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It is the challenge debated at length in boardrooms, think tank conference rooms, and governments the world over: how does society move to net-zero emissions, mitigating the most severe climate change outcomes, while avoiding a disorderly energy transition that threatens global energy reliability and economic prosperity.
Nick Osborne, Head of Shell's Environmental Products team has an answer to this: carbon markets are a critical part of the journey to net zero, but they need to be done better and in collaboration with a broad spectrum of partners.
Using all the available tools
to achieve net zero
From 2020 to 2021, the voluntary market quadrupled in value, with some forecasts predicting1 the market would reach “between $10 billion and $40 billion by 20302.” But 2023 saw a slowing in growth3, in part due to criticism projects were not delivering the results they promise. For some, there is unease around the perception that carbon credits allowed companies to continue with business as usual.
“We cannot afford to miss out on all the benefits of carbon credits because of some bad projects. There have been growing pains, but we believe carbon credits are a crucial part of the journey to net zero, and we aren’t running away from them,” says Osborne. “In fact, we believe we must do them better and must work together to deliver that: engaging with the project developers and standards bodies, working to improve measurement and verification processes, doing proper due diligence on the projects you buy credits from.”
One way to do this is by making the voluntary market more transparent and verifiable. “We recognise that there is a trust gap when it comes to the voluntary carbon market and businesses using credits. We hear these concerns and are acting to address them.”
Worthwhile or worthless?
“Decarbonising the current energy system while transitioning to a new lower carbon one is challenging, but it’s possible provided we deploy all the tools we have on the table. And, without question, that includes carbon markets,”
Osborne is very clear that carbon credits are not something which Shell or any other emitter should use in lieu of avoiding or reducing emissions. “Carbon credits and emissions reductions are complementary, not mutually exclusive.”
“Emissions reductions must happen quickly and that is more feasible for some industries and activities than it is for others. Compensating for emissions that cannot yet be avoided is part of the solution.” Where operational changes are not enough to reach a net zero trajectory right now, carbon credits can help compensate for emissions now, as part of a long-term decarbonisation strategy.
Carbon markets as part of the solution
Osborne acknowledges that as a new market the voluntary market comes with a learning curve, and Shell is keen to share its experience with newcomers. “This is about demonstrating the impact that carbon credit projects can make.” Certification standards are incredibly important, and they continue to evolve their monitoring and reporting processes, Osborne explains, but Shell adds its own assessment based on lessons learned in the field.
This means assessing both the technical aspects of projects as well as the social or environmental aspects. Many of the difficulties buyers face are in the details – for example, scrutinising the accuracy of emissions calculations, testing that project benefits are long-term and shared with local communities, and making sure that emissions reductions are not simply replaced by emitting activities moving outside of the project boundaries. Shell has developed a process of evaluating these, providing an additional layer of due diligence for the credits in its portfolio.
Reaching net zero with the help of carbon credits
Using all the available tools
to achieve net zero
“Decarbonising the current energy system while transitioning to a new, lower carbon one is challenging, but it is possible provided we deploy all the tools we have on the table. And, without question, that includes carbon markets,” says Nick Osborne, Head of Shell’s Environmental Products team. With almost two decades of energy trading and strategy experience, there’s an irony that trading carbon is the very first time that Nick has had to ‘sell’ the benefits of his product.
In the voluntary carbon market, carbon credits are generated by activities that avoid or capture emissions. Activities like planting new forests or technologies such as carbon capture, capture CO2 from the atmosphere. Other projects avoid emissions, for example by preventing deforestation, or providing fuel-efficient cookstoves which replace coal- or wood-fired stoves. Each tonne of CO2 removed or avoided by a project generates one credit, which is sold to fund the project as it continues to reduce emissions.
Osborne’s Environmental Products team focuses on carbon—trading allowances for regulatory markets and sourcing and selling high-quality carbon credits and other environmental products. Shell is not new to emissions trading, it made the first ever carbon trade under the European Union Emissions Trading Systems in 2003 and serves both customers and Shell, who’s operations are subject to compliance regimes around the world. Eight years ago Shell expanded into the voluntary carbon market (VCM)- where they have been building their portfolio and customer offering, including by investing directly in nature-based solutions projects to support the future supply of credits.
“There is a risk that carbon markets are dismissed in the hope of finding a decarbonisation silver bullet, when in fact they can support strategies to avoid and reduce emissions. Solving the wider challenge means increasing the pace and scale at which cleaner energy solutions are deployed while embracing carbon markets and making them as robust, transparent, and additive as possible. To reach net zero, we must use all the measures available to us today.”
