In our latest webinar, we explored how carbon as a commodity is shaping the future of the Voluntary Carbon Market, driving innovation in investment structures, enabling risk management, and offering measurable climate impact in a maturing market. The panel went on to discuss infrastructure utilised for the generation, transfer and retirement of credits, digitilisation of the carbon market ecosystem and the impacts of commoditisation and carbon as a financial asset.
During the session we received a lot of interesting questions from the audience that we were unable to cover live and passed on to the panellists to answer. Below is a selection of questions and responses from Northern Trust and Bayer. We will follow up with a part two of this blog with some more responses and feedback from the other panellists soon, so look out for that! In the meantime, let's explore some feedback from Northern Trust and Bayer CropScienece.
Audience questions for the panel
Can you share what in your opinion is currently the most critical infrastructure gap in today's carbon credit market that prevents them from functioning like a mature commodity or financial market?
Northern Trust response: Flexible infrastructure that allows for the segregation of roles in standard-setting (Standard Bodies/Crediting Programmes) and credit ‘issuance’ (Registries) is critical to remove conflicts of interest in the VCM, whilst providing the guardrails for scale and growth. Automation of the end-to-end digital lifecycle management for digital voluntary carbon credits (VCC) is vital for providing both project developers and buyers with confidence and transparency throughout the lifecycle of their VCC transactions. Infrastructure that supports clearly defined and designated custody is important in simplifying manual processes and streamlining participant interaction, and secure settlement.
The development of robust dMRV providers, with fully embedded and audited verification of project data and clear transparency to the buyers in the market of data items, ensure the VCC validity is clear to see. The inclusion of data driven ‘additional benefits’ also drives additional value and would, in time, allow these additional benefits to be purchased separately to the emission claim.
Northern Trust can clearly confirm the nature of the property right of the intangible commodity, and that it can be treated as a financial asset within the Northern Trust Carbon Ecosystem. A positive step towards creating a marketplace more aligned to existing asset classes which can use existing financial infrastructures to enhance the size and scope of the VCM.
Northern Trust has started to fill a critical infrastructure gap in today’s market that addresses the recordation, transaction, clarity, transparency, and Delivery vs. Payment settlement of digital VCC transactions.
Will the registry platforms of each certifier used to trade credits between buyers be integrated into the compliance market of 6.4 or will they keep selling exclusively for the VCM?
Northern Trust response: The Northern Trust registry and settlement infrastructure is asset agnostic and can therefore be modified for use across multiple environmental markets.
How are project developers classifying credits as an asset on financial statements throughout the project lifecycle (upon validation and after verification)? As a % of market value at validation, true market value after verification? How are people identifying 'market price' in these scenarios?
Northern Trust response: Typically, project developers will recognise VCC as intangible assets on their balance sheets upon verification.
Creating digital VCC as financial assets gives market participants the opportunity to use inventory as collateral at both ex-ante and ex-post stages and contribute to more robust price signals and better price discovery for project developers and buyers.
To what extent will digitized methodologies be able to gather data -- such as, for example, site-specific fNRB data -- to feed into design?
Northern Trust response: Digitised methodologies are an innovative approach to climate mitigation assessment, expanding on existing carbon standards. Projects can be evaluated universally and objectively, rather than by pathway-specific methodologies – this allows for easier comparisons between projects, whatever the project type and technology. Assessments can be made to evaluate a projects impact on the climate, as well as whether the project activities match a methodology.
Northern Trust has been working with project developers and their data collection providers to streamline the generation of verified carbon credits to enable more automation in the VCM. The Northern Trust Carbon Ecosystem was able to receive data and record verified carbon credits in near real-time from participating providers, with the associated data attributes captured and stored on individual credits for accuracy and transparency. These data attributes encompass precise measurements including carbon dioxide capture flow rates, power consumed to capture the carbon dioxide and parameters critical for robust verification and traceability, such as when and where the carbon was captured.
Can carbon credits registered in Northern Trust be considered as a regulated asset class? If so, what does that mean in practical terms?
