Virtus: Scaling Regulated Carbon Markets to Drive Climate Action
Welcome to the August edition of Virtus!
As summer continues, we’re turning up the heat on critical topics in climate finance.
This month, our “Our Take” focuses on the need for expanding regulated carbon markets around the world and their potential to drive meaningful climate action through real emission reductions and the circulation of critical climate finance.
In “What We’re Absorbing,” we present fresh new articles on nature-based credit markets, the potential of integrating trees into agriculture for carbon removal, strategies to avoid over-reliance on carbon removal, and the concept of a Carbon Removal Budget to guide equitable and effective climate action.
Our “Climate Finance Deals” section highlights significant deals and commitments from around the globe, with noteworthy activities in Japan, Brazil, Scotland, England, Australia, and Laos.
While our podcast “Untangling Climate Finance” took a break for the summer holidays, we’ll be back in September with a new episode. Stay tuned!
Happy reading!
All the best,
Gordian Knot Strategies
We are Igniting Climate Solutions: Mobilizing $1 Billion Per Year in Impact Investment by 2030!
Well-intentioned groups and individuals around the world are grasping at straws in the search for effective solutions to mitigate and adapt to the ever-intensifying impacts of climate change. For those on the front lines, the urgency is palpable. It grows more acute with every new daunting scientific report and each piece of breaking news about the latest climate disaster felt by communities around the world. No one-size-fits-all climate change solution exists, but we do have established solutions that can help.
The thesis of this essay is straightforward – we must continue to put a price on carbon.
One of the most effective and proven methods to achieve this is through regulated carbon markets. We must not only push for the expansion of existing regulated carbon markets but also advocate for the establishment of new ones in countries around the world, while leveraging the gains from the voluntary carbon market.
Just last week, we wrote about a significant milestone in Egypt – the launch of the first voluntary carbon market in Africa. While voluntary, this market’s creation was far from an isolated initiative; it was heavily supported by various arms of the Egyptian government and the Egyptian stock market. This intertwining of regulation with voluntary efforts is a promising first step for Egypt and the entire continent. As admirable as this new market is, it is not the final step. On the contrary, it’s just the beginning. We need to go further.
To continue reading this essay, click here.
Client Served in the United States
In 2021, Gordian Knot Strategies was engaged by a large land trust on the West Coast. Our scope included helping the group with the design of a forestry fund and the strategy to commercialize the carbon credits from a portfolio of their forest holdings and support the mission to protect, enhance, and steward the land for the benefit of communities and ecosystems. Throughout our close and collaborative engagement, we worked with the client to team to deliver a suite of critical elements that made up a successful carbon program for the organization. The fund was targeting an Assets Under Management (AUM) of $100 million and aimed to restore 100,000 acres of forest and other lands to local indigenous tribes. Our final deliverables included a fund strategy to appeal to corporate investors, a carbon credit commercialization strategy, and clear guidance on how to best create and manage high-impact forest carbon projects.
“The engagement with Gordian Knot Strategies was professional, well organized and incredibly valuable. The knowledge we gained during the engagement moved us leaps ahead of where we were prior to the engagement. We feel significantly more prepared to move our project forward and will be trying to find a way to remain engaged with GKS as we move forward.”
Jim Snyder — Chief Financial Officer (CFO), Savory Institute
This month, we really dug our heels into new articles, papers, and reports covering topics such carbon markets, carbon removal, policy, and agriculture. These insights offer fresh perspectives on how we can effectively tackle our global environmental challenges.
✍️ A paper titled “Nature-based credit markets at a crossroads,” featured in Nature, shines a spotlight on a critical issue in the fight against biodiversity loss. The Kunming-Montreal agreement calls for a halt to this loss, heavily relying on private finance through nature-based credits like carbon offsets. But according to this paper, the current market is at a tipping point. Misaligned incentives and inflated claims are eroding investor trust. The paper advocates for a major overhaul: shifting to a system where credits are only issued for real, scientifically verified environmental gains. While this might reduce the number of credits available, it would ensure they truly contribute to global environmental goals. To make it work, we need stronger regulations, smarter investments, and a commitment to aligning profit with real impact.
