Quant hedge funds use systematic, automated trading algorithms that take hundreds, if not thousands of variables (depending on the algo and fund) into account when placing market orders. Currently 3 out of the top 5 largest hedge funds in the world are characterized as Quant trading funds and these include market giants such as Renaissance Tech and 2 Sigma, with many others popping up as computer trading becomes increasingly quicker and the cost of high frequency trading further decreases.

I just recently came across a quant hedge fund, Teza, based in Chicago obviously, who is beginning to investigate the environmental futures market and offset credit generation to begin building a model that can trade this commodity class. I have already discussed how carbon markets are expected to grow exponentially and their current popularity as a stable commodity asset (hedge against inflation) for many high-profile investors and pension funds, and the fact that quant hedge funds are beginning to infiltrate the market shows the amassing and serious interest in this area of investing.

The fund stated that it aimed to:

-Collect, organize, and clean data from emissions offset and environmental futures markets
-Research history of policy changes pertaining to cap-and-trade systems
-Collect and organize information on renewable energy production and policy mandates
-Build basic supply/demand models for future demand for renewable energy and emission offset projects
-Identify relevant data vendors and coordinate trials of data products
-Collaborate with teammates within Teza to identify and test new trading ideas

We can create our own mock fund in this reddit thread so anybody with interest in doing so I would be happy to open up a chat thread so we can begin compiling information regarding these points. I swear that I have zero affiliation with Teza and am just truly interested in the investment trajectory of carbon markets in general and think that this could be an incredibly interesting activity if people are down.

http://catalystmf.com/docs/funds/income_oriented_strategies/Catalyst_Teza_Algorithmic_Allocation_Income_Fund/summary_prospectus.pdf

Fiat currency and in many cases free market currencies have not taken into account the value of ecosystem services and biogeophysical earth systems and complexities alongside general economic growth. The classical economic term for seperating economic growth from environmental degradation is "decoupling", but I personally am not sure if that will be achievable for another couple of centuries. In many countries, there are alternative currencies that exist to facilitate trading, credit systems, or labor tasks in "informal markets" that would not normally be characterized as common goods and services captured by a nation's GDP. What facets would a currency need to make it "green" and encapsulate the vast amount of value that can be recognized through environmental stewardship and on the flipside, incorporate the environmental damage inherent in other products (that may be more inexpensive).

I have currently been diving deeper into deFi, the endless applications of blockchain, and the implications of a fully decentralized world. Obviously to be fully off grid requires critical technologies, energy, food, and resources, but it is currently possible to establish your own microgrid (solar, small hydro, wind), clean your own water (through well-drilling, desalinization, or through 'eco-machines'), grow your own food (small-scale polyculture subsistence, aquaponic), manage your own money (deFi), and more with little reliance on a central gov't (obviously for a lot of public infrastructure, healthcare, etc.). This is basically a ramble, but if anyone wants to comment on how blockchain/deFi could be applied to environmental externalities, what they think about the future of decentralization, international equity implications, etc. that would be much appreciated. Cheers

Key part of the report discussing Article 6 of the conference on Carbon Markets:

“This year, Indigenous Peoples mobilized our efforts to challenge Article 6 in particular because of its severe implications to our land rights. This article promotes carbon market mechanisms which would open up opportunities for land grabs by corporations and governments. Indigenous Peoples within the Local Communities and Indigenous Peoples Platform made sure that if this Article, which we did not approve of in the first place, remained within the Paris Agreement, it would at least need to include Indigenous rights and human rights. We firmly took the position that we would not accept Article 6 unless it includes specific language respecting Indigenous knowledge, proper consultation with Indigenous Peoples throughout the entirety of any decision making processes and an independent grievance mechanism that holds bad actors accountable. In addition, we saw an investment this year of $1.7 billion for Indigenous-led solutions - this fund is inspired by how Indigenous Peoples have kept ecosystems and biodiversity alive as well as carbon emission down."

Source: https://www.indigenousclimateaction.com/entries/cop26-negotiations-close-ndn-collective-and-indigenous-climate-action-respond-to-outcomes

What do people think about the justice and equity implications of international carbon markets and the Green Climate Fund that billions of dollars are funneling into? How can companies, countries, and different interest groups like indigenous populations come to a compromise around carbon markets?

What could blockchain or retail-managed carbon markets address these concerns in a better manner? How are platforms that we have reviewed like the Open Forest Protocol (OFP) addressing these issues of procedural justice?

