In February 2022, NGP ETP participated in the financing of the combination of Element Markets and Bluesource, creating one of the largest decarbonization platforms in North America.
Governments and Companies Commit to Net Zero Emissions, but Proven Technologies Only Address 25% of the Problem.
Today, countries representing 92% of global emissions and 93% of global GDP have made some form of a net zero emissions commitment[1]. Similarly, large groups of investors and corporations worldwide have pledged to eliminate the carbon emissions from their portfolios and operations. While many of the technologies necessary to achieve net zero already exist, most of these technologies remain early in development. The International Energy Agency suggests only a quarter of today’s emissions can be eliminated using technologies they classify as “mature”[2].
Organizing and allocating the estimated $275 trillion[3] in capital required to achieve a 1.5-degree emissions trajectory represents a monumental challenge, and not all industries are equally positioned to achieve decarbonization on the same slope or at the same cost. And even after accounting for the expected (and unprecedented) scaling of renewable power, electric vehicles, energy storage, and energy efficiency technologies – most forecasts still point to the need for 5-10 gigatons or more of carbon removals each year to neutralize the residual emissions that will persist.
Environmental Commodities are Critical to Achieving Net Zero Commitments and are Projected to Grow 100x by 2050. Environmental commodities – such as carbon credits, low carbon fuels and renewable energy credits – are critical to achieving net zero emissions goals. Environmental commodities are a non-tangible certificate of environmental benefit that can be created, valued and traded. In compliance markets, local, regional and national regulators administer economic programs to facilitate the development and purchase of environmental commodities with the goal of reducing regional or sector-wide emissions. In voluntary markets, independent registries set verification standards for what activities are eligible to earn environmental commodities, like carbon credits, and issue and house those credits until they are retired by individual or corporate emitters. Environmental commodities create financial incentives for businesses to deliver specific, desired environmental outcomes like reducing carbon emissions or creating and distributing low carbon fuels. Achieving those outcomes creates credits which can then be sold, compensating the originator for their investment and effort.
Environmental commodities reduce the overall cost of achieving net zero goals by providing financial incentives to those who are economically best positioned to deliver the desired environmental outcomes. In the absence of environmental commodities, each party would need to deliver the environmental outcome independently (and at higher costs on average), and there would be no incentive for outperformance.
Over the last 25 years, environmental commodities have grown dramatically in scope and sophistication, and today, are used in both regulated and voluntary markets. Rapid growth is projected to continue. According to the Taskforce for Scaling Voluntary Carbon Markets, for example, the voluntary carbon market needs to increase a further 15x by 2030 and 100x by 2050 to achieve net zero.
Element Markets is a Global Leader in Environmental Credits.
Element Markets (“Element”) is a leading marketer across environmental commodities – including credits associated with renewable natural gas, carbon, low carbon fuels, renewable energy and local air quality. We invested in Element to provide its world-class management team with the capital to continue its rapid growth and innovation, and to merge with Bluesource. Bluesource is the largest developer of carbon offsets in North America with deep expertise in project development and nature-based solutions. The combination of Element and Bluesource will create a vertically integrated market leader, positioning the combined company as a one-stop-shop for environmental and decarbonization solutions to the rapidly expanding universe of public and private demand. Importantly, we expect environmental commodities like carbon credits to be held to increasingly rigorous standards over time. Therefore, to maintain their entitlement to enabling lower cost decarbonization, credits must be able to demonstrate efficacy and quality across a range of key attributes. Element and Bluesource are well-established leaders in delivering high quality environmental products to the market and have the scientific and operational expertise to continue to innovate in the future. We’re delighted to partner with the outstanding teams at Element and Bluesource to help them continue to grow and innovate their business and to make a meaningful difference in the global fight against climate change.
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Learn more about Element Markets: https://elementmarkets.com/
About NGP ETP
NGP ETP focuses on investments that are part of the global transition toward a lower carbon economy. NGP ETP partners with top tier management teams and invests growth equity in companies that drive or enable the growth of renewable energy, the electrification of our economy or the efficient use of energy. Founded in 2005, NGP ETP is one of the most experienced energy transition investors in the industry.
For additional information, visit www.ngpenergycapital.com/energy-transition.
[1] Includes EU as a whole. Post-COP26 Snapshot, Net Zero Tracker. Energy and Climate Intelligence Unit, Data-Driven EnviroLab, NewClimate Institute, Oxford Net Zero. November, 2021.
[2] IEA (2020), Energy Technology Perspectives 2020, IEA, Paris.
[3] McKinsey & Company, The net-zero transition: What it would cost, what it would bring, January 2022.