The conversation between Martin, CEO of Cambridge House, and Anthony Milewski, founder of Carbon Advisors, centers around the rapidly emerging carbon market. As a seasoned investor with a strong background in commodities trading, Milewski brings his wealth of experience and growing interest in the carbon markets to the fore.
Milewski believes that the drive towards a greener future has sparked a bull market in commodities like copper, cobalt, nickel, and carbon. These commodities, essential in new technologies supporting a more sustainable future, each hold unique supply and demand dynamics and should be individually evaluated in terms of investment value. Milewski advises a portfolio approach, combining big, liquid names with more speculative ones, providing a balanced risk profile.
The conversation dives deeper into the intricacies of carbon markets, distinguishing between compliance markets and voluntary markets. Compliance markets, controlled by government entities, require companies within their jurisdiction to offset their carbon footprints, leading to a trading environment heavily influenced by political dynamics. Voluntary markets, however, exist as companies voluntarily decide to offset their carbon emissions as part of their environmental, social, and governance (ESG) commitments. Despite being “voluntary,” these commitments are often necessary for companies seeking investment from major financial players.
Milewski explains that the price of voluntary carbon credits, often generated through nature-based solutions or fuel type changes, varies based on their “charismatic value” – essentially their marketing potential. He predicts a convergence of prices between voluntary and compliance carbon credits due to increasing corporate commitments to offset carbon footprints and lagging supply in the voluntary market. This, he believes, could eventually spur the development of mechanical carbon capture technologies, likely viable once carbon prices reach $150 per metric ton.
The conversation then veers towards investing in carbon credits, with Milewski advising caution and due diligence. He suggests asking who verifies the credits, scrutinizing the business model, and ascertaining if it complies with recognized standards like Verra or Gold Standard. Experience matters – teams that have successfully navigated the carbon credit verification process are preferable.
Milewski further elaborates on the dynamics of carbon credit values. The marketability or charisma of carbon credits largely determines their premium, a factor which can be tricky to predict. Moreover, the concept of “retirement” of carbon credits – when a company uses a credit to offset its emissions and removes it from circulation – is introduced.
Towards the end, Milewski and Martin briefly discuss the business models of Carbon Streaming Corp and Global Carbon Credits. These companies serve as examples of the different ways to approach and benefit from the rise in carbon credit prices.
For those interested in delving further into the carbon market, Milewski invites inquiries on Twitter, showcasing his commitment to fostering greater understanding and smart investment in this rapidly evolving market.
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