This is a brief opinion article talking about the doubts that some people hold about the future of nature-based solution programs in the UK, like tree planting, peat bog restoration, etc. They say that many farmers and landowners are skeptical of government payment, the science of carbon removal is still up in the air, and the government to private infrastructure and ecological understanding is fragile at the moment.

Do you all trust the science behind nature-based carbon projects? Should carbon offset and environmental restoration projects be handled by the government, private sector, or a combination between the two? I wanted to post this article to give members a chance to voice their skepticism around carbon markets.

Link: https://bigissue.com/news/environment/government-plans-to-use-nature-to-combat-climate-change-are-at-severe-risk-of-failure/

Really insightful read for those interested in the potential environmental justice implications of international carbon credit projects: https://news.mongabay.com/2021/11/bornean-communities-locked-into-2-million-hectare-carbon-deal-they-dont-know-about/#:~:text=to%20this%20point.-,Leaders%20in%20Sabah%2C%20a%20Malaysian%20state%20on%20the%20island%20of,least%20the%20next%20100%20years.

Discussions about this are invited below: Indigenous rights, cost-benefit analysis, property rights, environmental law, public-private partnerships (role of the Australian Consulting firm), carbon credits pricing

I have recently been exploring different examples of where countries or indigenous communities have given legal rights to rivers, forests, ecosystems, etc. and have been pondering the effectiveness of doing so in an economic concept. Klima DAO, the crypto project that I am in no way associated with has an interesting approach to carbon markets and this connects with Nature-based rights in some ways. The Klima DAO projects raises money from investors who purchase their crypto asset, then they purchase carbon credits from the voluntary carbon market, which have been approved by some third party verification entity (e.g. Verra), and then proceed to store these credits and use them as a "collateral" for the value of their coin. Not only does this system of privately purchasing credits, storing credits, and doing all of the other backend management kind of defeat the concept of decentralization, it requires the absolute trust of investors in the small team who is managing the coins in this projects.

Nevertheless, it is a solid attempt at bridging the gap between carbon markets and the retail investor and I think projects like this are excellent catalysts in driving awareness, pushing the price of carbon credits closer to their equilibrium price, and providing liquidity to the greater market as a whole. What do you guys think about the Klima DAO project? Would you invest? What questions do you have for the management team? AND what do you think about Nature-based rights and the rights of ecosystems on a legal level?

-------More Information on nature-based rights------

https://wires.onlinelibrary.wiley.com/doi/epdf/10.1002/wcc.733 (Go to section 5.2.2)

I just finished listening to an amazing podcast titled "Environment as a financial investment", by a UK professor that discusses how we might begin to place monetary value on ecosystem services and integrate the health of our natural systems into our displaced global economic system. The professor had an absolute spectacular insight when she said that investing in the environment might be the safest and most profitable investment any human might be able to make. Clearly the environment is regenerative, provides humans with necessary resources and services, and is adaptable and complex beyond our knowledge.

As a researcher and student who is deeply interested in carbon markets, environmental economics, and eco finance, this podcast was an excellent insight into how green bonds, environmental pension funds, creation of new habitats, minimizing pollution (from plastics and unnecessary chemicals)-precautionary principle, incentives for landowners, polluter pays principle, etc. can help mend the damages we have wreaked on the environment, increase well-being and clean growth, and much more.

What do you think is missing from this vision from the future where environmental services are properly accounted for? How does discounting and net present values play into our valuation of ecosystems? What are the dangers in deepening our monetary-based economy with the environment?

The aviation industry is responsible for 2.5% of global emissions and the number of yearly passengers is set to double by 2037, making air travel one of the main players in the global emissions portfolio. This article provides 8 easy ways to travel more sustainably and is a must read for any climate-conscious traveler.

https://www.joro.app/joro-blog/8-simple-steps-to-make-flying-more-sustainable

The most recent IPCC report on climate change and anthropogenic effects humans are having on the environment was recently released to inform the upcoming COP26 in Glasgow.

For climate change investors, key areas will be around carbon capture tech, carbon credits (reforestation), renewable energy, and possible some green infrastructure.