“It is for exactly that reason that we think it is so important to make sure that the steps we are taking really do add value in the long run, not just for one news cycle or reporting period. We firmly believe that traded carbon markets — including nature-based carbon offsets — are a critical part of our strategy. Yes, they must be robust. Yes, they must be credible. But we aren’t running away from carbon markets; we are doing carbon markets better, and we hope others will join us.”
Disclaimer: The Reuters news staff had no role in the production of this content. It was created by Reuters Plus, the brand marketing studio of Reuters. To work with Reuters Plus, contact us here.
References
1: https://www.shell.com/shellenergy/othersolutions/carbonmarketreports.html
2: The voluntary carbon market: 2022 insights and trends
Compliance markets ‘cap’ the emissions of certain sectors or areas, with the cap reducing over time. Businesses can buy or sell carbon allowances to allow them to meet their cap. This incentivises emissions reductions by making it increasingly expensive to emit and financially beneficial to emit under the cap as they can sell excess allowances.
2: The voluntary carbon market: 2022 insights and trends
3: https://www.reuters.com/sustainability/carbon-credit-market-confidence-ebbs-big-names-retreat-2023-09-01/
“This is about demonstrating the impact that carbon credit projects can make.”
“We believe carbon credits are a crucial part of the journey to net zero, and we aren’t running away from them.”
Participation in carbon markets can also serve as a catalyst for emissions reductions; buying carbon credits or allowances gives businesses a clear picture of the cost of their emissions and motivates reductions. In addition, new and unproven decarbonisation technologies that struggle to secure early-stage financing, can generate funds for testing new innovations and scaling them up through selling credits.
“Decarbonising the current energy system while transitioning to a new lower carbon one is challenging, but it’s possible provided we deploy all the tools we have on the table. And, without question, that includes carbon markets,” says Osborne. With almost two decades of energy trading and strategy experience, there’s an irony that trading carbon is the very first time that Nick has had to ‘sell’ the benefits of his product.
Compliance markets ‘cap’ the emissions of certain sectors or areas, with the cap reducing over time. Businesses can buy or sell carbon allowances to allow them to meet their cap. This incentivises emissions reductions by making it increasingly expensive to emit and financially beneficial to emit under the cap as they can sell excess allowances.
“This is about demonstrating the impact that carbon credit projects can make.”
Osborne is very clear that carbon credits are not something which Shell or any other emitter should use in lieu of avoiding or reducing emissions. “Carbon credits and emissions reductions are complementary, not mutually exclusive.”
“Emissions reductions must happen quickly, and that is more feasible for some industries and activities than it is for others. Compensating for emissions that cannot yet be avoided as part of the solution.”
Where operational changes are not enough to reach a net zero trajectory right now, carbon credits can help compensate for emissions now, as part of a long-term decarbonisation strategy.
3: https://www.reuters.com/sustainability/carbon-credit-market-confidence-ebbs-big-names-retreat-2023-09-01/
Disclaimer: The Reuters news staff had no role in the production of this content. It was created by Reuters Plus, the brand marketing studio of Reuters. To work with Reuters Plus, contact us here.
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From 2020 to 2021, the voluntary market quadrupled in value, with some forecasts predicting1 the market would reach “between $10 billion and $40 billion by 20302.” But 2023 saw a slowing in growth3, in part due to criticism projects were not delivering the results they promise. For some, there is unease around the perception that carbon credits allowed companies to continue with business as usual.
As a society, we cannot afford to miss out on all the benefits of carbon credits because of some bad projects. There have been growing pains, but I still believe carbon credits are a crucial part of the journey to net zero,” says Osborne. “We must work together to deliver a better market: engaging with the project developers and standards bodies, working to improve measurement and verification processes, doing proper due diligence on the projects you buy credits from.”
We recognise that there is a trust gap when it comes to the voluntary carbon market so working to make it more transparent and verifiable is vital.”
In the voluntary carbon market, carbon credits are generated by activities that avoid or remove emissions. Some activities, like planting new forests, remove CO2 from the atmosphere. Other projects avoid emissions, for example by preventing deforestation, or providing fuel-efficient cookstoves which replace coal- or wood-fired stoves. Each tonne of CO2 avoided or removed by a project can generate one credit, which is sold to fund the project as it continues to reduce emissions.
Osborne’s Environmental Products team focuses on carbon—trading allowances and other environmental products for compliance markets and sourcing and selling high-quality carbon credits. Shell is not new to emissions trading, it made the first ever carbon trade under the European Union Emissions Trading Systems in 2003 and serves both customers and Shell, whose operations are subject to compliance obligations around the world. Eight years ago, Shell expanded into the voluntary carbon market - where they have been building their portfolio and customer offering, including by investing directly in nature-based solutions projects to support the future supply of credits.
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Interview with Nick Osborne
LEGAL DISCLAIMER
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Nadira Tudor talks to Nick Osborne about carbon markets, and their key role in reaching net zero
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