The Green Finance Podcast Ep. 13: Debunking carbon credits and voluntary carbon markets, with BeZero Carbon CEO Tommy Ricketts
- We need more funds to flow towards climate solutions, and carbon markets can facilitate this by creating investable carbon assets. But we need to ensure that carbon credits are of the highest quality and that they are used mindfully.
- My guest today is Tommy Ricketts, CEO of BeZero Carbon, a company that provides carbon credit ratings and research tools to support buyers, intermediaries, investors, and carbon project developers.

Many companies are now making net zero commitments, and the way to get there is by cutting down their own emissions and using voluntary carbon credits to compensate for residual emissions, as it's nearly impossible to be perfectly carbon neutral without them.
However, the voluntary carbon credit market is relatively new and many companies are over relying on carbon credits in the rush to call themselves carbon neutral. In order for this market to function properly, it needs accessible and quality information as well as trust and integrity.
We need more funds to flow towards climate solutions, and carbon markets can facilitate this by creating investable carbon assets.
But we need to ensure that on the supply side, the carbon credits are of the highest quality, and on the demand-side we need to avoid ‘greenwashing’ by ensuring those credits do not allow companies to avoid cutting their own emissions.
I'm talking about all this today with Tommy Ricketts, CEO of BeZero Carbon, a company that provides carbon credit ratings and research tools to support buyers, intermediaries, investors, and carbon project developers.
We talk about the challenges of designing the infrastructure we need in order to bring transparency and scale up the market, meet demand and drive decarbonization effectively.
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The following excerpts were edited for clarity.
What are carbon credits and how does a carbon market work?
A carbon credit is a contract which is supposed to deliver a ton of avoided or removed carbon dioxide equivalent. What that means in practice is that someone has created a project, could be anything from a renewable all the way through to a mangrove system, measured and monitored the level of CO2 that has been either avoided because it replaced an activity or reduced or removed because it actively sequestered the carbon. The credit itself is supposed to represent the unit of the market, which is one tonne of CO2.
The concept of additionality is often mentioned in this conversation - what does that mean?
There's lots of terminologies and there's a whole new lexicon which is emerging in the carbon market. And it's easy to be somewhat confused by them. There's two types of carbon credits. There's those that avoid CO2 - in this instance, you shift from a coal station to renewable, or you replace some activity which otherwise was polluting more. A part of that can be monetized, if it's proven that without the revenues you couldn't actually do that activity.
The same is said of removals. It's just that with removals, the most classic example is a forest or soil ecosystem, or in the technology space, direct air capture is actively removing a ton of CO2. So instead of it being avoided, because you're changing activity and you switch from one mode of operation to another, this is actively is taking it out the atmosphere and sequestering, if you will.
Now, additionality is the first test which basically says, would this activity have taken place without the carbon, without the revenues from the carbon stream, ie the number of credits generated by that project? Because if it would have taken place, is it really a carbon credit? Should you really be able to create revenues and create income from from that activity?
If something is highly additional, for example, direct air capture, 100% of the revenues come from selling the carbon credits generated from the factory. Clearly, without the carbon revenues from those credits, you wouldn't be able to afford to maintain and operate the infrastructure. By contrast, you've got some other areas such as modern renewables, where it's price competitive, and the cost of capital is competitive and allocated in the market. So you don't necessarily need to have carbon finance streams, to subsidize the activity because it would have been funded anyway. And so you see this sort of additionality as the way of trying to explain where it is in that spectrum.
It's the fundamental financial test, because ultimately, it is a subsidy for a project. Let's just say your project requires $100. And you can, beg, borrow, steal, get subsidies or income for 90 of the 100. The 10 remaining is the gap. If you were to create carbon benefits, and they can be proved, you could sell them against that 10. That's where you would financialize the carbon credits.
Markets have developed to serve this sector, but what is the infrastructure of this market? Where can people trade these credits?
There are two types of carbon credits, as people kind of think of them generically. One has a regulated allowance. So this has nothing to do with the voluntary carbon market. This is the EU Emissions Trading Scheme or the California scheme or what have you, where governments allocate certain carbon budgets, industrials have to hit them. If they outperform their target, they can sell the surplus, and if they underperform their target, they have to buy it from other people. The price is effectively just a kind of paper contract in the market.
That's nothing to do with what BeZero does, or what we're talking about here, which is carbon credits in the voluntary carbon market. The voluntary carbon market is really designed for those activities which are not regulated. So traditionally, that's heavy industry, you know, utilities, etc, for them to try to have a tool which will allow them to help compensate for sources of their emissions, which they couldn't readily reduce or substitute away from.