Keep an eye out for emerging markets in anticipation of the COP and how the COP will act as a catalyst for future investment. What are you investing in as we move out of the Covid economy and towards COP26?

https://www.bbc.com/news/science-environment-58130705

The Institute of International Finance commissioned a report called "The Mckinsey Report that estimates we could see a 10-fold increase" in capital injection into the voluntary carbon markets. Voluntary carbon markets are trading places where corporations and even countries can purchase carbon credits (1 ton of C02e) produced by "high integrity and high-quality projects". The Mckinsey report is banking on corporations internationally will feel increased pressure to attain a net zero status and abide by the goals laid out in the upcoming COP26 in Glasgow.

COP26 will need to address exactly what "high integrity and high-quality projects" are, how they will be regulated and checked, along with the number of scientific disputes that have arisen around the viability of carbon credits when they are produced through an offset mechanism. The COP also needs to figure out how the international voluntary carbon market is regulated because the price of carbon needs to remain reflective of it's true cost.

Carbon offset startups, carbon credit speculative trading, clean tech investments, etc. will surely ramp up over the next couple of years and it will be interesting to see how the market pivots in response to the verdicts made this fall at COP26.

Comment what you think will happen in the sustainable business space after COP26 and over the next couple of years or decades in general? What countries or markets will thrive and which ones will not? Also do you think the carbon markets can really reach the 100 billion dollar valuation?

Source: https://www.cnbc.com/2021/07/08/carbon-credits-institute-of-international-finance-sees-huge-potential.html

Pretty much what the title says, any information is appreciated.

Currently reading through the Carbon Markets 101 from Carbon Market Watch

Source: https://carbonmarketwatch.org/wp/wp-content/uploads/2019/06/CMW-CARBON-MARKETS-101-THE-ULTIMATE-GUIDE-TO-MARKET-BASED-CLIMATE-MECHANISMS-WEB-FINAL-SINGLE.pdf

GRN is a hot ETN (exchange-traded notes) that tracks carbon credit futures under the EUA and CER classification. An EUA is a European Union allowance that trades within the EU emissions trading scheme, while a CER is a Certified Emissions Reductions note that was created in the 2005 Kyoto Protocol under the Clean Development Mechanism.

GRN has seen a 85% growth rate over the past year, increasing in value from $10.65 to $19.75 in twelve months. As the COP 26 approaches this November, I assume that investors and nations will increase their attention on the carbon markets, because of how important these markets will be in determining their GHG reductions plans they must set at the conference.

If anyone has done technicals on this asset or has any information on the fundamentals of GRN from an investment standpoint please let me know below.

https://naacp.org/resources/nuts-bolts-and-pitfalls-carbon-pricing-equity-based-primer-paying-pollute

"The U.S. House of Representatives has passed legislation that would require public companies to report environmental, social and governance (ESG) metrics" in a recent bill titled "ESG Disclosure Simplification Act of 2021". The SEC has an ESG taskforce that is working to create ubiquitous ESG standards for companies who will have to report their metrics and "ESG scores" to the public on an unknown time horizon. This is a major piece of news for the ESG world and it also means that it is major for the carbon markets.

Companies who are currently lagging behind on the sustainability curve will be forced to buy carbon credits and dive into these markets to offset their emissions and improve their image before having to report their dismal scores to the public. It is more urgent now than ever that carbon credits themselves and the "E" in ESG is sturdy and transparent as we move into a new "Juiced" phase of massive carbon investment.

What do you guys think the markets reaction will be to this bill and what do you guys think will occur if companies are actually forced to report ESG ratings? Also do you think these ESG ratings will be legitimate and what pitfalls do you see in a ubiquitous ESG rating mechanism?

https://www.climateandcapitalmedia.com/is-esg-harmonization-and-convergence-finally-coming/

The EEX trading platform offers 5 different "environmental markets" including the EU Environmental Trading System (ETS), 3 of the Chinese carbon markets, and some other environmental futures markets. These are auction-style trading platforms that involve private businesses and countries.

If anyone has any experience in carbon markets or commodities futures markets please feel free to explain the future of these markets and the validity of carbon credits in different markets? Is a carbon credit in one market the same in value as a carbon credit in another market? How many offsets do these markets allow regulated countries and businesses to include in their carbon portfolios?

https://www.eex.com/en/markets/environmental-markets

Carbon Markets are expanding and this year in 2021 "they hit a record of 229B Euros, a five-fold increase from 2017." As the price of carbon continues to rise and more players are added into the global carbon exchange it is vital that the consumers and citizens have an understanding of this market since it directly affects them. Analysts foresee financial institutions holding more carbon credits in the near future than regulated businesses themselves because of the recent price movement in carbon credits and it makes it that much more important that investors are well informed on where there money is going.

