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With AirCarbon Exchange, William Pazos Sets His Sights On An Accelerated Net Zero Future | |
| Staff Writer |
“Carbon tokens are the way forward. A real price signal of what carbon costs, is the most important feature that we bring to the table.” Here we speak with AirCarbon Exchange’s co-founder, William Pazos for this fortnight’s edition of Thirty To Net Zero. Pazos took out time of his busy schedule to do this zoom interview from his home in the United States.
Pazos, a senior climate finance and renewable energy expert with a proven track record developing, financing, and managing projects in Asia, Latin America, and Africa has been working towards tying up a historical partnership between AirCarbon Exchange and the Abu Dhabi Global Market (ADGM) to create the world's first fully-regulated carbon trading exchange and clearing house, based in Abu Dhabi.
Based out of Abu Dhabi, Air Carbon Exchange is a company that deals with frictionless carbon exchange that securitises carbon credits into fungible and tradable securities with transparent pricing and real-time settlement, helping the world meet its net zero goal.
In this exclusive interview, Pazos elucidates how Air Carbon Exchange is slated to be a game-changer in the net zero arena, defines true smart and sustainable cities, and tells us more about his plans for AirCarbon in the Middle East.
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Q: How do you think AirCarbon exchange can lead from the front when it comes to enabling cities to become more sustainable?
A: What carbon markets bring to the table is that they smooth out the transition from polluting technologies to non-polluting technologies. It’s very difficult to change the paradigm very quickly because infrastructure is a heavy investment. Carbon allows for that transition. It attracts capital to new technologies, with the promise of being able to sell future carbon credits. It also allows companies and entities within different cities to mitigate their emissions against the baseline. By using carbon credits, they can reduce their emissions and give themselves more time to readjust. That's our main contribution. A real price signal of what carbon costs, is the most important feature that we bring to the table.
Q: What are the key challenges facing the MENA region specifically, that continue to be an active hurdle in making all the cities here sustainable?
A: I think that what the MENA region and the rest of the world is struggling with is that we are saddled with a technology infrastructure that's somewhat outdated, given our current climate emergency. The question on everyone’s mind is, “How do we get out of the old and usher in the new?”
When you look at the MENA region, in particular, there's a lack of potential transition points. There's a heavy dependence on oil, and because there's a heavy abundance, there are a lot of options that are available to us now. They have become a lot more competitive, but they still require a substantially large storage capacity to compete with fossil fuels. Transitioning fully to renewables in the region is challenged by the lack of adequate storage facilities, making things very difficult.
Q: Could you tell us more about your presence in the MENA region currently, and maybe a little bit about your current projects there?
A: We're based in Abu Dhabi and are in the process of becoming a fully regulated exchange and clearing house in Abu Dhabi. The journey has been quite interesting as carbon everywhere else in the world other than Abu Dhabi is considered an intangible commodity and so it's actually not a regulated commodity. Abu Dhabi is actually the only place globally that requires carbon exchanges to become regulated, which we embrace wholeheartedly. We think regulatory framework around carbon will enhance the carbon markets Our technical team is based out of Abu Dhabi. We have a full team that's looking at projects in Africa and we're looking at projects in the larger Gulf region and they basically involve bringing carbon credits from projects that are mitigating carbon activities in the region.
Q: Given this background, could you tell us a little bit about AirCarbon and why this is a project of potential value?
A: The idea of AirCarbon is that we are looking to bring traditional commodities architecture to the carbon markets. If you look at carbon credits today, the majority of them trade on a one-to-one basis, no different than a painting.? If someone offered you carbon credits there would be multiple questions on its origins, registry and method. And it's impossible to scale a market if you're trading one painting at a time. If you look at traditional commodities, they all sit in the warehouse, and what trades on the exchange are digital receipts. We created that for the carbon markets, that was our contribution. Instead of having a physical warehouse, we create a trust, we define the kind of carbon credits that are eligible to be to go into the trust. So, there'll be only aviation credits approved by the International Civil Aviation Organization that can be put into this trust. And then we create a digital receipt on the exchange, which is called a CET. And now you can trade the CET. If you don’t buy a carbon credit that's eligible under the International Aviation Scheme, you buy CET, which is a carbon credit that's eligible. That gives you exposure. For instance, for global forestry, you buy our GNT, a global nature trust. So that's what we brought to the table and that’s how we work.
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Q: A line on the website of AirCarbon reads, ‘especially with regards to carbon developers, the current marketplace for the sale of carbon offsets, is highly fragmented and inefficient for project developers.’ Why do you think this is the case?
A: At AirCarbon Exchange we're trying to bring order to the market that has grown up from what we call the voluntary carbon markets, which was, a fraction of the US$1 billion mark that we hit this year in terms of size of the market. So, it needs to grow, it's a natural progression. Contracts need to be standardized and it's still sort of grappling with the legacy of carbon trading on a one-to-one basis as on paintings. It's just a matter of time.