The market itself operates in a pretty simple way. You've got the creation of the credit, so origination, which is typically from a product developer. In order to do that, they would typically require investment. There's a discussion and allocation of capital from an investor who's looking to invest in a project for two reasons: either to get a stream of carbon credits, very similar to how commodities work and then they themselves will sell that into the market, or a direct return on investment, so they just want a 20% spread for example. And obviously, the riskiness of that investment will determine the cost of capital.
Having financed the project, the developer then needs to take it through accreditation. Now these processes are overseen by standard bodies, such as Vera, Gold Standard, American Carbon Registry, etc. And they set the rules and methodologies that projects have to adhere to in order to create issuance, ie, they do the test, this is the exam, basically. They have to submit all of the evidence, scientific financial policy, to justify why this credit, in some instances is additional, or is it has no permanence factors or low leakage, etc. It's the rules of creating a credit.
Now this process is has a binary pass or fail conclusion. If you pass, you're allowed to issue credits, which are universally equal to one tonne of CO2. If you fail, of course you can come back and try again. Having issues credits, that opens it up to a primary and secondary market, so you can buy them directly from the developer. That can go through exchanges and institutions, etc. Even corporates go to developers themselves. And you've got the secondary market through marketplaces and intermediaries. In that instance, it's kind of trades a bit like any other any other financial security. And the ultimate buyer at the end of that cycle will be an entity, a corporate traditionally, who will want to retire those credits against emissions they have created. At retirement, that carbon credit is completely wiped out, scratched off against the registry, so that no one can ever resell or re retire that credit and double count. So that's the process as it exists today. But obviously, it's somewhat immature, with only a couple of billion of trade liquidity.
Given the issues around credibility, lack of regulation and a general over reliance on credits, what needs to be improved in order to really develop this market in a healthy way?
Let's go back to what's the purpose of a carbon credit. The net zero transition requires effectively a balance sheet exercise. On the liability side, you have all the sources of CO2 emissions, greenhouse gas emissions from individuals, corporates and countries. And you have to calculate that, model it and say, 'Okay, what is the total amount of emissions that we're trying to address?' Now the Paris Agreement basically says, 'Here's your targets for how to reduce it to what we consider to be a sustainable rate today.'
On the other side, you have say, 'Okay, well, how do I deal with these emissions? Now you've got three choices: you can reduce them permanently, every unit of input has a lower unit of CO2 output. So changing form of materials, substitution, etc, you can substitute activities. Going from coal to renewables, for example. Then you can compensate, buy or invest in projects which have a positive impact, which will offset your negative impact. And that's what the voluntary carbon market is supposed to be playing and serving.
The voluntary carbon market, if the carbon credits genuinely deliver a ton of CO2, could be an amazing toolkit for accelerating net zero transition, because everyone can't reduce and substitute immediately. There's an enormous amount that you have to compensate both today and on an ongoing basis. You need credible instruments with integrity that deliver the climate objectives in order to play a part in that solution.
Today, there are lots of lots of concerns about greenwashing, about the integrity of the market, by which I mean, poor practice, lack of transparency, underwhelming disclosure, price is not correlated to quality. So the price of instruments in the market doesn't necessarily tell you how good they are. All kinds of what you'd call systematic inefficiencies.
Now, at the root of this, I don't believe has anything to do with mouth practice, I don't believe there's lots of people out there trying to hoodwink the world, it's just the fact that the system as I described it to you is just too nascent to deal with the volume of investment that would be needed to actually deliver climate action, and the systems to support it are not mature enough to allow that integrity to take place.
What I mean by that is a credit is currently taken through an accreditation process. And at that process where you have to have a yes or no pass, you must have some conclusion: is this or is this not a ton? The problem is the number of methodologies, the number of accreditors and the types of systems that they are trying to model are not universally homogenous, they're extremely heterogeneous.
Trying to say, Okay, this methodology, which models mangroves, and this one, which models a forestation and this one does removal, are all collapsed into one unit, one time, and all of those methodologies are exactly equivalent. Clearly, that is not the case. Actually, having a analytical system, which only allows you to say one or zero, is what we believe is the source of lots of these problems about integrity, market structure, greenwashing, etc.
Users, investors, developers need a second set of tools to risk assess the likelihood that these tonnes are actually being delivered, and a whole new system and risk language in which to do that. And so that has many dimensions. One, you need clear transparency and disclosure requirements to allow everyone to have the data at their fingertips to assess these things. Two, you need to have strong reporting requirements to allow people to actually know what they've bought at what prices and how that actually translates to their climate objectives. And three, you need to have the market seeing quality, not as a binary yes or no discussion, but as a probabilistic curve, where it's somewhere between zero and one, because that's what allows the price mechanism to effectively discover quality, and then the capital cycle to actually work efficiently because that's how it works in bigger markets.
To conclude, you've got an inefficient system supported by an immature market structure, and the swelling of demand is causing that to crack because it's not set up to deal with billions of dollars flowing through it.