Glossary

Offset Pricing Monthly Market Digest – July 2020

Offset Pricing Monthly Market Digest – July 2020

Offset Pricing Monthly Market Digest – July 2020

Offset Supply Information:

All CCOs issued to date: 190.98 million
Compliance credits awaiting issuance: 23.12 million

 

CA and General Market Commentary:

  • ARB’s next auction will be in August. With futures for August delivery trading at $16.83, $0.15 above the $16.68 auction floor price, it appears likely that the auction will see a substantially higher bid-to-cover ratio than the .37 seen at the May auction.  It may even be fully subscribed (a bid-to-cover ratio of 1.00 or higher), but a clearing price materially higher than the minimum $16.68 floor seems unlikely given lower emissions in 2020 during the pandemic and given the large number of allowances that traded at a discount below the floor price on the futures exchange during the March-May period.
  • ARB has begun marking CCOs as “DEBs” or non-DEBs in their tracking software and reports. This allows buyers to know whether the credits they are buying have been determined to meet the requirements.  Offset projects that are located in California will automatically be marked as “DEBs”, while other projects can petition to have a determination made if the developer believes they should qualify.
  • Due to ARB beginning to mark credits as “DEBs”, we would expect that the market will begin to differentiate between the two categories, and we will begin adding prices for both categories to this report if/when the market begins to price them differently.

ClimeCo Corporation is a respected project developer, advisor and trader of environmental commodity market products. Specialized expertise in regional criteria pollutant trading programs, California cap‐and‐trade, voluntary markets and project development and financing of internal CO2 abatement systems complement ClimeCo’s diverse commodity portfolio. Within the Climate Action Reserve, ClimeCo is the largest developer of U.S. GHG‐offset projects and producer of U.S. voluntary carbon offsets, managing projects that reduce more than four million tonnes of CO2e per year. For information, contact 484‐415‐0501 or nmarshall@climeco.com.

Financial Due Diligence: Evaluating Environmental Opportunities and Risks

Financial Due Diligence: Evaluating Environmental Opportunities and Risks

Financial Due Diligence: Evaluating Environmental Opportunities and Risks


by Derek Six, Chief Business Officer | July 29th, 2020

Financial Due Diligence: Evaluating Environmental Opportunities and Risks

Over the past few years, we have observed a substantial increase in inquiries from Private Equity firms, Investment Advisors, and Mutual Fund managers seeking to better understand the environmental opportunities and risks related to investments in potential target firms.  Providing advice in this area has become one of the most interesting aspects of ClimeCo’s Policy & Advisory practice.  The subject has historically been nebulous and abstract, as many clients struggle to define environmental opportunities and risks, so getting started on this line of inquiry can be difficult.

Environmental Opportunities and Risks

So, what do we mean by the term “environmental opportunities and risks?”  In its simplest form, it can be defined as the impact, either positive or negative, that environmental markets and regulations may have on the value of a portfolio of assets.  While it is common practice to include an environmental assessment to identify potential liabilities associated with a targeted acquisition, we have found that surprisingly little attention is often paid to the potential opportunities and risks posed by environmental markets … those markets that facilitate the trading of environmental assets.


At ClimeCo, we believe in the power of financial markets to solve environmental challenges.  With this lens in mind, our approach to defining the question focuses on what types of environmental markets might impact the firm in question, whether positively or negatively.

For example:

  • Is the firm regulated under any local emission/pollution reduction programs?
  • Is the firm regulated under any state, regional, or national GHG cap and trade programs?
  • Does the firm have a technology or service that could assist other firms in these markets?
  • Is the firm likely to be pressured by consumers or other stakeholders to take voluntary action to address environmental impacts, or could it find a competitive advantage in doing so?
  • Are there opportunities where addressing environmental impacts can ease regulatory or permitting efforts?

As you can see, the analysis can be complex and requires a deep understanding of the various environmental markets to which a firm might be subject.  ClimeCo takes a unique approach to these questions, flipping the basic question on its head: rather than seeing only risks, we also search for opportunities and value.  Environmental markets provide incentives for firms to improve their operations, and they often convey valuable environmental property rights.