Q: When it comes to the cap on trade programs, the total limit on pollution credit declines over time, giving corporations the incentive to find cheaper alternatives. How does this affect the net-zero goal in the long term?
A: We need to use all the tools in our arsenal in order to fight climate change in order to try and not get to that tipping point where we will have a climate disaster on our hands. This includes a carbon tax and carbon trading, cap-in-trade as well as stringent legislation and corporate, and government incentives.
So what we contribute, more than anything else, is the price of carbon because the problem with carbon is that it's not visual. Even corporates, when they create a product, they don't factor in the cost of carbon because it's not tangible. There's not a direct result between their action and climate. There's a big lag as the molecules go into the atmosphere. We don't really see global warming happen immediately after you build a car. So, it's very important for the market to attach a cost of carbon to all human activity. And that's the direction we're moving in.
Q: Could you tell us more about where you are seeing progress and acceptance on the price of carbon?
A: In the European market, you have the European emission trading scheme with a clear price of carbon, at around 90 euros per ton, and corporations have to deal with this. In the United States, the Securities and Exchange Commission, just a couple of weeks ago, announced that corporates that are making Net Zero commitments, have to by law, produce carbon accounting, and demonstrate that they're doing tangible activities that move them towards their commitment. You hear all of these companies saying that they're going to be net-zero, by a particular date. If a publicly-traded company says so, but that company is not doing anything other than just grabbing the headline, then that is considered a fraud, and it is stock manipulation. So, there's pressure on the market from pretty much every direction for this to happen. It is no longer an uphill battle.
There are very recent announcements in Singapore Mexico Colombia, Korea, New Zealand, and Australia, regarding the carbon tax used in the market. So, it's happening!
To paraphrase Larry Fink, in one of his famous letters to CEOs about two years ago, he said, if you're on the board of the company, and you are not addressing climate change as a risk for your company, you're being negligent. This is a very real risk for companies going forward and something that they should be managing very actively.
Q: Under the Kyoto Protocol, if a country emits less than its target number of hydrocarbons, it could actually sell its surplus credits to countries that did not achieve its Kyoto level goals through an emissions-reduction purchase agreement or an ERPA. What are your views on the ERPA and its practicality?
A: Well, ERPA is a purchase and sale agreement. It's a document that says that someone is buying and someone is selling an emission reduction. It's just a ‘contract.’ What we do is by doing the tokenization, we securitize the credits and allow them to trade very quickly. All it means is that someone's buying and someone selling right. So, we do away with the need for an ERPA. The ERPA is an instrument that has its place in transactions where they're bilateral, but they go by the wayside if you do transactions on an exchange platform,
Q: For the benefit of those who employ the policy of caution, we must include this question, and that is, there's a tinge of uncertainty at times in the minds of potential first-time investors on the workability of these carbon credits. Do you have a message for them?
A: Well, there are certain registries out there that are credible, that have been around for a long time that operate under strict integrity rules and with a lot of transparency. And those would include the likes of Verra, which is the largest of the registries, in the voluntary space as well as the gold standard. Those are examples of entities that issue carbon credits of extremely high quality. There's something very important that people need to understand which is there's a very clear signal in the market that indicates if one is buying something, and its price is in no way more than in the carbon markets. If you're looking at a carbon credit that's being traded at about US$3 a ton, it's probably not going to stand sort of the quality test. But if you're trading something north of US$10, and there's a clear price signal for that, then there's a lot of rigor behind it.
Q: What are your parameters for a city to be called an effective Sustainable Smart City?
A: Well, I think the absolute first thing that you need, in order to start the journey of calling yourself a smart city is a baseline, is to know where you are at. I don't think simply ‘greening parks’ is the solution.
There has to be a scientific approach as a city where it has a baseline calculation and then it needs to set a target on the horizon, and then have actionable items in between those two. That, to me defines a Sustainable Smart City. Because once you've created those two points, the beginning, and the end, you start looking for alternatives in terms of transportation, legislating energy efficiencies, and promoting energy efficiency.
All of those activities that you would expect to see in a smart city coalesce around the strategy. And that, for me, is the ultimate Smart City.
Q: If you had to advise the Middle East governance and the private players, in fact, on improving one key strategy today that accelerates the reduction of carbon emissions what would it be and why?
A: For me, it's doing everything in their power to create a visible price of carbon, so that people know that every single time that you emit carbon, there's a price attached to it. By creating some kind of a carbon tax, by creating some kind of a cap on trade scheme, or a combination of both, it is sending to the market, a very strong price signal. And that tends to change human behavior and have the best outcome for cities.