Tesla vs. Kita
What contributed $518m to Tesla’s profits last year? Pre-sales of the new roadster? Bitcoin? (nope, that was only $101m). The correct answer is regulatory credits - a kind of carbon credit for automakers. In fact, Tesla made more money from these credits than selling cars last year.
However, this money-printer will soon run out of ink as other car companies reduce their purchases of these credits and ramp-up electric car production instead. It may also mark the beginning of the end for ‘emission avoidance’ offsets in general.
A new report by Bloomberg New Energy Finance (BNEF) paints three future scenarios for the voluntary carbon offset market as it describes an industry that splits along ‘quality’. Emission avoidance offsets fall into the low quality bracket, with only negative emission projects - tree planting and DAC in the BNEF report - making the cut for the high quality bracket. This bifurcation has significant impacts on the demand, supply and price in the voluntary offset market over the next few decades according to BNEF’s forecasts. Only one of their scenarios sees the lower quality, emission avoidance schemes enduring, with the remaining scenarios suggesting a switch to high quality offsets and a big jump in price. This is as high as $224 per tonne in 2029 driven by demand for DAC, or as low as $11 per tonne where emission avoidance offsets are allowed to flourish. Either way, BNEF sees corporate net zero targets pushing demand to over 5 billion tonnes in 2050 from just a few hundred million tonnes today.
It’s a theme Kita has encountered frequently when talking to offset developers in the UK, who are already witnessing strong demand, a flight-to-quality and higher prices as a result. Amongst the concerns in the rapidly changing market are the risks associated with delivering the carbon promised, hedging against large price movements, and the long-term obligations of many nature-based solutions.
Kita is developing insurance products to help reduce these risks, working with both offset sellers and buyers to increase the certainty and viability of negative emission projects that are vital to meeting net zero goals and protecting the environment.
