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Shortage Looms for Carbon Credits Market Projected to Reach $2.4 Trillion in 5 Years

USA News Group – With hundreds of major corporations fast approaching their self-implemented Net Zero goals in the years ahead, the Wall Street Journal is reporting that today’s surplus in carbon credits could soon turn into an expensive shortage. The market is already seeing signs of movement in the carbon offsets market, as global carbon markets surged to a record $851 billion in 2021, and is slated to grow at a CAGR of +30% to reach $2.4 trillion through 2027. Outward ESG-based pressure from funds such as BlackRock, Inc. (NYSE:BLK) is shifting carbon credits from a side hustle to big business for companies such as Salesforce, Inc. (NYSE:CRM) (NEO:CRM), Tesla, Inc. (NASDAQ:TSLA) (NEO:TSLA), Brookfield Renewable Partners L.P. (NYSE:BEP, BEPC), and Scope Carbon Corp. (CSE:SCPE).

Despite record demand for carbon credits in 2021, that demand has been outpaced by new offsets supplies coming online, which has kept downward pressure on carbon credits prices. But for those in the business of generating more credits, the industry is gaining efficiencies both in spotting opportunities and in measurement accuracy.

This is where behind-the-scenes operators like Scope Carbon Corp. (CSE:SCPE) are helping landowners large and small to maximize their carbon credit contributions. Built upon a platform of state-of-the-art technology that includes long-range drones, servers, and AI data analysis, Scope Carbon is much like a picks and shovels play in the carbon credit space, aiding those who are producing the credits within their own operations. By utilizing Scope’s tech, these ranchers, farmers, and landowners can maximize their carbon sequestration capabilities.

For now, located primarily in the Canadian province of Alberta, Scope Carbon is providing accurate identification of the characteristics of forests, trees, underbrush, ground and related surfaces, which forms a material part of the overall carbon credit certification process.

Recently, the company entered into a product development agreement with Marsman Limited, which has a development team led by Martin Ma, a former early key employee of the Alibaba Group.

"Scope is at the forefront of a rapidly expanding industry and our goal is for Scope's Technology to become an essential tool for project developers of carbon credits and corporations looking towards establishing a net zero footprint," said James Liang, CEO of Scope. "We believe the Company's partnership with Marsman will only enrich the development of the Technology and we looking forward to working and learning alongside out partner Martin Ma and his Alibaba team."

Software giant Salesforce, Inc. (NYSE:CRM) (NEO:CRM) also recently entered the carbon-credit business, with the intent to compete with various trading platforms and plans to sell to its existing network of clients. The business-software provider recently announced its first-of-its-kind carbon credit marketplace, developed to empower any organization to take climate action on their journey to Net Zero.

Dubbed as its Net Zero Marketplace, the platform will offer nearly 90 projects across 11 countries throughout Africa, Australia, Europe, Latin America, and the United States. Buyers will be able to see project descriptions, alignment with the UN Sustainable Development Goals, and, for many, official third-party ratings at launch.

Among the groups providing carbon credits at launch are Climate Impact Partners, Cloverly, Lune, Pachama, Native, A Public Benefit Corporation, Respira International, and South Pole; as well as third-party rating companies Calyx Global and Sylvera; and curated climate portfolio provider all joining as inaugural partners.

"Partnering with Salesforce to create this Marketplace will turbocharge climate action and empower every company—large and small—to take responsibility for its emissions ," said Renat Heuberger, CEO of South Pole. “We are proud to provide high quality offsets to clients who understand the value of compensating for their impact on the environment."

After already having invested or allocated $3.5 billion in North America’s clean energy sector this year, Brookfield Renewable Partners L.P. (NYSE:BEP, BEPC) recently announced its intent to invest another $2 billion into acquiring both Scout Clean Energy and Standard Solar.

The acquisitions follow a string of recent clean energy investments by Brookfield Renewable that included an exclusive right to invest up to $750 million on a project by project basis into Entropy Inc. and a JV with California Resource Corporation, two leading carbon capture and sequestration platforms in Alberta and California respectively.

“We see an immense opportunity both from a financial perspective but also to buy us time in the carbon budget…[for] the cost of other decarbonization technologies to come down,” said Natalie Adomait, Managing Partner at Brookfield’s renewable power and transition group in an interview with Wall Street Journal. “Carbon-capture technology has been used specifically for enhanced oil recovery in the past, but it has allowed that technology to become proven and well understood so that it can be deployed in a very material way today.”

In terms of meeting the standards for receiving (and selling) carbon credits, Tesla, Inc. (NASDAQ:TSLA) (NEO:TSLA) has been one of the most prominent in the world. Though sales of its carbon credits were down 49% in Q2 2022, selling carbon credits made a significant contribution to Tesla turning its first full-year profit in 2020, bringing in $1.58 billion from regulatory credit payments from other automakers alone.

US President Joe Biden’s Inflation Reduction Act includes tax credits for EVs, especially for those with a set percentage of raw materials sourced from the US, free trade partners or from recycling.

Moving up the supply chain is said to be a major strategy of Tesla, seen as necessary to meet the automaker’s ambition to sell 20 million electric cars by 2030. As the industry frontrunner in securing battery raw materials Tesla is pushing other incumbent automakers to step up their own efforts to secure resources by going directly to producers.

By 2050, large-scale asset managers including BlackRock, Inc. (NYSE:BLK), Vanguard, and 85 others) managing more than $37 trillion in assets are targeting Net-Zero emissions across ALL of their holdings. However, whether they can sustain their ESG initiatives is up in the air, as Blackrock’s focus on environmental, social and governance principles have been deemed to be becoming increasingly riskier, according to analysts at UBS.

As the world’s largest money manager, BlackRock is facing scrutiny, while being more vocal about being a big energy investor in traditional oil and gas companies, leading to more pushback from climate investors also. On the other side, attorneys general from 19 US states sent a letter to the asset management giant arguing that ESG investing damages energy companies by pushing for lower carbon emissions, raising the question of whether investor pressure violates antitrust laws.

“While couched in language about long-term value, BlackRock’s alignment of engagement priorities with environmental and social goals, such as the UN’s Sustainable Development Goals, suggests at a minimum a mixed motive,” the letter said. “BlackRock’s actions appear to intentionally restrain and harm the competitiveness of the energy markets.″

As more companies are pushed to acquire carbon credits to meet their Net Zero goals, the drive to generate more credits will continue, as a shortage likely looms ahead.

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