Below are some thoughts on some common categories of exposures and how you can think about offsetting those risks.
Voluntary Carbon Offsets. Many corporations have announced climate pledges to reduce and offset their carbon footprints. This activity has driven prices up for voluntary carbon offsets over 300% in calendar year 2021. Low-cost supply has been dropping and demand has picked up.
Rapidly assess your carbon footprint and schedule time with AEGIS today to determine best-fitting carbon offsets for your company’s goals.
Regional Greenhouse Gas Initiative (RGGI). RGGI carbon allowances increased 71% in 2021. Prices are expected to continue to rise in 2022 given Pennsylvania on track to join the program as well as the annual reduction of carbon allowances in 2022.
AEGIS has forward structures that allow clients to lock in pricing, volume and delivery in second half of ’22 to mitigate risk of continued rising prices.
Texas RECs. Texas Renewable Energy Credits (RECs) increased over 128% in 2021. Prices are expected to climb again in 2022 as the demand for least inexpensive RECs to offset Scope 2 emissions (emissions from electricity purchases) is expected to increase in calendar year 2022.
Rapidly assess your 2021/2022 electricity purchases from traditional fossil-fuel power generation. Schedule time with Aegis today to determine best RECs to obtain to meet your corporate goals.
California Carbon Allowances. California carbon allowances increased 70% in 2021. Prices are expected to continue to rise in 2022 given further recovery of the transportation sector emissions in California as well as the annual reduction of carbon allowances in 2022.
AEGIS has forward structures that allow clients to lock in pricing, volume, and delivery in second half of ’22 to mitigate risk of continued rising prices.
COVID 19 International Travel. Are we seeing a permanent impairment of international travel? Any conservation of fuels decreases total carbon emissions and, therefore, the demand for offsets. This is a potentially bearish factor.
Economic Slowdown. In the developed economies, fuel consumption does not vary much with GDP, but emerging economies require much more fuels to power economic expansion. A potential economic slowdown, especially among the emerging economies is a bearish factor.
COP26. The 26th UN Climate Change Conference of the Parties (COP26) was held in November 2021 adds potential compliance and quasi-compliance forces to the participating countries. As the signatories enact laws and regulations, this factor could be a large bullish force.
New Carbon Funds. The cost of carbon credits has likely been helped by the arrival of financial traders who may "buy and hold," expecting credit prices to rise. Even if these credits are not retired to offset a carbon-emitting project, these purchases still drive up the price of credits.
Crypto Demand. Mining of cryptocurrencies has been criticized as being carbon-intensive. The mining process consumes large amounts of power to run the computer mining microprocessors. Many mining operations not tied to non-emitting sources (hydroelectric, wind, solar, etc.) may be buying carbon credits to offset the carbon they create via Scope 2 emissions. This is a potentially bullish factor.
CORSIA. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is a program to stabilize the airline industry's CO2 net emissions at around 600 million tonnes each year. The IATA, the administrator of the effort, estimates industry net emissions would rise to 900 million tonnes by 2035 if left unchecked. The activities prescribed by CORSIA increase demand for credits as airlines offset the carbon emissions.
Climate Pledges. There are more and more commitments from industry to reduce net carbon emissions (actual plus offsets). If these commitments are executed, it is direct demand for emissions credits for any amounts the companies and organizations do not achieve through efficiency or conservation. This is our single largest bullish factor, as more pledges could increase demand up beyond the supply of new credits available.