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On 17 March 2023, Martijn Wilder, CEO and founder of the Pollination group, spoke to a small group of CGM followers, kindly hosted by the Australian High Commissioner at his residence.
The Australian High Commissioner reiterated the Australian government’s commitment towards transitioning to net zero carbon emissions and expressed admiration of Martijn’s expertise in various areas of climate action, he was looking forward to Pollination’s impact on government and the private sector.
The Pollination Group is a global climate change investment and advisory firm established in 2019 and brings together a group of people of diverse backgrounds, with a deep connection in the climate space, reflecting this multifaceted challenges.
Martijn, the founder and CEO, was previously the head of Baker & McKenzie’s global climate law and finance practice for twenty years and played a key role with Australia’s clean energy finance institutions. He was previously the Chair of the Australian Renewable Energy Agency (ARENA) and a former Founding Director of the Clean Energy Finance Corporation (CEFC). He had been awarded an Australian Honor (AM) for his contributions.
Potential Gaps in Carbon Credit System in Malaysia
Malaysia has a strong history of carbon development mechanisms (CDMs) across a range of renewable energy sources i.e. hydro, solar, biogas etc. If a company executes a project that reduces carbon emissions, they can exchange these quantifiable reductions as credits and trade them.
Malaysia’s state governments hold a lot of power and authority over the governance of a certain region within their jurisdiction while the federal government has limited authority to dictate what can be done on state land. State government legislation could provide for a revenue stream from carbon credit projects, as is happening in Sarawak. The federal government should facilitate the conversion of domestic carbon credits to international credits, thus increasing the perceived value of the credits and encouraging more market participants.
There are two markets for carbon credits: compliance markets and voluntary markets.
Compliance markets require companies to comply with certain standards in return for compliance credits while voluntary credits are obtained when companies perform voluntary acts to reduce carbon emissions, in compliance with a voluntary standard.
The issue of double counting is still debated, in instances where foreign investors purchase domestic carbon credits, which could be used to reduce Malaysia’s carbon footprint.
Biodiversity credits are thriving in Australia, reflecting increasing demand, although much more difficult to evaluate, as there are many aspects of biodiversity to be quantified. There are vast opportunities for Malaysia to capitalize on, as one of the most bio-diversified ecosystems on the planet.
There is a stronger push for an emissions trading system (ETS) in Malaysia, less so on carbon tax. Pollination is looking to help the Malaysian government to come up with legislation that will assist in their implementation of ETS.
Q&A Session [moderated by CGM Council Member, Dr Gary Theseira]
Q: Currently, crude oil is valued at USD500-600 per tonne. Conversely, an IPCC report priced carbon at roughly 20 USD per tonne. If we are to retain our forests, the carbon prices should be at least on par if not higher than prices of fossil fuel. How do we increase carbon prices?
[Martijn]: It can be difficult as we have to look at the economic use case of a standing forest. Traditional use cases to justify cutting down forests would include timber, palm oil, construction and development. We need to build a mechanism to value standing forests, including factors such as biodiversity, watershed for the surrounding areas, etc.
Protecting a standing forest currently doesn’t qualify for credits while refraining from deforestation appears to generate value. We need to explore more sustainable ways to derive value from standing forests, aside from agricultural and timber harvesting.
Q: A forest in Malaysia might be of better quality than one in Egypt. How is the preservation of these two different forest areas valued, and how are they valued differently?
[Martijn] There is a straightforward mathematical calculation to determine the price of carbon credits, linked to the carbon sequestered with a premium for “biodiverse carbon”, such as areas that also retain diverse ecosystems, provide watershed benefits to surrounding areas, etc.
Q: Recent report by mainstream media challenges Verra credits, despite being one of the leading carbon standards for voluntary carbon credit markets. How do we ensure robust validation and verification of credits in Malaysia?
[Martijn]: Much of the claims in the article were false. For instance, the authors criticized a project undertaken in Peru which apparently lacked engagement with the local community, but video clips presented weren't from Peru. The article appeared to be a concerted effort by certain NGOs to attack targeted conservation groups.
The consensus in the community is that there have been bad actors and bad projects in the past, however, these have now largely been done away with. In addition, there is a continuing huge global effort to ensure carbon projects contribute real impact and value. There are also many emerging carbon rating agencies entering the market to provide the confidence needed by consumers, ensuring that carbon credits are genuinely conserving the environment.
Australia has one of the most robust carbon offset practices in the world, with very stringent and well-regulated measures, despite some critics, including a former regulator, pointing out flaws in the system. It is important to recognize that these methodologies were adopted 10 years ago and over time, science has improved considerably, whereby the flaws were addressed accordingly. The underlying science for the various methodologies may be different, but ultimately, the only way to preserve the value of nature is to impose legislation to stop those who are destroying it.
Q: Forests are subjected to sudden, rapid and unpredictable risks. For example, forest fires can destroy large areas of forest land within a short period of time, especially now with climate change rearing its ugly head. Given that Australia has a more mature carbon credit market, what are the procedures in place for adapting towards the change in valuation of carbon prices?
[Martijn] From a banking perspective, the question is how can one integrate the cost of risk into the equation?
First, insurance companies will assess climate risks and employ sophisticated methods to do so. The challenge then, is to understand the risks in designated areas. In some regions, for example, forest fires happen once in a hundred years; whilst for others, it’s a lot more common.
Both TCFD (Taskforce for Climate Financial Disclosure) and TNFD (Taskforce on Nature Related Financial Disclosures) requires disclosure of exposure to risks arising from climate and nature, including risks in supply chains, and to disclose the impact their business has on nature and vice versa.
For instance, Starbucks coffee chain stores in America have to deal with small producers in Peru and are subject to deforestation risks, which would need to be disclosed.
There are multiple dynamics emerging in policy and regulation that will allow people to have a better overview of valuation. We can also bring in accounting techniques into the valuation of nature. An example includes, Deloitte performed a large analysis on the valuation of the reefs of Australia and a lot of this valuation was based on the tourism industry.
