Thursday, September 16

Carbon Offsets Are Next Big Bet for $3.2 Billion Tribeca Fund


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(Bloomberg) — One hedge fund in Asia is betting big on the growing interest in carbon offsets to protect forests, as industries and policy makers start to make efforts to cut emissions.

Tribeca Investment Partners, which manages $3.2 billion of assets, has bought around $100 million worth of carbon credits, according to portfolio manager and partner Ben Cleary.

“We are seeing major demand from Asian corporates for offsets, above and beyond their organic carbon reduction programs,” said the Singapore-based Cleary. The price of carbon credits in the Asia-Pacific region is likely to rise substantially, he said.

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The purchase of offsets should, in theory, go toward an activity that will avoid or reduce a specified amount of carbon dioxide. Companies from Walt Disney Co. to Microsoft Corp. and Royal Dutch Shell Plc have already bought offsets to remove emissions from their own carbon ledgers.

Tribeca is eyeing carbon credits that can qualify for programs such as Australian Carbon Credit Units or the United Nations’ REDD+ framework. REDD+ carbon prices could top $100 a ton in the next couple of years, from an average about $8 to $10 now for high- quality projects, Cleary said. Tribeca currently has credits covering about 10 million tons of carbon dioxide, he said.

Confidence

The voluntary trading market could be worth as much as $50 billion by 2030, according to consultants at McKinsey & Co. That’s up from just $300 million in 2018. Mark Carney, the former governor of the Bank of England who joined with Standard Chartered CEO Bill Winters to target the market, has put the figure as high as $100 billion by the decade’s end.

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Still, questions have been raised around the actual effectiveness of carbon offsets in fighting emissions.

“What we need to ensure is that these credits are having actual, high-certainty climate impacts before we rejoice in this growth,” said Eli Mitchell-Larson, a researcher at the University of Oxford. “Otherwise, we’re going to have another boom-and-bust where buyer confidence is shattered.”

Some of the cheapest credits are tied to projects that do not remove carbon dioxide from planting trees, but instead pay for avoiding the production of emissions. Many of these projects, under the REDD+ framework, protect from deforestation. While offsets could be an important tool in fighting climate change, critics say it’s often nearly impossible to prove that a specific amount of emissions were definitely avoided.

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“Buyers, and often sellers, do not know with precision what that level of certainty is, but we know the error bars can be quite large for many forms of avoided emissions where baselines can be gamed,” Mitchell-Larson said.

New Fund

Tribeca is aiming to raise $500 million, including the sum already deployed on carbon credits, for a new decarbonization-focused fund. The balance will be invested in climate-friendly plastics, chemicals and food, according to Cleary.

The firm also has an existing natural resources fund targeting copper, nickel and lithium producers as well as uranium equities.

Cleary also said he sees the need for investors to support oil and gas producers and “not simply shun them like many of the world’s largest managers.”

“It would be socially and morally irresponsible to stop investing in quality fossil fuel producers as we will simply drive up prices of oil, gas or coal and hurt the poorest countries that rely almost solely on fossil fuel energy generation,” he said.

©2021 Bloomberg LP

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