Simon Puleston Jones, Founder and MD, Emral Carbon, advises companies on carbon markets and carbon dioxide removal matters. He is also founder of Jobs in Carbon, the global jobs board for carbon accounting, carbon markets and CDR. Among other prior roles, Simon was previously CEO of Climate Solutions, CEO of one of Europe’s leading financial services trade associations and a structured finance and derivatives lawyer.
CW: I loved your guide to carbon markets. Do you have advice for people who’d like to start their first project or business in this market?
Simon: I’m glad you found the guide – An Introduction to Carbon Markets – useful! I co-published the guide this time last year with my old law firm. It covers compliance, and voluntary markets, and it also covers the law and regulation of carbon markets in the UK, the US, and Europe.
Financing projects, especially in carbon markets, is complex. You need funding to get off the ground: either your own money or someone else’s.
In the carbon markets, a lot of the start-ups are technology start-ups in the Global North that can tap into climate tech and clean tech VC investment because they’re in an attractive, growing sector. If you’re operating in the Global South and not using local community funding, it becomes much harder to secure capital. In either case, banks are unlikely to lend to businesses or projects without significant assets.
Debt financing is typically not available to anyone other than large project developers who have successfully developed multiple projects or to businesses that are Series B or later in their growth journey. Often you may have to rely on personal funds or those from your network before accessing capital from the few available funds or local government grants. A key method for carbon projects to raise finance is through forward selling the carbon credits that will result from the carbon project and/or selling equity in the project.
Even to reach the stage where you can pre-sell carbon, there are significant upfront costs. You need a viable project idea and money to acquire land for the project, to recruit staff, to develop a project design document and to engage with standards and methodologies. If what you’re doing is novel, you’ll need to work with a standard to create a new methodology, which can take well over a year.
The difficulty of attracting other people’s money to reach the starting gate where you can pre-sell carbon depends on your geographical location, the type of project and your track record in the carbon market. It’s important to remember that not all carbon projects are in the Global South; there are also significant initiatives in the Global North.
Insurance is an increasingly important tool to de-risk projects. Whether it’s protecting against non-delivery risk or political risk, or structuring tailored structured finance products, insurance can help ensure repayment of the funds that enabled the project’s initiation.
CW: Do you see a trend in pre-selling carbon?
Simon: In response to some of the negative media coverage of the voluntary carbon market at the start of 2023, last year saw a trend of carbon offset buyers moving upstream in the carbon offset creating process.
This move is partly driven by financial considerations. By committing earlier and agreeing to buy carbon offsets on a forward basis, and therefore taking more risk, buyers can secure carbon offset supply in the voluntary carbon at a price that can be cheaper than if they bought the same offsets in the spot market after many of those risks have ultimately played out.
It’s less about the financial side, though, and more about control. In a world where there was a lot of negative attention from some media outlets last year in relation to the voluntary carbon market, corporate buyers became more cautious. The answer to how to mitigate risk for several buyers was to get more involved in the creation of the product that they’re buying and establish a more direct conversation with the project developer so they can control, or at least have more influence over, the end product: how it is created, the data they can get access to, the practices that are being followed, the technology, etc.
CW: How do you see the carbon market shaping up?
Simon: There’s no one size fits all answer to how the voluntary carbon market (VCM) is shaping up, not least because it is evolving at breakneck speed. This creates a Darwinist market where only those who can evolve with the market and keep on top of developments will maximize opportunity and impact.
The market is becoming harder to navigate as it gets ever-more complex through evolving industry best practices, scientific understanding, technology, law and regulation. Political, financial and sustainability factors are all crashing together. With an increased recent focus on biodiversity, it remains to be seen whether the best way to promote biodiversity is through carbon markets or a distinct biodiversity credit market.
There are different reasons for players to participate in the voluntary market, whether it’s a large tech company like Microsoft looking to help scale up tech-based carbon dioxide removal, an SME looking to make a difference or a publicly traded corporate looking to carbon markets as part of its climate transition plans.
