Protecting the world’s forests and the important role they play as natural carbon sinks is foundational to the Paris Agreement’s aim of limiting the global average temperature rise to well below 2°C and was one of the major commitments made at the COP26 climate summit. On 2 December 2022, Hess Corporation and the government of Guyana announced an agreement for Hess to purchase 37.5 million REDD+ carbon credits directly from the government. The agreement represents one of the largest private-sector forest preservation agreements in the world to date. This paper explores the analysis of decarbonization pathways, voluntary carbon markets, and individual carbon offset projects that ultimately led to this announcement.
Voluntary carbon markets are nascent, complex, and at times opaque. Considering entry into the market required education into key topics of market dynamics, market participants, and project quality. Additionally, an understanding of risks from project delivery, commercial, and reputational aspects was necessary, much like when making investments into a new business unit or geography. Corporate demand, including from the oil and gas sector, will play a significant role in the voluntary carbon market, particularly from companies making net zero claims, and a competent understanding of these emerging markets will be vital in allowing them to do so thoughtfully.
This paper presents a framework for evaluating carbon offsetting strategies that depicts the journey of a large independent upstream exploration and production (E&P) company toward making a first investment in the space. The framework for evaluation included three pillars: foundational and macro research of voluntary carbon markets, corporate intelligence, and project evaluation from a quality and strategic fit approach.
Data examined included third-party research data, public information from registries and other actors in the voluntary carbon market, and publicly available corporate publications. The information was also put into context against future decarbonization and company values to arrive at a strategy that was successfully deployed in a first-of-its-kind long-term carbon offset agreement with the government of Guyana.
Key observations made during the process were
- Nature-based carbon offset projects provide a useful and necessary tool for global decarbonization toward a net-zero 2050 by providing private capital to developing nations, filling a gap from public pledges, while protecting important carbon sinks and ecosystems.
- For independent E&Ps, a strategy to secure offsets from high-quality, geographically relevant, and large-scale projects appears to be optimal.
- Demand for credits within the voluntary carbon market are likely to grow and reach around 1 billion tonnes per year by 2030 and potentially greater than 5 billion tonnes per year by 2050, outstripping the supply of high-quality credits.
The voluntary carbon market is in its infancy. Excluding European majors, oil and gas companies are in the early stages of participating in the market with limited information published on the topic. This paper presents one approach for entering the market.
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