What Firms Should Be Aware Of

We often find that firms are unaware of some of the rights that they might hold.  As an example, a firm considering the shuttering of a manufacturing facility would not typically do so without attempting to sell and maximize the disposal value of the tangible assets on site.  However, we find that they commonly ignore the value of various intangible environmental permits the facility holds.  In regions where there are markets for permit capacity, these can be of significant value but only if sold in a timely manner.


More recently, the bulk of these types of inquiries have come from investment firms seeking to understand the potential impacts of current and proposed climate change legislation.  Entities doing business and/or located in California, Quebec, Alberta, or the US northeast region are likely to be impacted, though there are other states that are seeking to follow suit.  For example, California has comprehensive climate legislation in place; this legislation includes a Cap and Trade program for GHGs with transparent market pricing, as well as a myriad of other complementary programs and regulations.  For some entities that fall into this compliance program, there are provisions for free Allowances (permits to emit one metric ton of CO2e) based on historic emissions while, for others, allocations can be purchased at auction by the state or through a robust secondary spot and futures market. Meanwhile, firms that reside in the state but do not fall within the parameters of the compliance program may have the option to opt-in to the program to capitalize on market opportunities.  Therefore, firms need to understand the impact of this market on their own operations as well as on their supply chains, customers, and utility providers. 

Markets such as these provide opportunities, as there is tangible value in reducing GHG emissions, providing services to these market programs, or providing technologies to these markets.  Helping firms to understand future pricing expectations, potential regulatory changes, and market engagement strategies is one of the most interesting things that we do.

Regardless of what type of firm you are considering investing in, or where that firm has operations, understanding potential environmental market opportunities and risks should no longer be a pro-forma checkbox on your diligence list.  This should be an important lens through which to view every aspect of a firm’s income statement and balance sheet.

About the Author

Derek Six serves as Chief Business Officer at ClimeCo, where he leads the company’s cross-cutting business functions, as well as the firm’s ODS management program and private equity fund. He holds an MBA in investment management and portfolio analysis from Pennsylvania State University’s Smeal College of Business.

Offset Pricing Monthly Market Digest – July 2020

Offset Pricing Monthly Market Digest – June 2020

Offset Pricing Monthly Market Digest – June 2020



Offset Supply Information:

All CCOs issued to date: 188.11 million
Compliance credits awaiting issuance: 22.24 million

CA and General Market Commentary:

  • ARB issued 2.05 million CCOs in June, a light month, and the ROC backlog decreased by over 1 million credits as new ROC issuances were low in June at 1.08 million.
  • ARB’s next auction will be in August.
  • ARB has announced that starting at the end of July, ARB will begin marking CCOs as “DEBs” or non-DEBs in their tracking software and reports. This will allow buyers to know whether the credits they are buying have been determined to meet the requirements.  Offset projects that are located in California will automatically be marked as “DEBs”, while other projects can petition to have a determination made if the developer believes they should qualify.
  • Due to ARB beginning to mark credits as “DEBs”, we would expect that the market will begin to differentiate between the two categories, and we will begin adding prices for both categories to this report if/when the market begins to price them differently.

ClimeCo Corporation is a respected project developer, advisor and trader of environmental commodity market products. Specialized expertise in regional criteria pollutant trading programs, California cap‐and‐trade, voluntary markets and project development and financing of internal CO2 abatement systems complement ClimeCo’s diverse commodity portfolio. Within the Climate Action Reserve, ClimeCo is the largest developer of U.S. GHG‐offset projects and producer of U.S. voluntary carbon offsets, managing projects that reduce more than four million tonnes of CO2e per year. For information, contact 484‐415‐0501 or nmarshall@climeco.com.

A New Tool for Rangeland Trusts

A New Tool for Rangeland Trusts

A New Tool for Rangeland Trusts


by David Priddy, Vice President of Business Development | June 24th, 2020

A New Tool for Rangeland Trusts

The prairies of the western United States, consisting of millions of acres of grassland, habitat, and complex ecosystems, have supported ranchers and their families for generations.  A symbol of pride, freedom, and independence, the prairies have sustained the American ranching lifestyle – a lifestyle that promotes hard and honest work, strong family values, and resilient communities.  Unfortunately, this lifestyle that embodies images of the old west and the growth of America is in jeopardy.

You see, prairies in the U.S. are quickly disappearing because they are being converted into farmland, though invasive species, overgrazing, and climate change are also culprits.  Many ranchers struggle to hold on to their family legacy due to rising property taxes, as the next generation considers other career options.  All of this contributes to a lifestyle that is sadly fading away.

