harper I have a lifetime and sustainable energy um starting with uh parents who are building solar energy and Battery projects in the deserts of Abu Dhabi Russell uh K and Alain 48 years ago um I'm back here having built the most successful electric vehicle charging business in the United Kingdom we're charging more than 250,000 Vehicles each month with more than six uh kilowatt hours of six a million kilowatt hours uh of clean energy um we're here to move the needle on climate change from Abu Dhabi with a business called gigatons uh the world needs to deliver around 59 gigatons of carbon emission reductions to keep the 1.2 uh 1.5 uh degree number uh possible um I do that as co-ceo with my brother um who who also leads the business with me from the other side of it um and we announced the Abu Dhabi Finance week um that we are here in Abu Dhabi our business headquartered in adgm and we're going to mobilize hundred billion do over the next decade uh mobilize and tokenize a hundred billion dollar over the next decade into Net Zero uh transport infrastructure into AI infrastructure into uh blockchain infrastructure um uh and we're going to do it with speed and scale so it's absolutely incredibly exciting to be here and we're going to tokenize every uh carbon every every carbon saving that we deliver we're going to tokenize we're going to prove it we it transparent recordable highly verifiable and this is the place to do it so I'm really excited to be here thank you and to finish off the intros my name is Jian Hyde and I'm the CEO of communique we are a UK based ESG consultancy and what we do is we help you to communicate not to communicate to engage effectively with your supply chain ahead of your decarbonization process um and also to communicate your commitments clearly and concisely but most importantly to upskill your employees to understand what role do they play in your ESG commitment and sustainability initiatives so thank you for having us so let's begin I'm going to start actually with the regulator sorry Anna okay let's begin with you so we all know that adgm is curving the way and my question to you is can you explain why adgm was the first to regulate carbon credit as the financial instrument and how has this positioned you as the leader in this in this uh Market I or in this space sorry well part of our job as the regulator is to Monitor and keep a breast of Market developments so whether that's a new Financial activity whether or not that's a new product we're watching the markets all of the time to see what developments are happening out there um we also listen and respond to the need for new regulation from our Market participants so in the carbon space we saw that from both sides we saw the market developments particularly with all jurisdictions um making their reduction commitments and we had entities that were already operating in that space or wanted to move into that space that wanted regulation to cover them um so what did we do we widened our definition of financial instruments uh to to incorporate a new asset class uh what we call environmental instruments it's a very broad asset class uh it includes both carbon emissions and carbon credits so that means that our jurisdiction allows for both compliance and voluntary markets um and we also recognize other instruments that attest to the environmental attributes of an underlying unit so that has enabled us to recognize um renew renewable energy certificates for instance um so we are the first regulator globally to take this step and to introduce regulations and rules in this regard um and it's also enabled firms that want to operate as regulated entities in our jurisdictions to do so so they can trade clear settle um and do a large range of intermedi intermediary activities so custody broker dealing uh and Advising and arranging which Ivan I'm sure we'll talk about a little bit later uh offset a is one of the the firms that are licensed in our jurisdiction thank you thank you Erin to be honest it is so difficult to understand the difference between voluntary and compliance Market okay and I would love if you could simply put differentiate for us what's the difference between the voluntary Market versus the compliance Market but most importantly why is it important for the Middle Eastern markets in general yeah well thanks for that and and first I I want to congratulate uh Abu Dhabi and UAE a year ago at hosting an extremely successful cop last year we were here we were extremely um inspired um and it's inspiring what the regulator has done and and and and we heard this morning Abu Dhabi wanted to be the center of climate Finance um and and this is I think an the key point that I want to leave you with is if we're serious about climate change uh and wrapping our hands around climate change and we're serious about mainstreaming climate Finance really there is one way to do that which is pricing carbon right we need a price on carbon and that will have an impact pricing impact across the economy make the clean green Investments that we're trying to do more attractive make emissions more expensive that is using the market mechanism to drive the kind of decarbonization the time type of change that we need so how do we do that there's really two fundamental ways one is through a carbon price other through a carbon taxx and when you look at Carbon pricing there's voluntary and compliance so coming to your to your question a compliance Market is a regulated market typically through a cap and trade program where there's a cap on absolute emissions that goes down over time uh the regulator uh issues uh emissions allowances which is essentially the currency of the carbon market and those can be traded among um entities who have to comply with that with that regulation this Market is based on long history of successful environmental markets starting with the acid rain program in the United States back in the 80s uh and and in carbon has been trading for over 20 years compliance markets are a mature Market there there are uh a $900 billion traded