Carbon Credits: Defining the Energy Transition

VIRTUAL EVENT

Zef LokhandwallaEnergy Markets SpecialistBloomberg

Kyle HarrisonHead of Sustainability ResearchBloombergNEF

Paula VanlanginghamGlobal Head of CarbonS&P Global Platts

Speakers

4 December 7, 2021

Source: BloombergNEF, Climate Action 100+

-10

-8

-6

-4

-2

02020 2025 2030 2035 2040 2045 2050

GtCO2e

Oil & Gas Utility Materials ManufacturingIndustrials Consumer Staples Technology Health Care

-2.3

-3.4

-2.2

-1.4-0.5-0.2

Companies are setting ambitious net-zero targets every day

9.2GtCO2eAnnual emission reductions

needed for CA100+ members to reach net zero – equivalent to a quarter of

global emissions

Net-zero targets for Climate Action 100+ focus companies

5 December 7, 2021

Source: BloombergNEF, Verra, Gold Standard, American Carbon Registry, Climate Action Reserve

Leading to record demand for offsets

Voluntary carbon offset retirements, by sector

41.132.1

42.652.6

70.0

93.3

127.1

2015 2016 2017 2018 2019 2020 2021

MtCO2e

Energy generation Nature-based solutions EmissionsEnergy demand Other

6 December 7, 2021

Source: BloombergNEF, Verra, Gold Standard, American Carbon Registry, Climate Action Reserve

Developers are ramping up supply in response to this demand signalVoluntary carbon offset retirements, by sector

33.7 29.549.6 54.3

96.1

152.5

250.4

2015 2016 2017 2018 2019 2020 2021

MtCO2e

Energy generation Nature-based solutions EmissionsEnergy demand Other

A guide to understanding carbon credits

Voluntary carbon markets: retirements in 2021 forecast to increase by up to 50% YOY

• Emerged in the early 2000s to mitigate GHG emissions through consumer action

• Voluntary carbon prices and uptake took a hit in 2008 with the financial crisis

• Market has contended with questions over project quality, additionality and permanence Recognises need for greater transparency,

certification

• Voluntary carbon market generally felt to play a key role in GHG reduction strategies and meeting Paris Climate Agreement goals.

• Retirements of nature-based avoidance credits overtakes renewables in 2021

S&P Global Platts, ©2021 by S&P Global Inc. 8

0

20

40

60

80

100

120

140

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Credits retired (mn tonnes CO2e, by project type)

Household Devices Industrial Pollutants Methane Collection

Natural Carbon Capture Nature-Based Avoidance Other

Renewable Energy Tech-Based Carbon Capture

Source: Verra, Gold Standard, ACR, CAR. Credits retired in 2021 to October.

Article 6 adoption aids VCM credibility; paves way for investment and simplification

Snap analysis… Long-term impact…

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“The agreed Article 6 rules give countries the tools they need for environmental integrity, to avoid double counting and ultimately to clear a path to get private capital flowing to developing countries” – Kelley Kizzier, VP, Global Climate, Environmental Defense Fund

“The deal on Article 6 will likely pave the way for the maturing of carbon marketplaces globally, as emissions trading credits begin to enter the phase of global trading which builds confidence and generates financial interest to fund green projects from both the public and private sectors.”– Sandy Gwee, Principal Consultant, Nomura Research Institute

Two-tier market: ‘adjusted credits’ could trade at a premium to ‘non-adjusted’ credits

New investment: Firmed up rules around Article 6 expected to unlock investment in new projects

Efficiency: a single emissions unit becomes more likely, merging government-led and voluntary carbon schemes

Sub-schemes: shared rulebook and accounting mechanism provides framework for new sector-specific mitigation schemes

Structure of the voluntary carbon market

S&P Global Platts, ©2021 by S&P Global Inc. 10

Issuance/Development

• Project Developers

Transaction

• Brokers• Retailers• Traders

Retirement• End Users

Verification & Validation

CREDITS

“OFFSETS”

Available in Registry

Removed from Registry

Voluntary Carbon Market is layered and complex

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Voluntary Carbon Market (VCM)

Reduction/Avoidance Credits

Technology-Based Nature-Based

Removal Credits

Technology-Based Nature-Based

Carbon Credits that Reduce or Avoid GHG Emissions Carbon Credits that Actively Capture GHG Emissions

• Renewable Energy• Landfill Gas/Waste Gas• Industrial Pollutants• Household Devices/Energy

Efficiency

• Avoided Deforestation/REDD+

• Wetland Management• No-Till Farming• Methane from Livestock

• Direct Air Capture• Mineralization• Carbon Capture & Storage

• Reforestation• Afforestation• Soil Sequestration/Biochar• Wetland Restoration

S&P Global Platts, ©2021 by S&P Global Inc.

