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Kimmeridge Publishes White Paper: “Accelerating the Carbon Market: A Call for a Standardized Rating System for Removal and Avoidance Credits”
August 10, 2023
Proposes a standardized, global rating system for carbon credits, akin to the bond market, with a simple and transparent methodology that accurately quantifies additionality and durability
Would enhance buyer visibility into the offsets they are acquiring and provide developers and sellers with a premium for quality
Companies that are committed to decarbonization should utilize high-integrity offsets to incentivize internal change
NEW YORK and DENVER, Aug. 10, 2023 /PRNewswire/ -- Kimmeridge, an alternative asset manager focused on the energy sector, today published a white paper entitled, Accelerating the Carbon Market: A Call for a Standardized Rating System for Removal and Avoidance Credits.
The paper builds on prior fundamental research from Kimmeridge, which has contributed to important progress towards net zero goals. It also leverages the Firm's informed perspectives, having founded Chestnut, a first of its kind nature-based carbon offset developer and partner, focused on reforestation.
Carbon emissions must be reduced, and without delay. In the fight against climate change, the wholesale reduction of emissions across all sectors is paramount, yet the market is saturated with a host of tactics, making it hard to compare across technologies and projects. Despite what some may believe, this transformation will be enormously complex and will require time. Completely ridding the globe of all emissions by 2050 is simply not feasible or economically rational without scaling the carbon credit market – a market that currently lacks transparency, simplicity and volume. However, a practical solution is right before us – a standardized, global rating system, akin to the bond market, centered on quantifying the environmental integrity of carbon credits using the principles of additionality and durability – the two primary drivers of value.
Ben Dell, founder and managing partner of Kimmeridge, said, "When utilized properly, carbon offsets play a critical role in reaching net-zero goals. A mature and unified carbon credit market can incentivize companies to remove carbon, generate significant co-benefits and accelerate the energy transition through a market-based approach."
Mr. Dell continued, "While offsets are often verified by third party entities, there is little consistency between measures and no standard way to compare and value offsets. Done the right way, via a standardized, global rating system for carbon credits, we can collectively create a level playing field for carbon removal developers and buyers, incentivizing the flow of capital into the most economical carbon removal projects. Such a system would allow for the creation of a single benchmark futures price, with differentials based on the ratings, further accelerating price discovery and removal of carbon – which is what we all want."
Proposed ratings system
Kimmeridge's rating system for additionality (A-E) and durability (1-100+) would make it possible to compare the integrity of offsets across categories, including direct air capture (DAC), point source carbon capture and storage (CCS), and nature-based solutions (NBS), strengthening an opaque market where additionality, durability, and quality are not well understood by offset buyers. Each category of carbon offset comes with trade-offs, especially related to the feasibility of creating significant projects in the near-term. While DAC is theoretically infinitely scalable, it is prohibitively expensive in its current state. Point source CCS is more affordable, however it is only successful at large industrial-sized facilities. Afforestation and reforestation offsets, two forms of NBS removal credits focused on restoring and conserving underperforming land, are less expensive than DAC and CCS, but have been historically limited in supply.
For additional information on Kimmeridge and its proprietary research, please visit www.kimmeridge.com.
Founded in 2012 by Ben Dell, Dr. Neil McMahon and Henry Makansi, Kimmeridge is an alternative asset manager focused on making direct investments in energy in the US. The Firm is differentiated by its direct investment approach, deep technical knowledge, active portfolio management and proprietary research and data gathering. For additional information on Kimmeridge and its proprietary research, please visit www.kimmeridge.com.
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