From Finance to Climate: Reflections from my Time at BeZero Carbon
Since studying abroad in London this semester, I have been doing an internship for credit. Working two days a week at BeZero Carbon opened my eyes to the world of carbon markets, a space I knew very little about just a few months ago. BeZero Carbon is a global carbon ratings agency founded in 2020 by Tommy Ricketts and Sebastien Cross. Carbon ratings function similarly to financial institutions’ credit ratings; rather than assessing debt repayments, carbon ratings evaluate risks associated with green projects.
Before starting my internship at BeZero Carbon, I only had a high-level understanding of carbon markets. I briefly learned about Article 6 of the Paris Agreement in a foreign policy class. Under Article 6, an international carbon market is created where countries can cooperate voluntarily to reach their carbon targets. Especially during the past two weeks of COP29, the annual UN Climate Change Conference, held from 11-22 November in Azerbaijan this year, diving into carbon markets and learning about the inspiration for BeZero Carbon has been absolutely intriguing.
As an intern on the policy team, I conducted research to understand the role of carbon markets in the climate movement. 1970 was a revolutionary year for the climate movement. Nearly 20 million people around the United States took a step against political inaction to reverse climate damage. After establishing awareness for the climate movement in the 1970s, the question remained - which areas of climate change should be targeted first?
A focus on carbon emissions was launched in the 1990s. By 1997, the United Nations Framework Convention on Climate Change (UNFCCC) adopted the Kyoto Protocol’s Clean Development Mechanism (CDM), establishing emissions trading between countries to reach their emissions reduction targets. Each carbon credit represents one ton of CO2 emissions. Entities generating carbon credits can sell credits to governments, the private sector, or individuals, allowing the purchaser to emit a set amount of CO2. Carbon credits can be transacted on voluntary or mandated bases.
Speaking to my managers, Lily Ginsberg-Keig and Joel Gould, in the week prior to them attending COP29, I tried to understand the state of Article 6 carbon market negotiations. Article 6 of the Paris Agreement was first introduced at COP21 in 2015 to replace the CDM from nearly 20 years prior. As Lily explained, a main priority going into COP29 was “for delegates to draw conclusions and operationalize Article 6.4 of the Paris Agreement, which would introduce a global carbon market.” Under Article 6, Internationally Transferred Mitigation Outcomes (ITMO) units are created, each representing a ton of greenhouse gas (GHG) reductions or removals from the atmosphere. Countries which achieve emission reductions beyond their targets can sell ITMOs to countries which have yet to meet their emissions targets.
Article 6.4 was in fact authorized at COP29 this year. Lily emphasizes how “the Paris Agreement enforces higher benchmarks than what was under CDM.” Such a progression could catalyze shifts in carbon market progressions, driving carbon credit trades and innovative climate technology.
However, even with Article 6 enforced, each project has personalized risks. BeZero Carbon therefore specializes in project-based risk assessment. BeZero Carbon has several divisions. While I intern on the Government and Market Engagements (GME) team, the majority of the company is composed of climate scientists. Carbon projects are dynamic, necessitating a wide range of expertise in sectors such as forestry, industrial manufacturing, or geospatial. Project-level ratings are a risk management tool for climate projects and investors.With Tommy and Sebastien working in the financial sector before founding BeZero Carbon, it intrigues me to draw the connections between carbon and financial credit ratings. Both have common goals to manage risk, increase market transparency, and align price with credit quality. Although ironic, many of the capitalist mechanisms which caused climate change seem to be applicable to reversing climate damage.
Society now seems to be in a position to combat climate-related negative externalities before they are completely irreversible. The 21st century is marked by innovation in the climate technology sector. From 2020 to 2023, 1,500 carbon credits projects were developed or registered in five leading carbon registries, a 160% increase since the 2012 to 2020 period. However, in the age of artificial intelligence (AI) and machine learning, such sectors have seen more venture capital and private equity activity than in climate technology. As Joel put it, “investing in climate tech is an example of the ‘value of death.’” Climate tech is expensive and requires heavy first stage funding. Venture capitalists are therefore wary to take the risk, rather investing in AI seems concretely profitable. The pay-off for AI is immediate compared to the patience required to see climate tech’s long-term returns.
Capitalist driven competition is the reality of modern day society. After interning at BeZero Carbon, I better grasp the “social entrepreneurship” discussed in university courses. I also see how it is up to our generations to venture into the unknown of the climate world, creating companies like BeZero Carbon. As a Business and Political Economy student, it is the perfect time to understand the politics and economics behind climate reversal through the carbon market.
References:
https://unfccc.int/process/the-kyoto-protocol/mechanisms/emissions-trading
https://carboncredits.com/who-issues-carbon-credits-everything-you-need-to-know/
https://allcottrading.com/uncategorized-en/difference-carbon-credits-itmos/#:~:text=ITMOs%20(Internationally%20Transferred%20Mitigation%20Outcomes):,meet%20their%20emission%20reduction%20commitments.