Northern Trust response: VCC are classified as non-financial commodities under the Commodity Exchange Act (CEA) and are subject to Commodity Futures Trading Commission (CFTC) regulation, and hence do not qualify as securities. Furthermore, creating a digital representation does not impact the categorisation of VCC as a commodity, nor augment its characterisation. Under the Northern Trust structure this means that the emission claim is embedded into the Digital VCC and under our legal framework this asset can be treated as a financial asset. In practical terms this means that certain benefits can be derived:
- Custodian banks like Northern Trust can provide custodial services to the asset, including but not limited to services such as: recordation, storage, safekeeping, recordkeeping, and reporting
- The asset can be used as collateral; whereby project developers can leverage them to secure financing for various purposes e.g., expanding operations or investing in further emissions reduction projects.
- Ex-Ante credits are deemed to also be Financial Assets; however, they do not possess the emission claim element and so cannot be used to offset. They can be transacted by the project developer, allowing funds to be gathered earlier in the credit lifecycle, as well as generating additional revenue as a percentage of follow-on transactions. However, this contains a higher risk to the purchaser of any ex-Ante credits as they do not contain any emission claim, but insurance could be added to help mitigate some of that risk.
What mechanisms, standards or technology can be used to avoid double counting especially in light of Article 6. Can the digital platform enforce any safeguards to make sure the credits are trustworthy? Have you experienced any issues with double counting of projects registered in the platform?
Northern Trust response: Double counting is a well-known risk in the broader VCM. Northern Trust are pleased to report that we have not had any double counting incidents. We apply a robust risk mitigation process to both our solution and participants to ensure that credits are only recorded in one place at any one time and as permitted by the rules of the applicable standard, governance, or registry system rules.
At Northern Trust we are careful to ensure that the project developer or proponent has full legal ownership of the emission claims and that they have the correct carbon rights in place to hold and sell those emission claims.
When providing participants with direct access to the ecosystem, we execute bank-grade AML/KYC checks on all entities before proceeding with any commercial relationship. Our solution can append insurance and warranty provisions taken out by the project developer to the digital VCC, further mitigating potential risk. Policy details e.g., policy start, and end dates can be ‘wrapped’ into on the digital VCC as it is recorded, and triggered moments before any transfer of ownership occurs to maximise the policy term.
Finally, all participants agree to clear Terms of Service which specify how fraudulent or deliberately negligent actions are dealt with by the necessary legal recourse.
In the case in which data is received in real time from a digital MRV provider, do you still use a verifier?
Northern Trust response: An ISO 14065 certified Validation and Verification Body is required to verify data against ISO 14064 for projects receiving data via a digital MRV provider. The project type and methodology will dictate whether this verification is performed remotely or locally.
Northern Trust recently completed a POV where we were able to generate digital credits in near real-time on The Northern Trust Carbon Ecosystem™. By collaborating with Mangrove Systems, a digital measurement, reporting and verification (dMRV) solution for project developers focused on carbon dioxide removal and carbon storage, and The Carbon Removers, a UK-based project developer which captures, removes and sequesters biogenic carbon, Northern Trust were able to enable a more automated and timely recordation of the carbon credits generated from The Carbon Removers’ carbon capture plants located at a Scottish distillery. Real-time data from the plants was collated automatically by Mangrove’s dMRV system and mapped against The Carbon Removers’ protocol. The data was then sent to Northern Trust to generate digital credits, leveraging the detailed data and evidence related to the carbon dioxide capture and sequestration provided by Mangrove Systems. These were not verified credits, but a representation of the carbon dioxide captured during the fermentation process. In time, when Mangrove have embedded a verification process into its application, they would be able to provide the registries with verified data and a verification stamp, so allowing for Digital VCC to be generated in close to real time.
As a company with SBTi targets, what incentive does Bayer have to purchase and retire carbon credits? Is BVCM enough?
Bayer response: In December 2019, Bayer announced a comprehensive climate strategy including the target to achieve climate neutrality by 2030. Reducing our own emissions is the central element in this strategy and is our top priority. The remaining emissions will be compensated by carbon offsets. For more information on Bayer’s Offsetting Approach, please visit: https://www.bayer.com/sites/default/files/2025-03-02-com-offsetting-publication-feb-0.pdf.
Reminder - you can now watch the full webinar recording here!