In theory, carbon credits and their markets should operate like any commodities market: owners of the underlying commodity bring it to market for immediate sale or even a presale. Easy access to markets and standardization allows commodity producers to quickly meet demand and ensure a large and liquid market to enable price discovery and efficient trade execution. Unfortunately, today’s environmental developers face excessive and extremely long delays in bringing carbon credits to market, largely because of sluggish, amateurish, and inefficient registries. The lengthy process of issuing carbon credits, which can take over a year to complete, is a major barrier to the growth of the carbon credit market, corporate planning, and efforts to impact environmental regulation changes. This slowness undermines the ability of the carbon credit system to respond quickly to changes in the market and to provide investors and environmentally conscious corporations with the credits they need to achieve their investment and emissions reduction goals. The goal for carbon credit issuance should be 30 days or less with complete documentation and analysis along with all data in an auditable distributed ledger (blockchain) solution.
The glacial pace of the carbon credit issuance process creates harmful financial and completion uncertainty for project developers trying to issue credits for emission reduction and removal, as they cannot be confident of when they will be able to sell credits to recoup their investments. This problem can be partly solved with conditional credit issuance analysis and reports. The market will accelerate in 2023 with conditional/provisional credit structures and products. Additionally, the lengthy credit issuance process harms companies seeking to reduce their greenhouse gas (GHG) emissions by making it difficult for them to efficiently plan and allocate resources in advance. Faster and more robust analytics from specialized validators will improve this area of analytics and translate to issuance by reducing risk and time by 50–80%. The fact that little headway has been made in speeding up the credit issuance process or resolving the lengthy backlog of projects indicates a lack of urgency or sense of stakes among incumbent credit registries. For carbon credits to be effective in reducing and removing GHG emissions, the credit market must be liquid and efficient. If incumbent registries are not committed to a liquid, efficient and quality market, how committed can they be to effectively improving the environment?
To solve this problem, the process of issuing carbon credits needs to be treated like a private-sector investment banking transaction, with a focus on speed, quality, and efficiency. This would involve automating and streamlining the carbon credit issuance process, reducing the time required to issue credits and improving the overall efficiency of the system. In addition, the involvement of experienced financial companies and investment banks could provide the expertise and resources needed to manage the carbon credit issuance process in a more efficient and effective manner.
The slow and inefficient process of issuing carbon credits is a major barrier to the growth of the carbon credit market and efforts to combat climate change. That’s why a team of experienced financial industry professionals have come together to launch Capturiant, the first global, regulated carbon validator and exchange: only by bringing private-sector processes and know-how to bear, and focusing on quick and efficient issuance of credits, can the carbon credit market live up to its goal of reducing greenhouse gas emissions and combating climate change.
Capturiant is a global environmental asset validator, registry, and exchange committed to speed, quality, and regulatory standardization. The Capturiant team consists of financially regulated and highly experienced staff fluent in securities, banking, custody, valuation, commodities, and digitalization. With this skillset, we are bringing standardized methodologies, rapid processing, and lower-cost validation to an inefficient and outdated industry. Credits are digitized and custodied on the Capturiant platform, enabling global transactions. Capturiant’s business model leverages distributed ledger technology and warranty coverage to greatly enhance the trust, transparency, quality, tracking, distribution, retirement, and risk management of credits and ESG instruments. Our process and compliance expertise provides exactly the level of trust and transparency issuers, investors, buyers, and sellers need throughout the entire ESG sector and asset class. Capturiant is headquartered in Houston with branch offices to be established in Zurich, Abu Dhabi, and Nassau.
Written by James C. Row, CFA and Will Baird
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