As Carbon Credit Developers Consolidate, Independent Advisors Become Increasingly Important

Two of the largest developers of voluntary carbon credits announced a merger this week in what is likely a preview of future combinations.

A compelling merger. 

This week’s combination of Blue Source and Element Markets makes tremendous sense. The expertise of two of the country’s largest project developers is now combined, offering scale and knowledge to pursue more (and maybe, different) projects that reduce or offset carbon emissions.

More capital is likely to be available for suitable projects. More scrutiny is likely to be applied to lower-quality projects. More subject-matter expertise will be focused on the mission. We believe this is good news for the voluntary carbon offset markets.

The merger, however, concentrates on this growing industry. The press release from the combined firm claims it will be “the largest marketer and originator of carbon and environmental credits in North America.” There is little doubt this is true. A potential challenge for carbon credit pricing.  

Consolidation and competition are often enemies. Given the absence of a real-time, comprehensive, and transparent marketplace for purchasing carbon credits, buyers of carbon credits may find themselves increasingly challenged in negotiations.   

The carbon-credit markets have been around for decades, and available projects and prices for carbon credits have always been challenging to discover. How much is a new forestry project worth? Is one vintage more valuable than another? Are there carbon offset projects in the same area as my operations?  Am I getting access to the most cost-effective environmental offset alternatives to meet my goals?  With more environmental credits consolidated with fewer developers, buyers can expect information to remain opaque at best.  

And with project developers rightly incented to sell their own carbon credits, buyers of carbon credits must be diligent and speak with multiple project developers, trading houses, and other credit generators to ensure they are receiving fairly priced and appropriate credits to meet their offset goals.  

Conclusions.

1. AEGIS believes this week’s announcement from Blue Source and Element Markets will bring additional capital and project alternatives and related carbon credits to the market; and 
2. Buyers of carbon credits should strongly consider working with a partner to find the most appropriate environmental credits for any given offset transaction. 

AEGIS is not a project developer for carbon credits and does not maintain an environmental credits inventory. Our customers can be confident we are searching for the optimal credits to enable our customers to meet their emission reduction goals. 

An advisor like AEGIS addresses these questions and more. A recent example shows how pricing power and information asymmetry were mitigated: 

A client sought carbon credits to offset emissions voluntarily. The client preferred a specific type of credit. A developer, who had an ideal project, with credits ready to sell, offered that project – and no others – for about $7 per ton of CO2. AEGIS counseled the client on the nature of the emissions and discovered more detail about the range of credits that would apply. AEGIS cast a more expansive but appropriate net and found credits at less than half the cost. Instead of $7, the client paid near $3.25.