✍️ Another paper, “Maximizing Tree Carbon in Croplands and Grazing Lands While Sustaining Yields,” shows the potential to integrate trees into agriculture for significant carbon removal without harming crop yields. Using expert insights, the study estimates that adding trees to over 2.9 billion hectares of farmland could remove up to 100.8 gigatons of CO2 in 30 years—more than annual global car emissions. The research identifies high-potential areas in tropical and temperate zones and stresses the need for careful management to balance climate benefits with agricultural productivity, offering a viable strategy to meet global climate targets.
✍️ “How Separate Climate Targets Can Help Avoid Overreliance on Carbon Removal” is a report that was published by the World Resources Institute. It highlights a crucial strategy for achieving global climate goals. The science is clear: to reach net-zero emissions, deep and rapid emissions reductions must be prioritized, with carbon dioxide removal (CDR) playing a supportive but not substitutive role. The report argues that setting separate targets for emissions reductions and carbon removal can prevent over-reliance on CDR, which some may misuse to delay necessary cuts in fossil fuel use. By clearly defining and tracking these separate targets, governments can provide transparency, avoid moral hazards, and ensure that carbon removal complements rather than competes with emissions reductions, paving the way for a more effective and equitable climate strategy.
✍️ The Carbon Removal Budget: Theory and Practice” is an article published in Carbon Management that sheds light on the critical role of CDR in achieving global net-zero emissions. The authors introduce the concept of a Carbon Removal Budget (CRB) to highlight that CDR is a finite resource, currently in short supply, which complicates our path to net zero. The article explores how CRB can guide decision-makers in ensuring equitable distribution and increasing the supply of quality CDR. It is a must-read for anyone focused on building a sustainable, net-zero future.
This month brought some climate finance deals and commitments from across the world, including in countries such as Japan, Brazil, Scotland, England, Australia, and Laos. Click the article title to access the full story.
$225m Amazon Reforestation Bond Linked to Microsoft CDR Deal
A $225 million bond deal, facilitated by the World Bank, links financial returns to Amazon reforestation, with payments tied to a carbon credit agreement between Brazilian developer Mombak and Microsoft. This innovative nine-year bond integrates fixed and variable interest rates based on carbon removal success, directing $36 million to support Mombak’s reforestation projects. While offering a novel approach to climate finance, the bond carries risks tied to regulatory changes and carbon credit performance in Brazil.
Electricity ‘Superhighway’ Between Scotland and England to go Ahead
The UK’s energy regulator has approved a £4.3 billion subsea electricity “superhighway” that will transmit renewable power from Scotland’s wind farms to 2 million homes in England. This 300-mile Eastern Green Link, the longest subsea power cable in Great Britain, marks the single largest investment in the UK’s electricity grid, crucial for meeting the government’s 2030 net-zero electricity target. Set to begin construction this year, the project will boost energy security and support local communities, with the cable expected to start delivering power by 2029.
Rio Tinto, BHP, Qantas Invest $53 Million in New Nature-Based Carbon Credit Fund
Silva Capital has launched the Silva Carbon Origination Fund, backed by a USD $53 million investment from Rio Tinto, BHP, and Qantas, to generate large-scale, high-integrity carbon credits from nature-based projects in Australia. The fund focuses on reforestation and sustainable agriculture, aiming to develop carbon sequestration projects that enhance farming productivity and biodiversity. With an ultimate goal of raising A$250 million, the fund supports corporate and institutional investors in contributing to Australia’s decarbonization efforts while securing high-quality carbon credits.
UK and Laos Sign Memorandum of Understanding on the Green Economy Framework
The UK and Laos have launched an exciting partnership to advance a green economy and open doors to carbon markets. Through their new memorandum of understanding, they’ll collaborate on energy transition, building climate resilience, sustainable finance, and green urban planning, focusing on developing robust carbon pricing, enhancing climate finance access, and integrating nature-based solutions to support Laos’s ambitious decarbonization and environmental goals.
ByWill Inks Four More Deals to Boost Decarbonization in Japan
Japan-based environmental consultancy ByWill has secured four new agreements to accelerate decarbonization efforts across Japan, focusing on carbon credits. Partnering with Eurus Energy, Musashino Bank, Aomori Bank, and Dai-ichi Life, ByWill will provide carbon credit services and consultancy to help these organizations and their clients meet carbon neutrality goals. These deals are part of ByWill’s broader strategy to support Japan’s carbon neutrality targets, contributing to the growing adoption of carbon credits under the J-Credit scheme to slash emissions by 46% by 2030 and achieve net-zero by 2050.
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