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Carbon credits are growing fast, both as a tool for combating climate change and as an area of investor interest.
For the producer, the streaming agreement means significant upfront cash proceeds and a non-dilutive form of financing; these deals can typically be accounted for as deferred revenue and not debt.
As a result of these structural advantages, streaming companies in the mining, oil and gas sectors have typically been valued at a premium.
Depending on the size of investment, the streamer may receive anywhere up to 100 percent of the carbon credits that are that are created from the project, with an associated revenue-sharing model with the project owner.
All of this is in line with how the streaming model has operated in the mining and energy sectors.
The first is the ability to directly increase the value of credits produced by a carbon offset project.
This is because while every carbon credit represents 1 tonne of CO2e removed from the atmosphere, not every credit is equal in its impact on the planet and society.
Growth is being driven by asset managers, particularly those in the US, as well as by consumers and also by government regulators.
Unlike mining, oil and gas assets, carbon offset projects have guaranteed durations and do not have the risks that come with extracting natural resources.
When it comes to the work of monetizing credits, carbon project operators — which traditionally run with small teams due to limited funds — have had to spend time marketing and selling those credits to corporate buyers instead of focusing purely on running and expanding their project.
The arrival of carbon credit streamers means that corporate financing is no longer closed off to the bulk of project operators.
This can only be for the good when it comes to the development of the sector, as it will give investors more exposure to potential upside and it will help the corporate finance world to positively impact the drive towards carbon net zero.
With so many changes, and so much growth occurring, the voluntary carbon credits market is in for a very interesting ride.
Anthony has served on the London Metals Exchange Cobalt Committee, which includes representatives from the largest mining and commodities companies globally, to represent the interests of the industry to the board of directors the LME.