BeZero Carbon - Ratings Agency Interview

What is BeZero Carbon?

Ted Christie-Miller - We are a global carbon credit ratings agency for the Voluntary Carbon Market (VCM.) Our founders came from the financial markets, and they identified a fundamental failure in the VCM: the lack of correlation between price and quality. And so, they developed the BeZero Carbon rating, a risk-based metric to evaluate quality in the VCM. We cover the whole market, so for any methodology or project anywhere, think of us as a bit like how S&P or Moody's operate in financial markets, but for the VCM.We have a rating scale that looks a bit like those financial ratings agencies, so ‘AAA,’ which is the highest likelihood of achieving a ton of CO2 equivalent, avoided or removed - down to ‘D’, which is the lowest likelihood. An essential focus for us as a business, and my key focus, is engineered removals. So, we see that as a critical area of growth in the years to come, and we're the only rating agency with ratings in this space. So we've got two public biochar ratings, and we've got a carbon and concrete rating as well. 

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Ratings Criteria

What are the criteria you follow to rate a project on BeZero Carbon, and how do ratings ensure the credibility and environmental impact of projects?

Ted Christie-Miller -  All of our methodologies are in the public domain, so you can see them in more detail on our website, but at a high level, one of the key things we focus on is additionality. That includes investment analysis and policy analysis, looking at the role of Carbon Credit Finance and the likelihood of that project going ahead. We'll look at carbon accounting, which covers everything from over-crediting to leakage risk. Then, the final pillar is a non-permanence risk. The market is broadly divided into two types of credits. Ex-post, which is post-issuance, is where the activity has already happened. And then there is ex-ante, which is pre-assurance. For projects yet to become operational, you're forward selling credits, sometimes in the form of off-takes, sometimes pre-purchases. So, for ex-post credits, there’s the risk that the project fails to fulfil its commitment period. Then for ex-ante ratings, we have project execution risk and a critical factor. That's then applied as a discount rate on the standalone carbon rating.

In terms of ensuring credibility, I wouldn't say ensuring credibility is our job. The ratings themselves are our opinion on the likelihood of a ton of carbon being removed. The majority of credits are high-risk; we've been quite open about that in the market, and so it's not as such that we ensure credibility. We identify the ones that are credible and the ones that potentially are not as well. In terms of a broader environmental impact, it's implicit in the rating itself. However, we also have a separate co-benefits assessment, which evaluates the validity of the claims associated with the project's sustainable development goal.

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Keeping up to Date with New CDR Technologies

In a rapidly evolving industry, how do you stay current with the latest developments and ensure that your ratings agency reflects cutting-edge carbon removal technologies?

Ted Christie-Miller - We've always had a key focus on carbon removal technologies. Over the last few years, we've done a lot of big R&D projects focusing on the space and identifying many of those new and emerging technologies. We published our scalability assessment for carbon removals, looking at five key carbon removal technologies. We looked at the relative scalability and recently published our durability assessments for carbon removal, looking at the different durability of various carbon storage methods. So, from a research perspective, we're always looking at getting deep into the rest of the market. And then, on top of that, we're the only rating agency with a fully-fledged ex-ante offering for pre-issuance credits.  Ninety-nine per cent of the credits being sold in the engineered removal market are ex-ante, so it’s great to have a product that matches that sector. 

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Inclusivity in CDR

How does your platform address the challenge of ensuring inclusivity and diversity in the types of carbon removal projects featured, considering various regions and technological approaches?

Ted Christie-Miller -  We've always taken a technology-agnostic approach. We're the only rating agency that has always really done that, and we've consistently rated everything from cookstoves to renewables, to afforestation, to engineered carbon removals. So, from the get-go, that's always been a focus to be inclusive. My wish for this year in the broader removals space is to get the first rating of a kind for each of those major sub-sectors. In my mind, that includes Direct Air Capture (which we’re looking into), Biochar, (we published the first rating of a biochar project last year), and then the three new ones, which I'd love to be able to do Bioenergy with carbon capture and storage (BECCS), enhanced rock weathering and something ocean-related, maybe direct ocean capture or terrestrial biomass sinking - one of those of solutions as well would be perfect for us. 

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Scaling Investment

What role do you have in boosting confidence in carbon removals and scaling investment?

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‍Ted Christie-Miller -  We published a report about why the sector needs ratings just before Christmas. And there were four pillars that we struck out there. Firstly, ratings enable projects to demonstrate quality. So, as we're looking at projects with relatively high price points, it helps them justify the higher prices of those credits if they get a good rating. We've conducted research showing that ratings and price are now beginning to correlate in the market, and we see that every notch up on the rating scale fetches a 25% premium on that credit. Secondly, ratings will help buyers understand the nuances between very varied methods and technologies. So, understanding the robustness of carbon accounting, the strength of additionality, or some of those risks around non-permanence is essential. Having that nuance is crucial to demonstrate the differences between these projects. 

The third thing is trying to help develop trust and confidence in the voluntary and carbon removal markets. We've had problems with that in the past, and what ratings do is boost transparency and bring integrity to this market. And that will be helpful for removals as it is for anything. 

Finally, ex-ante project ratings for credits that have yet to reach the market will provide lenders with a tool to better price risk and to help project developers unlock vital project finance. That last point is really about trying to get these projects to a stage where they are bankable, where they can get debt financing instead of equity financing, and ratings can be the bridge to help them get there. 

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Policy Support

What is needed to scale investment in high-impact carbon removal initiatives?

Ted Christie-Miller - We can't deny the desperate need for policy support. Some people complain about the amount of policy focussed on carbon removals. Still, in reality, the amount of money invested in carbon removals is barely a crumb on the cake of green investment worldwide by governments. So we need more funding, which is the carrot, but we also need more of the stick. Regulation, especially in the US, has excellent incentives to develop these projects, but the regulation isn’t as good at ensuring the industry scales at pace and that funding isn't wasted.

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Challenges

What's the biggest challenge facing CDR’s science-based solutions, and what is required to scale and solve them?

Ted Christie-Miller - Our scalability assessment report evaluates the scaling barriers for each engineered CDR method. The long and short of it is that each challenge is very method-specific. Here is an example: for direct air capture, the energy element is the core overwhelming barrier. There's no land problem, no massive supply chain issues; there are no significant resource problems apart from that energy point. So that would be crucial. That's why it's exciting to see some of these lower energy requirement solutions, like electrochemical direct air capture, coming to market. Enhanced rock weathering (ERW) involves monitoring, reporting, and verification (MRV). The science is undeniable, but now you must prove that and do the accounting. The focus must be on other things for biomass-related project developers, like Bioenergy Carbon Capture and Storage (BECCS) and Biochar. It needs to be on how sustainable the biomass you're getting is and where you are getting it from. How are you accounting for that? There are many different challenges, and it's unique because you're looking at wildly varied project types.
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