"Global carbon market in turmoil after Zimbabwe grabs offset money"

" Global carbon market in turmoil after Zimbabwe grabs offset money \r\n\r\nThe global market for carbon offsets is worth about $2 billion today and projected to grow to\u00a0as much as $1 trillion in 15 years even as it faces fundamental\u00a0questions about credibility and effectiveness. Add government appropriation to the list of risks for this climate solution.\r\n\r\nA\u00a0shock announcement this week that Zimbabwe\u00a0will take half of all revenues generated from offsets projects developed on its territory is a harbinger of an uncertain future in the carbon trade. The African nation is the world\u2019s 12th largest creator of offsets,\u00a0with 4.2 million credits from 30 registered projects last year, according to BloombergNEF.\r\n\r\nZimbabwe\u2019s\u00a0move\u00a0gives the government control of carbon credit production\u00a0and cancels all past agreements with international organizations. That\u00a0means more revenue generated from\u00a0credits tied\u00a0to protecting\u00a0forests\u00a0and other efforts to cut emissions will flow into national coffers rather than going to project developers.\r\n\r\nThere\u2019s now\u00a0risk that other countries might follow suit, creating new uncertainties for businesses that develop\u00a0and sell offsets,\u00a0corporations\u00a0that purchase\u00a0offsets as a way to counterbalance their greenhouse gas pollution\u00a0and\u00a0the\u00a0cohort of traders who invest in this emerging asset class.\r\n\r\nThe move \u201cblindsided\u201d\u00a0CO2balance, a company that runs five carbon offset projects in Zimbabwe.\u00a0\u201cEveryone knew changes were happening\u00a0but we weren\u2019t expecting this \u2014 it wasn\u2019t on the horizon,\u201d said\u00a0Paul Chiplen, head of sales,\u00a0in an interview on Thursday.\u00a0\u201cIt does put a question mark in investors\u2019 minds\u00a0when you\u2019re not quite sure of what level of return you\u2019re getting.\u201d\r\n\r\nCO2balance is waiting to see what the government\u2019s decision\u00a0will\u00a0mean\u00a0for the viability of its projects.\r\n\r\nCorporate buyers who rely on carbon credits will also face new doubts.\u00a0The government\u2019s\u00a0decision \u201cwill significantly impact companies that have been big buyers of offsets in Zimbabwe,\u201d a group that includes Gucci, Volkswagen AG and Bayer AG, wrote Kyle Harrison, head of\u00a0sustainability research at BloombergNEF. \u201cSuch decisions will affect companies\u2019 sustainability plans.\u201d\r\n\r\n\u201cI think it is an entirely understandable thing for Zimbabwe to want to take a proportion of the funds from any exports of carbon from its territory,\u201d said Edward Hanrahan, director at carbon project developer Climate Impact Partners. \u201cBut the issue is they acted rapidly and without prior notice.\u201d\r\n\r\nOffset developers in Zimbabwe and elsewhere had been expecting changes tied to\u00a0the rollout of a United Nations-run international carbon market,\u00a0which allows countries to trade credits used to meet emissions\u00a0goals set under the Paris Agreement. Papua New Guinea, Indonesia, Honduras and\u00a0India all introduced restrictions on\u00a0carbon markets in their jurisdictions last year, some of which were later removed.\r\n\r\nUnder new UN rules\u00a0put forward at the COP26 climate summit in late 2021, governments are left to decide whether to use carbon credits generated at home as a way to meet their own national emissions targets or to sell the credits to others. Each credit represents\u00a0one\u00a0ton of carbon dioxide and can be bought and sold many times before being used.\u00a0The unregulated structure of the market involving companies, traders and governments creates\u00a0risk of double counting. What if a government seeks to benefit by\u00a0trading a credit produced in its territory after its\u00a0been sold to an investor or used in a corporate sustainability plan?\r\n\r\nCountries are beginning to see that \u201ccarbon is a sovereign asset just like any other commodity,\u201d\u00a0said\u00a0Chris Leeds, head of carbon markets development at Standard Chartered Plc.\r\n\r\nTreating carbon credits as just another export commodity underscores\u00a0an\u00a0imbalance at the heart of this\u00a0global trade: Efforts to develop credits are usually funded\u00a0by firms\u00a0from\u00a0wealthy countries and sold to corporate buyers in Europe and the US,\u00a0yet most of the projects are located in emerging economies. This setup has been derided as a form of carbon colonialism that strips developing countries of an increasingly valuable resource.\r\n\r\n\u201cRushing to frame the decision by Zimbabwe as \u2018nationalization risk\u2019\u00a0exposes a sense of entitlement to access those resources by the global North,\u201d said Rich Gilmore, chief executive officer at investment manager Carbon Growth Partners in Melbourne. \u201cWe need to acknowledge that the past 200 years of resource extraction have miserably failed people and the planet.\u00a0And if we want the carbon market to scale, we need to respect the right of the nations of the south to determine their own rules.\u201d\r\n\r\nOrganizations involved in Zimbabwe\u2019s carbon industry are still figuring out the full implications of a\u00a0major shakeup.\u00a0Gold Standard acts as a verifier for 19 carbon projects in Zimbabwe, for example, and appears to have been unprepared for the new policy. A spokesperson said\u00a0governments\u00a0seeking stronger oversight ought to act in a way \u201cthat will enable positive investment into climate action and sustainable development.\u201d\r\n\r\nComments by officials in Zimbabwe have\u00a0focused on one project in particular: Kariba, a supersized\u00a0forestry effort operated in part by South Pole, the world\u2019s leading seller of offsets.\u00a0Mangaliso Ndlovu, minister of environment, climate, tourism and hospitality, said on Wednesday that the operators of the Kariba\u00a0project will have to give the government half its revenue if the initiative is to survive;\u00a0retrospective payments will not be sought.\r\n\r\nA spokesperson for South Pole said\u00a0it\u2019s reviewing Zimbabwe\u2019s announcement and \u201cassessing the implications\u201d for the Kariba project. The company did not respond to a request for further comment.\r\n\r\nObservers such as BloombergNEF\u2019s Harrison and Hanrahan of Climate Impact Partners\u00a0expect\u00a0the repercussions will extend far beyond Zimbabwe\u2019s borders. Developers and investors might start to prioritize countries where governments have been transparent about their future carbon policies. Plus,\u00a0if governments follow Zimbabwe in taking\u00a0half of the project revenues, that will create a barrier to\u00a0carbon\u00a0projects that are\u00a0the most costly to implement.\r\n\r\nSome of the most expensive projects promise to have the biggest impact on the climate. \u201cThis could change the way a lot of deals are financed,\u201d Hanrahan said. \u201cIf you\u2019re a project financier you will have to understand the direction of travel in a host country\u2019s government, who the decision makers are and what are their views. And you\u2019ll also have to factor in a worst-case scenario whereby an unannounced levy is applied.\u201d\r\n\r\nIt\u2019s \u201centirely appropriate\u201d\u00a0for countries to seek a larger share from their carbon resources\u00a0but they must \u201ccarefully consider the economics,\u201d\u00a0said Martijn Wilder, chief executive officer of Pollination, a climate advisory and investment firm. \u201cIf what\u2019s left for a project developer is not sufficient to cover an investible rate of return, the project simply won\u2019t happen.\u201d"

"Global carbon market in turmoil after Zimbabwe grabs offset money"

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