Market largest markets are the emissions trading system in the EU California Reggie in the northeast of the US the UK and then we've got Emerging Markets happening all around the world now in response to things like cbam article 6 which of the of the Paris agreement which we'll talk which we'll talk more I love the C bomb I do like the SE bomb uh regulator have so and then on the VA on the voluntary side some interesting things that have happen are happening there and frankly this is what most people hear about when they learn about carbon markets they're hearing about voluntary carbon uh markets and those are typically driven the demand there is driven by large corporations who are using carbon credits as part of their decarbonization or or climate strategies thanks that I think the Amazon the microsofts ETC of the world who they're trying to decarbonize their residual emissions that they can't they don't have the technology or or financial capability to reduce and so they're using um uh carbon credits typically coming from carbon offset projects uh to to to uh address those residual emissions very interesting Market but this is the market that has had challenges over the last uh few uh few years it's a much smaller market and that's I think the key point to make and and for people to go home with is voluntary carbon markets are maybe A2 billion market so compared to a $900 billion Market in regulated markets where there is no option but but for uh uh regulated entities to purchase allowances um and then Vol and then voluntary markets much smaller market now last Point interesting thing is the what people are calling about is are talking about is the uh uh U integration of markets or the the incorporation of voluntary markets into compliance markets and we'll talk I think we'll talk more about article 6 which was one of the main outcomes of uh the last cop in Baku that just ended last month which is some resolution on the what's called article six which is the component of the Paris agreement which um governs the trading of carbon units between countries and and within within markets yeah but the the reporting is still weak on those I mean the one of the challenges we're facing at this moment of time is that it's a voluntary reporting you don't need to report and disclose what you're actually doing is that correct I mean no no it's the opposite in compliance Market the reporting is very rigorous uh it's it's from a compliance but from the voluntary Market I mean voluntary Market there's been challenges with the so you one could argue that voluntary markets are one of the most transparent markets in the world right you've got you have to publish your project documentation you have to go through third party verification but what is true is that there's been um uh there have been instances of gaming the the the system right there have been um the the the um standard Setters uh are typically nonprofits they're not necessar they're not professional Regulators um even though they're they're well-intentioned but there's been an opportunity in certain instances for project developers to um let's say design design design their own Baseline to overedit there's been instances of over crediting uh over crediting projects and so I think as one of the hopes is as those voluntary carbon markets move into a more compliance uh framework that that uh problem is addressed right but I would say it's also very important for investors in this space and those who are both who are buying credits corporates who are buying credits or those who are investing in credits to really work with with credible high integrity counterparties who've got experience in this space well speaking about investment Ivan at this moment of time the preference for investing is in nature-based projects why is that it's very simple uh if you to elate on what Aaron said voluntary markets could be visualized in very simple 2x two Matrix so on the horizontal access you would have engineering and nature based Solutions on vertical you tell us the differ between them please yes uh and on vertical axis you would have avoidance and removal so engineering avoidance would be renewable project engineering removal would be directory capture uh nature-based avoidance would be cook stove project nature removal would be reforestation or soil carbon and the reality is uh two weeks ago uh actually last week we received a prop request from a corporate buyer and they were looking to procure up to 200,000 tons uh they're questing price of less than $20 they wanted this to be nature-based solution aligned with Paris article 6 agreement and the reason why they wanted to have nature based Solutions is driven by three factors is price scalability and Community benefits so if you look on the price engineering based Solutions like director capture they trade at 600 to $2,000 a ton there is no buyers at this prices Microsoft is buying 80% of all engineering based carbon credits in the whole world and uh at the same time prices can go down maybe to 20000 but it's still so much uh in nature based Solutions uh cheaper and they priced at like 15 to $30 for high quality ones the second reason for such preference would be volume there is not enough engineering based credits on the market 98% of the credits uh on carbon remov comes from nature based and the corporates they just simply want to buy uh secure large volumes with high certainty uh and good visibility they don't want to take risk on the engineering based Solutions delivering those volumes or not and the last argument for nature based Solutions why the Buy prefer those is community benefits so unlike engineering project nature based Solutions can deliver such Community benefits as an example uh this year ofate uh arrange of financing for a project in Malawi Africa the project restores 10 million trees and gives 140,000 to cook stoves to local community members that leads to less differ station in the same area at the same time the project gave local community seed maze fertilizer ERS support subsistance farming feeding