The current leading trends are the further iteration of industry standards and the accelerating convergence of the voluntary carbon market with other markets and carbon pricing mechanisms.
The last year has seen a slew of industry standards published by the Transition Planning Taskforce, SBTi, VCMI, the ICVCM and others, all gradually coming together to form a holistic end-to-end integrity framework. These standards cover everything from transition planning and target setting to carbon offset integrity and claims made by buyers of carbon offsets.
The VCM is converging with international carbon markets under Article 6 of the Paris Agreement, with compliance markets – through which voluntary carbon credits are increasingly permitted to be bought in lieu of emissions allowances – and/or with carbon taxes. As well as convergence, we’re also seeing increasingly specialisation, as carbon markets evolve into an increasing number of sub-sectors, including aviation via CORSIA and, as most recently shown through recent Carbon Removal Certification Framework politically agreed by the European Union, carbon dioxide removals.
Trends we can expect in the coming months and years include a lot more regulation and more complexity, thanks to new standards and methodologies, industry consolidation and increased professionalization of the market. There will be a focus on data. AI, blockchain and IoT will be used more extensively. Transparency will increase, with commitments and/or legal obligations to making more data available.
Risk management tools will grow. An increasing number of insurance companies now offer carbon-market specific insurance products. Banks, exchanges and others are developing derivatives products, thereby enabling risk management through exchange-traded futures contracts and carbon market trading without the need to physically hold carbon credits.
For me, this market’s excitement lies in its impact and its fast evolution. Staying on top of these changes requires passion for, or as some may say an obsession with, carbon markets. I’m one of its obsessives. It’s intellectually stimulating and dynamic, with technology, law, regulation, policy, science, finance and geopolitics all in play. Most importantly, the vast majority of market participants are now in the market for the right reasons — moving money at scale to deliver transformative climate outcomes.
CW: What’s your view on the level of regulations required around disclosures on carbon credits?
Simon: At present, the landscape of regulations specifically regarding disclosure for carbon credits is not fully developed. While there is talk of implementing such regulations, the actual enactment is not widespread. However, California is spearheading a movement toward this direction with plans to mandate very detailed disclosures for companies operating within the state through AB1305, SB1036 and other regulations. The SEC has also just published its Climate Disclosure rules, and immediately been on the receiving end of lawsuits from companies who feel the SEC has either gone too far, or not far enough.
The European Union is also very actively creating regulation relating to disclosure of carbon market activity, including developing laws to prevent the use of carbon credits to make product-level claims. This indicates a trend where regulatory requirements will compel companies, particularly those within certain sectors or of a certain scale, to be more transparent about their carbon credit purchases.
Disclosure regulation is crucial for enhancing market quality in terms of participant behaviour and project integrity, but it must be carefully structured and proportionate.
Due to the significant attention this sector garners, increased transparency will quickly expose poor practices. Some important financial players, such as pension funds, have been reluctant to participate in the voluntary carbon market prior to it becoming more highly regulated. As regulations evolve, one can anticipate the entry of transformative private and public capital into the market, promoting the accelerated scaling of projects and technologies. Ultimately, regulation mandating disclosure should lead to a maturation of the carbon markets, attracting serious investors who are committed to the authenticity and effectiveness of the decarbonization efforts they support.
CW: How’s been your professional journey?
Simon: My professional journey has been defined by four different crises, the first of which was the 2008 financial crisis. I was a structured finance and derivatives lawyer for 15 years, both in private practice and then in-house. Among other things, I specialised in cash CDOs, the financial product that ultimately initiated that crisis.
The next crisis that came along was Brexit, in 2016. By that time, I was running an international financial services trade association. In that role, I found myself as the public face, for both the UK and for the European Union, of the corner of financial markets that ended up at the heart of the Brexit negotiations.
In 2017, I had a personal crisis: a divorce. Shortly after, I found love again, got married again and had a third child. I mention all of that because it ultimately led to me being professionally life coached. Without going into the whole story, I created my first business through that life coaching. In January 2019, I concentrated full-time on that business, which became the global social media platform for the United Nations Sustainable Development Goals. I ran that for a couple of years, before a combination of Brexit and Covid sadly overcame that business.
