Market participants: The project developer
As mentioned in previous posts, we have seen an increase in the number of corporates pledging to reach net zero by 2050 and earlier. This is to limit global warming to 1.5°C in line with international targets set out by the 2015 Paris Agreement.
To achieve this target, corporates need to decarbonise their operations and then mitigate their residual emissions using carbon removal credits. We must accelerate and scale to voluntary carbon market (VCM) to deliver the volumes of atmospheric carbon removal projects required to achieve net zero.
Providing carbon finance to offset projects encourages and facilitates global green developments which deliver environmental and social benefits. There are a range of different market participants involved in this process. The first actor this series will explore are project developers.
What is a project developer?
A project developer provides supply to the carbon markets, by implementing mitigation projects to avoid, reduce or remove greenhouse gases. Therefore, project developers play a number of roles. These range from financial duties, to carrying out stakeholder consultations, bringing partners together and initiating projects.
They work on the supply side of the VCM and manage the receiving flow of funds attributed to the sale of the carbon offsets. There are two primary types of project finance. The first is derived from investors, which is where the project developer bears financial risk. Hence, this funding model takes place prior to the execution of the project. The second type of funding comes from the sale of the carbon credits themselves.
Delivering carbon credits to the market is not a one-stage process. Developers have a range of responsibilities required to successfully undertake the emissions reductions activities and convert those into verified credits. It is key that they consult and collaborate with local communities to improve the project’s impact and permanence.
What role do project developers play locally?
In addition to delivering environmental benefits, the project developer often has the opportunity to build socio-economic benefits to the project meeting many of the United Nation’s Sustainable Development Goals (SDGs). As such, these projects often deliver what are called co-benefits.
The co-benefits generated strengthen the quality of life in communities living or working near to the project area. This can be achieved by job creation, greater healthcare provision, or the access to affordable and clean energy in these local communities. Projects which achieve several SDGs tend to be more in demand from corporates. Cookstove projects are very popular, as these tend to meet the criteria for the most SDGs. Therefore, end-users see these projects as having the highest impact.
How do project developers begin to sell credits?
For a project developer to generate and sell carbon credits, their projects must meet certain criteria. In the first instance, the developer needs to establish which methodology set out by their chosen standard (Verra, Gold Standard, UN CDM, etc.) will best suit the project.
The developer should then submit a project design document via a third-party validator to the standard. Upon acceptance the developer has a registered account and can implement the project design and begin monitoring the emissions reduction performance which forms the base of high-quality carbon credits. This must then be verified by independent auditors and the standards themselves.
Different registries work in different ways to issue credits. Generally, however, the standard will create a serial number for each credit. Then, the invoice for registration is sent to the project developer. Once the payment has been received, the standard deposits the issued credits into the project developer’s account. The project developer is then able to monetise or retire the credits as they need.
Following posts will further explore the role of verifiers and validators.
Plannet Zero and project developers
We work in partnership with a number of project developers to ensure fair prices in the market. If you would like to find out more, please get in touch with one of the members of our team.
Edited by Tiffany Cheung