more than 25,000 people and this is all the reasons uh why companies prefer project like this because they can deliver million pounds of avoidance and removal at a reasonable price and uh they integrate Community benefits I was just speaking at cop 16 in Riad the desertification and land degradation cop and it the the numbers are staggering I have to admit so apparently $49 billion dollar are being spent and wasted every year because of the lack of investment in nature-based projects which is affecting our livelihood which is the equivalent uh so it's affecting 3.2 billion people around the world just because of that lack of investment so I'm really pleased to see now that the shift the dial is Shifting so thank you for this um okay last but not least inton can you walk us through so technology is so dear to my heart and I know technology will be the main driver for you know for carbon markets for saving our people on planet so can you walk us through how tokenization is transforming the carbon markets as as we speak and particularly when it comes to transparency and integrity these are the two pain points that our clients are making mainly worried about at this moment of time yeah it's essential and you know the the phrase we talk we hear a lot about we talk about is net zero but how do we know when we've got to Net Zero you know how do we actually prove we've got to Net Zero how do we chart the journey uh accurately and precisely and how do people know that if they invest in this particular solution of this particular product they're going to get what they say they're going to get if somebody comes along with a solution says it's going to deliver this many uh carbon credits going to reduce this many emissions how did they know that they made the right decision you know how how is that proven and verifiable um you know we mobilized I mentioned in the last business over a billion pounds and delivered a net zero network but you know that cuz I'm telling you and that's not good enough that's not good enough for Net Zero Net Zero is law so so what we're doing is we're working on the whole tokenization journey of first of all mobilizing the capital um and tokenizing the capital so we can say that capital uh is now programmable money that we then mobilize into physical infrastructure which we also tokenize uh and so we can track that that Capital was genuinely invested in that infrastructure and then the outputs we also tokenized what do you mean by physical infrastructure sorry what do you mean by physical infrastructure physical infrastructure like uh like electric vehicle charging networks for for cars for trucks Etc I mean AI data centers um I mean uh blockchain uh mining operations that verify um uh that verify blockchains and so and so forth so you can verify that the capital was invested into the physical IAL infrastructure and then the outputs of that that infrastructure were also tokenized and recorded so you can say you know that that generated in you know this many tons of carbon emissions empirically proven according to standards verifiable um and at extremely high quality uh and that will build confidence that will that will uh deliver um that will deliver you know the right pricing that we need to deliver this and that will allow us to prove demonstrably um that we can actually deliver you know gigatons of of carbon that's going to require you know and again build on some of the comments I heard earlier you know what a place to be doing it you know cooperation with government you know and the the regulator I mean what a what a place you know we're building on the DT foundation in adgm incredible you know support from the government you know absolutely fantastic you know you need incredibly you know clever Tech on top of it and so we're working on some really Innovative blockchain uh Technology Solutions as well with you know particular one that people don't know so much about called aium which we're very very excited about so we can program that the capital was deployed into this infrastructure the output is then recorded in very veriable and only by building confidence and actually proving empirically that you are doing what you said you're going to do uh are you going to enable and facilitate the flow of capital you're going to increase the efficiency of capital you're going to increase the liquidity uh of that Capital so there can be secondary markets uh and it gives us a chance you know if everyone has to reinvent the wheel if everyone has to work out everything again for the first time we're not going to do it because a gigaton of carbon emissions is a very big number you know I was told to kind of visualize it it's very difficult to visualize it because a bil a million and a billion we just use these numbers quite interchangeable but you know I was given an example that you know in terms of mass it's the mass of around you know around 200 million elephants as an example which is a 500 times more unfortunately than the population we have on the entire planet and we need to do 59 of them so that's around 12 billion uh tons um 12 billion elephants equivalent you that kind of volume and we've only got 25 years to do it and to get to you know 43% of the way there by 20 uh 20 um 50 uh 2030 So within 5 years is one heck of a challenge and it's only going to be possible with the full support the alignment the efficiency the transparency um uh and that's what um uh that's what tokenization uh that's what blockchain and that's what AI brings as well because we also need to optimize and improve and replicate and repeat uh and we need to mobilize huge amounts of capital and it needs to be commercially viable um and and anyway this is the place to do it and that's why we've launched gig the Green in me is is is a fan of AI but at the same time I'm worried about the energy that is consuming but anyways I'm conscious of time thank you so much for joining me and for answering my questions and for not using a lot of uh jargons I appreciate that and thank you everyone for joining us take care [Music]