Voluntary Carbon Market:
The Key Tool to the Energy Transition
Carbon offsets are a key tool in the energy transition, and demand for them is expected to increase rapidly as companies that have set climate aligned goals work to achieve their goals. We believe fair, efficient carbon markets can facilitate capital formation, drive value for investors, and finance essential projects. Blackstone sees an opportunity to invest in economically attractive businesses and technologies that support the energy transition1 and enable carbon markets via our investment in Xpansiv, as part of our goal to continue to drive value for investors.
What is a carbon offset and why is it important?
Carbon offsets are the trading unit of the Voluntary Carbon Market (“VCM”). A carbon offset is a tradable commodity that represents one metric ton of CO2 emissions or equivalent removed from the atmosphere or avoided in the first place.i An effective VCM allows corporations to buy offsets efficiently, creates a financing mechanism for carbon projects, enables potential risk mitigation for organizations with net-zero goals, and provides transparency and clear price discovery. In short, the VCM provides a market-based solution for organizations that have made climate pledges to meet those commitments.
Demand for carbon offsets has been predicted to grow exponentially: 15x by 2030 and up to 100x by 2050.ii A BloombergNEF reportiii released January 23, 2023 estimates the carbon market to grow and, under one potential scenario, to approach $1 trillion by 2037.
Why is trust and transparency key?
Carbon offsets should be certified and registered by independent registries, such as the Climate Action Reserve, Verra, or American Carbon Registry. To be certified, an offset must be real, verifiable, and measurable. As with all markets, the backbone of a carbon market is trust, which begins with a robust registry infrastructure that provides transparency and confidence.
We believe robust market infrastructure is necessary for any market to scale, and the VCM is no exception. Blackstone Energy Transition Partners’ (“BETP”) $390 million investment last year in Xpansiv advances this thesis. Xpansiv is the leading end-to-end vertically integrated carbon and environmental commodity market infrastructure platform.iv BETP’s investment aims to accelerate the company’s ability to further develop this infrastructure to support the global energy transition and drives value for our investors.
Xpansiv’s market infrastructure includes software that supports global environmental registries and has recorded more than 85% of all carbon offsets issued globally. Xpansiv’s portfolio management system seeks to provide:
- buyers and sellers the ability to manage their carbon inventory, with more than 600 million offsets transferred across Xpansiv’s portfolio management system last year;
- an efficient online spot exchange that provides price transparency, a level playing field, and equal market access to all market participants, including project developers and buyers of offsets; and
- standardized contracts that are now established as global price references.
The reach of Xpansiv’s platform has the ability to scale in parallel with the VCM, as the world works to meet climate aligned goals. Blackstone is delighted to provide capital and resources to drive value for our investors and help Xpansiv further expand their offerings and accelerate their growth as a supporter of the energy transition.
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- There is no guarantee that BETP will be able to achieve its investment objectives or avoid significant losses. There can be no assurances made that BETP will find any future opportunities relating to the above themes.
i. Source: https://www2.blackstone.com/e/213192/h-1-trillion-with-right-rules-/2lh5bj/599937918h=TqzkpeShDdT4hEVMKF9kb50UUrP0CMhCU-c5zu35aa4
ii. Source: McKinsey & Company, “A blueprint for scaling voluntary carbon markets to meet the climate challenge”, January 29, 2021.
iii. Source: https://www2.blackstone.com/e/213192/h-1-trillion-with-right-rules-/2lh5bj/599937918?h=TqzkpeShDdT4hEVMKF9kb50UUrP0CMhCU-c5zu35aa4
iv. Source: Trove Research, 2022.
Note: All figures as of December, 31, 2022, unless otherwise indicated. The opinions expressed herein reflect the current opinions of Blackstone as of the date appearing in this material only. There can be no assurance that views and opinions expressed in this document will come to pass. The above example may not be representative of all investments of a given type or of investments generally and it should not be assumed that any Blackstone fund or investment will make comparable or equally successful investments in the future. There can be no assurance that any Blackstone fund or investment will achieve its objectives or avoid substantial losses. While Blackstone believes ESG factors can enhance long-term value, Blackstone does not pursue an ESG-based investment strategy or limit its investments to those that meet specific ESG criteria except with respect to products or strategies that are explicitly designated as doing so in their offering documents or other applicable governing documents. Such considerations do not qualify Blackstone’s objectives to seek to maximize risk adjusted returns. Please see “Important Disclosure Information”.
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