Making Markets on Carbon

In the Balance

But achieving carbon neutrality won’t be easy. Taking a look at the U.S. carbon balance, we emit about 6.6 billion tons of CO2 equivalent every year, of which natural sinks (like forests, croplands, and grasslands) only consume 770 million tons:

Source: EPA
  • The market is enormous. Using some pitch-deck math, 5.9 billion tons of carbon at $8 per ton (the most recent RGGI ICE close) is a $47 billion market. If the U.S. starts to resemble the more heavily regulated European market, where carbon trades for €33.25 per ton, this could be a great deal higher (closer to $240 billion).
  • Agricultural capture is probably not the solution. While some recent press has focused on the farming industry’s new role as an outsourced carbon sink that enables private firms such as Shopify to fulfill their environmental commitments, absorption from forests, croplands, and grasslands (the “LULUCF” sector) really only scratches the surface of what needs to be done. Even doubling the capture capacity of this sector we would still be left emitting over 5 billion tons of net CO2 equivalent per year.
  • Transportation and industrial use independently emit comparable amounts of carbon to the power sector but — so far — are unaffected by carbon credit initiatives.

What Exists Now

On the East Coast, there are two main classes of renewable credits, both exclusively focused on the power sector: RGGI credits, which I mentioned earlier, and the various Renewable Energy Credit (REC) markets that individual states choose to operate in parallel.

A New Hope

Seattle-based Nori is attempting to create an infrastructure that allows new projects to generate credits in proportion to the carbon they actually offset, solving the Achilles heal of the RGGI program: verified and dynamic supply.

What’s Wrong with Dollars?

To connect buyers and sellers, Nori proposes creating two markets. In the spot market, sellers place their NRTs in a pool and buyers line up to purchase them with separate “NORI” tokens (the company was founded in the crypto craze of 2017) on a 1:1, First-in-first-out (FIFO) basis. In the forward auction market, new supply is cleared through dutch auctions based on prices equal to one token plus a dollar-denominated spread. Once NRTs are sold to buyers, they are removed from circulation and considered spent:

Source: Nori, Inc.

Man in the Middle

The other big issue with the market structure proposed by Nori is that it attempts to directly place NRTs from originators into the hands of end-users. NRTs can only be sold once for some combination of Nori tokens (with an arbitrary market price) and cash, whose combined dollar value reflect the market demand for carbon credits. This will have to change if the goal is to create a viable market.



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Patrick Mauel

Patrick Mauel


Former Options Trader. Chicago Booth '22. Harvard College '16.