In January 2021, I was invited to solve the fourth, and hopefully final, crisis – the climate crisis – by moving money from where it is today to where it needs to be to produce a more sustainable tomorrow. I and two co-founders set about solving that problem from a blank sheet of paper, that led to us founding a business called Climate Solutions. Over the course of the last three years, we built Climate Solutions into a decarbonisation-focused capital raising business, an advisory business and a carbon markets business. On the capital-raising side, we helped companies and project developers who are decarbonising energy, agriculture or real estate to raise capital in private markets. The advisory business focused on decarbonisation. Through our network, we were invited to help a number of governments find corporate buyers for their carbon reductions and removals under the Paris Agreement. That novel, first of a kind type of carbon credit under the Paris Agreement, enabled us to knock on the doors of a number of the world’s leading carbon buyers and start a conversation, which in turn then meant we’d built a distribution network that enabled us to support our capital raising clients who were also looking to sell carbon credits through the voluntary carbon market as part of their business. Over time, we got approached by more and more companies and project developers looking to connect with carbon offset buyers, so we became a carbon broker, both in the voluntary carbon market and the Paris Agreement-based international markets.
At the end of last year, I noted the lack of a decent platform to find roles in carbon markets and CDR, which led to me founding the jobs board for the sector: Jobs in Carbon. Today, I advise companies on carbon markets and carbon dioxide removal through my consultancy, Emral Carbon. I’m imminently expecting to take up a new role in carbon markets…watch this space!
CW: You are a lawyer by profession. What is the level of involvement of lawyers in the carbon market?
Simon: Lawyers play a multifaceted role in the carbon market. They structure, document and negotiate the financing projects and the sale and purchase of carbon offsets under emissions reduction purchase agreements. Lawyers not only provide project-level transactional advice, but also advise on investments into the companies active in carbon markets, on M&A, tax, intellectual property, blockchain, marketplace terms and conditions, employment matters, carbon ratings, carbon insurance, licensing, regulatory and government policy, and more.
On the regulatory side, among other things, lawyers advise on disclosure obligations and on claims made by companies regarding their use of carbon offsets, such as adherence to industry best practice like the VCMI Claims Code of Conduct and European regulations on product-level claims. In particular, lawyers advise on numerous issues relating to Article 6 of the Paris Agreement, including its intersection with voluntary carbon markets. Lawyers assist in the due diligence process, examining documents such as letters of authorization issued by designated national authorities, through which corresponding adjustments are granted. They help clients navigate uncertainties in the Paris Agreement framework under Article 6, addressing the risks of revocation or revision of letters of authorisation.
For project developers, lawyers deal with legal agreements, permitting, licensing, land access, financing, off-take agreements, and the transportation and storage of sequestered carbon. They advise on international protocols, such as the London Protocol regarding the transboundary movement of carbon.
Beyond these legal specifics, lawyers have a deep understanding of risk and liability, which influences investment decisions and transactions. This positions them well to discuss market dynamics and practices, advising not only corporates but also governments on optimizing emissions trading schemes, carbon taxes and Article 6 to scale carbon dioxide removal technologies, especially in countries with heavy-emitting industries. By advising on the intersection of policy, law, regulation and the Paris Agreement, lawyers can help governments successfully channel huge amounts of finance to accelerate decarbonization, in their jurisdiction and internationally.
A lawyer’s job encompasses leadership, learning, guiding, advising, coaching and educating, convening, networking, business development, structuring, negotiating, giving back and so much more. A huge amount of reading is required in order to keep up to date in carbon markets.
The most effective lawyers are those who not only understand and advise on transactions, laws, regulation, finance and industry best practice, but also understand their clients’ business and strategy, the views of policymakers and regulators, the dynamics of geopolitics, and follow the latest market developments, innovations and developments in sciencific understanding. They provide truly holistic advice on how all these elements fit together and guide clients through the complexities, uncertainties, risks, opportunities and evolution of carbon markets and beyond.