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Clifford Chance

Clifford Chance
Carbon Trading and Investment<br />

Carbon Trading and Investment

Functional carbon markets to drive investment decisions

Carbon trading is a market-based system aimed at reducing greenhouse gases that contribute to global warming, particularly carbon dioxide emitted by burning fossil fuels.

Carbon trading can be: (i) regulatory or compliance emissions trading markets where emission allowances are required to satisfy regulatory 'cap and trade' obligations, thereby encouraging reductions in emissions, or (ii) on voluntary carbon markets where voluntary credits are issued by accredited projects producing reductions in or avoidance of emissions.

We advise clients in all aspects of regulatory and voluntary carbon market trading, regulatory requirements of trading schemes and investments into carbon reduction projects and project developers.

We act for a wide variety of project developers and investors, financial participants and corporates.

Our deep bench expertise covers advising on:

  • net zero and other targets, and how to build carbon offsetting into target implementation.
  • assistance on selecting offset partners.
  • structuring of purchases/purchasing arrangements and documenting transfers of credits to ensure ready supply of offsets and risk mitigation.
  • establishment of standalone projects for offset purchases, and minority investments in project companies/developers, including all necessary documentation.
  • legal due diligence on offset projects.
  • trading allowances, credits and environmental attributes on the regulated markets.
  • carbon reduction obligations for operators under emissions trading schemes.
  • establishment of carbon trading platforms and carbon exchanges.
  • all aspects of carbon finance including derivative products and securitization, and carbon funds.
  • disputes involving carbon credits.

Recent client highlights

  • World first plastic and carbon credit-linked bond: Advised Citigroup Global Markets Limited as arranger of the first bond for which interest amounts are linked to, and contingent upon, the generation of plastic waste collection credits and plastic waste recycling credits, issued by the IBRD. A portion of interest on the bond is also linked to, and contingent upon, the generation of VCUs.
  • Carbon offset project loan: Advised Asian Development Bank on the US$6.5 million financing of Greenway Grameen Infra's carbon offset project in India, involving the production and distribution of one million improved cookstoves to rural households in Madhya Pradesh and Odisha states.
  • World's largest biochar carbon removal project: Advised Biocare Projects on its long-term carbon removal project with ASX-listed timber company Kiland Limited.
  • Carbon offsetting arrangements: Advised easyJet on carbon offsetting agreements in relation to its commitment to offset the carbon from all domestic and international flights.
  • EU Emissions Trading System: Advised RWE, easyJet, Administrators for British Steel and Administrators for Calon Energy on the EU Emissions Trading System.
  • Voluntary credits: Advised a sovereign wealth fund on purchasing voluntary credits to offset emissions.
  • Global carbon commodities exchange platform: Advised Xpansiv on Blackstone's US$400 million investment in its global carbon and environmental commodities exchange platform. Xpansiv provides market data for carbon offsets.
  • Forestry project, DRC: Advised a sovereign wealth fund and Macquarie on their potential investment in a forestry project in the DRC including the due diligence of the project.   
  • Natural capital investment, UK: Advised Pollination Climate Asset Management (CAM) on the setup of its debut fund for investment in Natural Capital Projects and related carbon agreements.
  • Forestry investments, Germany: Advised global car manufacturers on investments in forestry projects and an investment in an offsetting developer including due diligence.

Enabling the Voluntary Carbon Market in the Context of the Paris Agreement

This paper considers the state of the Paris mechanisms and the VCM, examines actual and perceived barriers to its scaling and identifies recommendations for the way forward.

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