I previously shared that the Voluntary Carbon Market needs to scale 25-100x to cope with the demand for carbon credits by 2030.
That’s a big problem. But where should we start, you ask?
Pick any one of the 16 inefficiencies / opportunity areas we discovered across the VCM value chain…?
- Highly complex to set and scale up - Setting up carbon credit projects is highly complex due to the various regulations that has to be met, as well as the need to coordinate between multiple stakeholders. As projects are often geographically spread, scaling them up also requires additional coordination and resources, making it challenging and costly.
- Limited availability of projects depending on geography - Carbon credit projects are limited in certain geographies due to the availability of resources (funding & skilled resources) and infrastructure, as well as local regulations. This limits the options for companies looking to purchase carbon credits from different locations.
- High cost for initial project registry - The cost for registering or certifying a carbon credit project is high due to the complexity of the process, as well as the need for experts to review and approve projects. This makes it difficult for small projects or organizations to participate in the market.
- Limited access to early financing - Access to early financing is limited due to the difficulty of forecasting the future price of carbon credits and the perceived risk associated with the projects. This makes it difficult for projects to get off the ground.
- Little infrastructure for small projects - There is a lack of infrastructure for small projects due to the difficulty of setting up and managing small-scale projects. Much of the regulatory process and implementation resource are fixed costs, regardless of the size of the project. This limits the potential impact of these projects.
- Local legislation/ lack of gov. support - Local legislation or lack of government support can also be a hindrance to setting up projects. Process are often lengthy, and requirements / regulations often unclear. Negotiations for projects are often left to local interpretation and negotiations.
- Verification delays - Delays in verification can cause delays in getting credits to the market due to the complexity of the process and the need for experts to review credits.
- Lack of data accuracy - Data accuracy is also an issue due to the manual nature of the process, meaning that credits may not be properly verified.
- Lack of automation - Automation is lacking due to the complexity of the process, meaning that the process of verifying credits is manual and time-consuming.
- Variety of methodologies - A variety of methodologies are used for verifying credits due to the lack of a standardised approach, making the process even more complex.
- No standardisation between certification agencies - There is no standardisation between certification agencies due to the need for different organisations to certify credits, making it difficult to compare different projects.
- High price volatility - Price volatility is a major issue. Due the inefficiencies mentioned above, it's hard for the market to take a consistent view of future supply of carbon credits.
- Difficulty to compare projects - Comparing projects is also difficult due to the lack of standardisation and the variety of methodologies used by different certification agencies. This means that companies may not be able to make the best decisions when purchasing credits.
- Assurance of credit quality - The assurance of credit quality is also a concern due to the lack of independent oversight and the potential for corruption. This means that there is a risk of purchasing credits that are not of the highest quality.
- Non-transparent pricing - Non-transparent pricing is also an issue due to the variety of methodologies used for pricing credits, making it difficult to know how much to pay for credits.
- Jargon & lack of understanding - Lastly, the jargon and lack of understanding of the market can make it difficult for companies to understand and make informed decisions in the carbon credit market.
Each of these areas will have to be solved for the VCM market to reach its full potential.
16 opportunities hiding in plain sight.
Associate Director | Google Cloud Portfolio Solution Lead | GDE | Advisor
2 年I like the positive spin on the 16 challenges ?? All relevant. Just the other day I was discussing the investing community at #finimize where the retail user may follow through on carbon credit "opportunities", and digging a little deeper, it is a tale of Chinese whispers. Scheme differences, reporting standard differences, jurisdiction variations, corporate access to such schemes (for actual offset purchasing), and then the greenwash of what carbon offsetting, neutral, or "regenerative" really means. In simple terms, can retail part-take in this future Carbon Credit System? Answer? And Probably not for a while unfortunately, as a result of the 16 "opportunties".