🚨Using the military communication tactic BLUF for a world of busy readers🚨 🆘 In a world where paying for pollution only happens (at scale) if governments mandate it; allowing carbon credits to be used in lieu of a financial emissions liability in government programmes can be a catalyst for building demand (and liquidity) for carbon credits. 🆘 Linking government carbon programmes to increase the number and heterogeneity of participants should increase liquidity and lower transaction costs for all participants. And for those who haven’t stopped reading yet 🫣 In the latest episode of 'New Frontiers in Climate Finance', host Angel Miao discussed the research of Raúl C. Rosales, PhD on the economic and environmental benefits of incorporating the Woodland Carbon Code into the UK ETS. I had the opportunity to talk about demand and liquidity in carbon markets. These are inextricably linked. ⭐️DEMAND⭐️ 😭 You can’t have a market without buyers. 😍The beauty of government mandated carbon mechanisms is that they create demand by identifying the polluter, and take those physical emissions and turn them in to financial liabilities. 👍These financial liabilities are then paid for by acquiring a carbon asset (mostly in the form of an allowance but sometimes in the form of a credit). 👍The purchase of these assets, offset the financial liability. The polluter does not become carbon neutral - they still emitted - but they incur the economic pain of polluting and are therefore incentivised to find lower cost abatement opportunities. 👎Today, the only carbon markets that operate at scale is where the government creates financial liabilities for polluting. 👎We don’t voluntarily create financial liabilities for physical emissions yet (at scale). 👍 👍 Therefore linking carbon credits to a government mandated programme creates demand and starts to build liquidity. ⭐️LIQUIDITY⭐️ More participants and in particular the more heterogeneous the participation typically contribute to better liquidity. Here's why: 👍 With more participants, there are more potential buyers and sellers in the market. This increases the likelihood that someone will be available to take the opposite side of a trade, thus enhancing liquidity. 👍 The more heterogeneous the participation means there are more diverse strategies, risk tolerances, and time horizons. Different needs bring different perspectives of value to the market which can then be expressed through price. 👍👍Better liquidity is characterised by tighter bid-offer spreads, greater market depth, more stable prices (less volatility) and easier execution of trades. 😀 which lowers transaction costs. 🙏 🙏🙏 if you got this far 🙄
🚨 New podcast episode has dropped 🚨 Last week, the UK Emissions Trading Scheme Authority launched a consultation into the potential integration of greenhouse gas removals (GGRs) into the UK ETS, seeking expert views on policy design, cap policy options, and pathways to integration. A key discussion point is whether carbon stored by UK forestry projects under the Woodland Carbon Code should be included. This move by the UK ETS Authority begs the question: what is the rationale for the convergence of the voluntary GGR carbon market and the compliance markets of the UK ETS? 🎙️ In the latest episode of 'New Frontiers in Climate Finance', host Angel Miao speaks with Raúl C. Rosales, CCFI Senior Executive Fellow and Professor of Practice in Net Zero Asset Management at the Net Zero Centre, King's College London. They discuss his research on the economic and environmental benefits of incorporating the Woodland Carbon Code into the UK ETS and his recommendations for UK policymakers to enhance decarbonisation incentives. This episode features insights from: - Richard Kelly (Foresight Sustainable Forestry Company & Foresight Group) - Gordon Bennett (ICE) - Rym M'Hallah (King's College London Faculty of Natural, Mathematical & Engineering Sciences) Tune in to gain valuable perspectives on this significant development in climate policy! 👇 Spotify: https://lnkd.in/eJ3J534b Apple podcast: https://imprl.biz/AppleEp7 Podbean: https://lnkd.in/e7a326Bx #ClimateFinance #NetZero #SustainableForestry #NFCF #ImperialBiz