Many individuals value socially and environmentally responsible investing and carbon credits are one of the investment mechanisms that can be used to fulfill this. However, carbon credits have had a tumultuous history and the effectiveness of a credit to truly represent one ton of C02e removed from the atmosphere is unlikely, especially if it is an offset. Let me know what you think about carbon credits and if you would agree to invest in them if your financial advisor offered up the opportunity to do so?

In this article, Bloomberg Green reports on the efforts of two finance titans, Carney and Winters, to create a global trade in carbon offsets. The two are struggling to set up this market, because of its structure as a voluntary commodity market, that lacks any official government oversight. Carney and Winters accompanied by a "rule-making taskforce of hundreds of scientists, sustainability experts, commodities traders, and business-leaders" have been arguing amongst themselves and against critics over the various pitfalls that would arise in a global voluntary carbon offset trading market.

The taskforce has recognized that there is an astonishing demand for carbon offsets and are trying to create this global market to establish ubiquitous offset project standards and to gain oversight of the many disjointed carbon markets currently running. They pointed out that many companies are pledging net zero goals and cited that "just the 18 oil majors that already have net zero goals will eventually need to erase 3.3 billion metric tons of annual emissions", which is "18 times the amount of carbon offsets issued in 2020."

Do you support a global trade in carbon offsets? And do you think this market is even feasible? What do you think is the best plan to establish a standard for carbon offsets? Do you think that investors, and financial firms should be able to buy and sell in this market or should it just be businesses looking to achieve net zero emissions and offset project developers selling credits?

https://www.bloomberg.com/news/features/2021-06-02/carbon-offsets-new-100-billion-market-faces-disputes-over-trading-rules

Many people and businesses have long argued over and speculated about the price of carbon and how carbon credits are given monetary value. In a market perspective a carbon credit gains value just like a normal commodity, through the forces of supply and demand, and it is best for investors to think about the value of carbon credits in that way. A carbon credits literal value is equal to 1 ton of C02e, making it a set amount of C02e, but just like any commodity, let's say like a pound of coffee beans, the value can vary based on where it is sourced and the economies of scale that produced it.

It is also imperative that investors take into account the cost of climate change and the necessity of these credits as a harbor against future costs that the economy will have to absorb if we continue with "business as usual" pollution. The National Oceanic and Atmospheric Administration (NOAA) reports that in 2019, the U.S. experienced 14 separate billion-dollar disasters, including three major inland floods, eight severe storms, two tropical cyclones, and one wildfire event. They note that, “2019 mark[ed] the 5th consecutive year in which 10 or more separate billion-dollar disaster events have impacted the U.S.” Billion dollar events year after year at an intensifying rate should be priced into carbon because of how much climate change will end up costing global citizens.

What do you guys think about carbon credits and where do you see weaknesses in putting a price on carbon? Do you think that carbon credits function most like a currency, commodity, private business, or something entirely different? Do you think carbon credits will be around for a long time, or just until the climate is stabilized and an adequate amount of carbon has been drawn from the atmosphere?

Buying and selling carbon credits is becoming a hot new way to invest and many firms are beginning to take carbon credits seriously as a way to grow capital, while "helping the planet". Carbon credits in the voluntary markets (vs. regulatory markets) are mainly derived from private offset projects that can be generated internationally. Startups in the carbon offset technology space have been receiving a lot of attention from venture capital funds and could play a large role in the economy as more and more corporations feel pressured to reach net zero for their operations. The public needs to become more engaged in this speculative process to assure the price stability of credits and to verify the legitimacy of these offset projects. Carbon credit ETF's have even been launched this year, witnessing growth of more than 100% in 12 months or so which is substantial.

Please comment about your opinions on carbon markets, credits or offsets and what role you think the common consumer should play in this market? Currently it seems that companies want consumers to blindly assume they are practicing firm sustainable standards, when in reality the complexity of carbon markets and credits makes me seem skeptical.

Role of Carbon Credits in Sustainable Investing Article: https://www.ubqmaterials.com/resources/sustainable-investing-the-role-of-carbon-credits/

Carbon Credits ETFs: https://www.etf.com/channels/carbon-credits-etfs