A New Tool for the Toolbox

Rangeland trusts and other organizations dedicated to preserving the land and its legacy work tirelessly to combat this problem through the implementation and management of conservation easements.  Now, these organizations have a new means available to them that can further incentivize landowners to consider easements on their property.  This new tool utilizes the power of environmental markets by promoting good ranching practices that sequester carbon in the soil.  This can result in the development of carbon offsets, which are units of greenhouse gases that are prevented from being released into the atmosphere, the rights to which can be purchased and applied by another entity.  These offsets are typically sold to organizations that desire to voluntarily mitigate, or “offset”, their carbon footprint, the proceeds from which can generate additional revenue streams for ranchers. With more and more corporations and not-for-profit organizations committing to carbon-neutral goals, the demand for offsets continues to grow.

The process for developing grassland-based carbon offset projects on ranchland is a straight-forward one.  First, a property is evaluated for its eligibility and project feasibility by a facilitator such as ClimeCo, and then a financial proforma is developed and presented to the rancher and land trust partner.  Once the decision has been made by the landowner to proceed, the land trust will work to implement an easement that restricts the future tillage of the land.  After this is in place, the project developer will coordinate all subsequent steps, to include independent, 3rd-party project verification and then registration, certification, and monetization of the credits.  Depending on the project and the desires of the landowner, the developer may also choose to invest in the project to cover the upfront development costs, to include the implementation of the easement, thus removing a potential barrier for the landowner.

These offset projects can present multiple benefits to the rangeland trust:

  • First, the revenues from these projects may combine with Agricultural Conservation Easement Program (ACEP) funding to entice ranchers to preserve more land.
  • Secondly, the upfront payments to cover the cost of implementing and maintaining the easement can help address a typical hurdle faced by many landowners.
  • Finally, knowing that the project facilitator will handle all the activities outside of what the land trust does best will provide them with peace of mind.

Like ranchers, rangeland trusts must rely on tools of the trade in order to advance the preservation of our nation’s grasslands.  ClimeCo’s grassland offset program provides the latest tool for the land trust’s toolbox and we are ready to help you on your next preservation effort.

To learn more about grasslands preservation, please contact us.

About the Author

Dave Priddy is ClimeCo’s Vice President of Business Development. He has more than 25 years of experience in the environmental management field.  He is responsible for the strategy, development, and promotion of ClimeCo’s Nature-based Solutions initiative, and for developing mutually-beneficial partnerships with both landowners and conservation organizations that result in projects that generate positive environmental attributes. David holds a B.S. in Engineering from the University of Louisiana, Lafayette.

Offset Pricing Monthly Market Digest – July 2020

Offset Pricing Monthly Market Digest – May 2020

Offset Pricing Monthly Market Digest – May 2020

Offset Supply Information:

All CCOs issued to date: 186.06 million
Compliance credits awaiting issuance: 23.48 million

CA and General Market Commentary:

  • ARB issued 11.6 million CCOs in May, a relatively high monthly total that substantially reduced the ROC backlog from 32.84 million last month to 23.48 million this month.
  • ARB announced the results of the May CCA auction on May 28th. The auction for both current and future vintage CCAs failed to sell out, so the clearing price was the minimum reserve price of $16.68.  The bid-to-cover ratio was .37, meaning that 37% of the auctioned current vintage allowances sold.  Given that CCAs on the futures market had traded below $16.68 during April and May, it was to be expected that entities would have limited need to purchase CCAs at this auction.
  • ARB’s next auction will be in August, and with CCA futures trading above the auction reserve price currently, a more fully-subscribed auction is likely in August.

ClimeCo Corporation is a respected project developer, advisor and trader of environmental commodity market products. Specialized expertise in regional criteria pollutant trading programs, California cap‐and‐trade, voluntary markets and project development and financing of internal CO2 abatement systems complement ClimeCo’s diverse commodity portfolio. Within the Climate Action Reserve, ClimeCo is the largest developer of U.S. GHG‐offset projects and producer of U.S. voluntary carbon offsets, managing projects that reduce more than four million tonnes of CO2e per year. For information, contact 484‐415‐0501 or nmarshall@climeco.com.