Introducing the BeZero Carbon Ex Ante Rating

Independent carbon ratings are gaining importance in the $2bn secondary market for voluntary carbon credits. They are helping the market assess the carbon quality and risk of credits issued by various projects. This is an important first step in the development of the Voluntary Carbon Market (VCM).

But for every dollar transacted in the secondary market, an estimated three to five dollars is invested in the primary market. It is here project developers, investors and end buyers fund or agree large-scale forward purchases of an ever growing number of projects from design stage to pre-implementation. 

Industry reports estimate as much as $26 billion of long term capital sought a home in carbon assets in 2022. 

To date, the primary market for voluntary carbon credits has operated without a formal and standardised language of risk. Pricing and investment decisions are primarily based on in-house due diligence often with the help of consultants. 

There are no independent, third party ratings typical of a mature, scaled financial market. 

This needs to change. The primary market needs a formal language of risk. It needs independent carbon ratings.

BeZero Carbon, in its role as the pioneering global rating agency, is introducing BeZero Carbon Ex Ante Ratings to meet this need. 

Just as the BeZero Carbon Rating is currently the market’s number one risk metric for assessing the relative quality of credits already issued, the BeZero Carbon Ex Ante Rating (BCeR) will be the reference risk metric for assessing the relative quality of credits yet to be issued. 

This is a significant moment for the VCM. 

Our assessment will formally bring together the carbon efficacy risk to the credits issued by a project along with the risk of a project getting implemented, i.e. project execution risk.

Project execution risk is a very well established concept in financial markets. A formal assessment of this risk and establishing its interplay with a project’s operating cash flows have been one of the key drivers enabling the flow of finance to infrastructure projects - energy, toll roads, waterways, digital infrastructure, social infrastructure etc.

Bringing this well-established financial markets concept to the VCM via the BeZero Carbon Ex Ante Rating will in a similar vein accelerate the flow of capital to the environmental markets. 

Project developers, investors and end buyers are all very excited about BeZero Carbon Ex Ante Ratings - we have been flooded with interest and have already rated three projects, with more in the pipeline.

The Voluntary Carbon Market is a key component of ‘Climate Infrastructure’, along with cap and trade Emission Trading Systems, Article 6 credits etc. 

To be recognised as ‘Climate Infrastructure’ would imply significant increase in the flow of much required capital to the segment. BeZero Carbon Ex Ante Ratings will facilitate this recognition. 

Hear more from Mani in the video below

References:

The State of the Carbon Developer Ecosystem, Abatable (2023)

Refinitiv Carbon Market Year in Review 2022

The Voluntary Carbon Market: insights and trends, Shell and BCG (2022)