Platts CEC up ~985% since January; fresh interest in renewable energy, methane collection

S&P Global Platts, ©2021 by S&P Global Inc. 12

Platts CEC: Prices up 987.5% since January as pledges to hit net-zero translate into voluntary carbon market interest

Platts Methane Collection: spike in interest since pledges to cut methane emissions agreed at COP26; prices up 77.6% since Nov. 1

Platts Renewable Energy: Credit prices up 84.4% since the launch of the Klima cryptocurrency token on Oct.18, spurring demand for VCS-certified credits

Platts Voluntary Carbon Market Assessments

Plat

ts C

AC

Household Devices#

Nature-Based Avoidance

Industrial Pollutants

Plat

ts C

RC Tech-Based

Carbon Capture

Natural Carbon Capture

Basket AssessmentsStand-Alone Assessments

Platts Renewable Energy Platts Methane Collection

Platts CEC* Platts CNC#

CARBEX Indices+

Eco Protect CARBEX Eco Protect CARBEX Social

Eco Create CARBEX Eco Create CARBEX Biodiverse

Household Devices CARBEX Soil CARBEX

• CORSIA-eligible credits + 0 SDGs • Nature-based credits + Biodiversity SDGs

• Current and Year+1• Wind, Solar, Geothermal, Hydro

• Current and Year+1• Landfill, Livestock, Waste Gas

• Avoided Deforestation + Bio SDGs • Avoided Deforestation + Bio + Social SDGs

• Reforestation, Afforestation + 0 SDGs • Reforestation, Afforestation + Bio SDGs

• Cookstoves + Bio + Social SDGs • Soil Sequestration + Bio + Social SDGs

• Current and Year +1• Cookstoves, Water

Access• Social SDGs, 2017+

• Current and Year +1• REDD+, No-Till

Farming, Wetlands• Bio SDGs, 2016+

• Current and Year +1• Water Purification, NO2

destruction, Ozone• Social SDGs, 2017+

• Current and Year +1• Direct Air Capture,

CCUS, Mineralisation• Social SDGs, 2017+

• Current and Year +1• Reforestation,

Afforestation, Soil Squestration

• Bio SDGs, 2016+

* Launched Jan 1# Launched Jun 14+ Launched Aug 23 All other Carbon Assessments launched Aug 9

Atlas of Energy Transition™

14

Platts Atlas of Energy Transition ™

Glossary

15

Platts Energy Transition Glossary

Current market activity

CFVL

Correlation between Power & Emissions prices

CPFC – commodity price forecasts

KRBN: ETF – fund flows

Carbon Offset RegistriesName of Program Who Administers? Who Validates/ Verifies? Who Approves? Name of Registry

American Carbon Registry Winrock, ACR Directror ACR approved verifiers or verifiers approved under CDM, JI, VCS and the Cli-mate Action Reserve. Start-ing 10 2010, verifiers must be ANSI certified.

ACR approved verifiers. American Carbon Registry

Climate Action Reserve Board of Directors ANSI-accredited independent verifiers approved by the Reserve.

State of California and the Climate Action Reserve

Climate Action Reserve administered by APX Inc.

Gold Standard Gold Standard Foundation, GS Secretariat, Foundation Board, GS Technical Advisory Committee (GS TAC), GS NGO Supporters

DOEs GS TAC, GS Secretariat, GS NGO Supporters

The Gold Standard VER Registry administered by APX Inc.

Verified Carbon Standard Verra Board of Directors Accredited VCS auditors Accredited VCS auditors Launched 3/17/09 the VCS Project Database and approved registries:

- APX Inc.

- Markit Environmental RegistryPlan Vivo Plan Vivo Foundation Plan Vivo Foundation Plan Vivo Foundation Plan Vivo registry administered by Markit.

Social Carbon Methodology

Ecológica Institute (Brazil) Certifying Entities: DOEs, auditors approved by SCM, and auditors that have ‘proven experience in the validation/verification of projects […]’

Certifying Entities Social Carbon Registry administered by Markit

Q&A

Zef LokhandwallaEnergy Markets SpecialistBloomberg

Kyle HarrisonHead of Sustainability ResearchBloombergNEF

Paula VanlanginghamGlobal Head of CarbonS&P Global Platts

Speakers