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MARCH 2020



We did not want to flood your inbox with yet another op-ed on COVID-19. Nevertheless, it would be inappropriate to ignore it entirely. These are unprecedented times, and while our global community grapples with loss of life, economic downturns, rapid changes in how we live our lives and uncertainty about how and when normalcy might return in the future, it is our belief at Bluesource that such difficult seasons and times of uncertainty create opportunities for us to become more united, reassess what’s really important, support one another and make massive strides to improve the world around us. While the hardships and pain of the present day are real, we look for the silver linings and remain eternal optimists for a bright future. In the last 3 months, we have seen massive environmental benefits emerge, at magnitudes we are only beginning to understand. Reports of minimal local air pollutants in otherwise choking urban environments and drastically cleaner waterways are beginning to be shared. Manmade greenhouse gas emissions are likely on a decline never seen before. Let us be clear, this is not how we would want to see such environmental improvements come to pass, but now that we’re here, we have an unprecedented opportunity as a global community to change the way we get back to “normal” life in a way that serves each other and serves our planet. To all our readers, we wish you the very best during this trying time.


Five Massive Drivers of Future Demand for Offsets

Prior to the onslaught of COVID-19, a quick scan of the news each day would reveal that climate change is on the minds of customers and corporates worldwide. Warmer winters with rain where there was once snow, colder weather anomalies due to destabilization of the polar vortex, and summers punctuated by raging fires in both hemispheres make the topic impossible to ignore. And, while new regulatory regimes are cropping up across the globe, voluntary action is on the rise.

1. Corporate Actions

In the wake of federal inaction after the federal administration’s promise to withdraw from the Paris Accords in 2017, corporations have begun to step up to the plate as they sign on to initiatives like We Mean Business, We Are Still In, Science-Based Targets, Climate Action 100+, RE100, CDP, and Net Zero 2050. Major corporate culture shifts, such as Blackrock’s pledge to divest from coal, vote against corporate management who isn’t making progress on climate change and introduce funds that ban fossil fuel stocks, while still radical, are becoming more frequent. Customers and investors are demanding this action, and some of these companies are finding that taking steps to address emissions improves their bottom line. In the words of Richard Branson, founder of The Virgin Group, “taking bold action on climate change simply makes good business sense.”

Some companies like Delta, Amazon, Rio Tinto, Nestle, and Microsoft have made public pledges to become net-zero or even carbon-negative by target dates in the future. This type of aggressive action is somewhat unprecedented, and standards to guide this ambition do not yet exist. The British Standards Institution’s PAS 2060 details how to demonstrate carbon neutrality, but this standard is not widely recognized in the U.S. yet, and no standard exists for how to quantify and achieve carbon negative emissions.

One thing is for certain; offsetting initiatives will likely play a major role for companies hoping to achieve net-zero or carbon-negative emissions. Microsoft’s 2020 emissions alone are expected to be 16 million metric tons while Amazon’s were 44.4 million metric tons in 2018. Other companies like Dell, Esty, Google, Maple Leaf Foods and Lyft also rely on offsets for what they cannot reduce internally. The demand that these and other new climate commitments may create is also uncertain as more and more corporates follow suit in the wake of Microsoft’s major announcement in January of 2020 and Amazon’s in September of 2019.

As far as future corporate demand, the best picture that we can get is from the existing analysis of voluntary offset markets. Forest Trends’ Ecosystem Marketplace creates  an annual State of the Voluntary Carbon Market Report , which is an excellent source of information for voluntary demand data that comes from individuals and corporations. In 2018, they reported a market increase of 52.6% by volume, and there was a strong preference for nature-based offset solutions from forestry and grassland projects with a 264% increase in demand for these types of projects. In total, 98.4 million metric tons were transacted in 2018.

2. CORSIA Market

Perhaps the most widely-discussed driver of offset demand is the International Civil Aviation Organization’s (ICAO) Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Because biologically-based substitutes for jet fuel are not yet commercially viable at scale and capital investments in fleet efficiency and changeover can take years, offsets are the main tool that airlines will use to reduce their emissions associated with international air travel to comply with CORSIA, especially in the early years of the program. The market’s pilot phase starts in 2021 and ramps up to Phase I in 2024 and Phase II in 2027. Less developed countries and small island states have obligations in later phases, and the market becomes more stringent each year. The pilot phase has already garnered the support of 78 countries representing 75% of international flights.

ICAO estimates that this new market will generate demand for 2.5 billion offsets from 2021 to 2035. In mid-March of 2020, the Technical Advisory Board (TAB) of CORSIA released the guidelines for which offsets qualify for the CORSIA program. Offsets with their first crediting period beginning on or after January 1, 2016 from the Climate Action Reserve, Verified Carbon Standard, American Carbon Registry, Clean Development Mechanism, The Gold Standard, and the China GHG Voluntary Emission Reduction Program qualify. Due to the significant CORSIA demand for offsets, many market participants are forecasting a price increase for offsets the TAB approves for use. For this reason, many airlines have been involved in conversations with offset providers about pre-compliance offset strategies for CORSIA.

The estimated CORSIA offset demand through its phases is shown in the graph below. However, we would be remiss to not mention the potential effects being felt by the airlines as a result of the COVID pandemic. The current economic situation will no doubt change the airlines’ emission footprints for 2020, which will have a direct impact on their baseline calculations. We won’t be surprised if ICAO makes changes to the CORSIA program to adjust for these unforeseen impacts.

 ICAO, “CORSIA FAQ,” October 31, 2019.   

3. The Paris Accords’ Article 6

The Paris Accords, negotiated in 2015, laid out the broad strokes for the post-2020 global greenhouse gas reduction scheme that is set to replace the Kyoto Protocol. In this Agreement, developing countries, which were previously exempt from mandatory reductions, were included in the reduction targets. These countries participated in carbon markets under the Kyoto Protocol by hosting carbon offset projects enabled by the UNFCCC’s Clean Development Mechanism.

Article 6.4 of the Paris Agreement allows for projects that reduce emissions in one country to be sold to another country to meet its reduction targets, but the crediting of offsets for reductions sold to other countries, while creating reductions that also count towards a national inventory of emissions, would be a clear example of double counting. Therefore, negotiators of the Paris Agreement have called for a cancellation mechanism at the national level that would prevent this double counting; however, the rules dictating this mechanism have not been defined. Going forward, the role of offsets from an international market created by the Paris Agreement is unclear, but they will likely still play an important role in the overall reductions made by each country.

Demand for these international offsets may overlap with the CORSIA demand. Whatever cancellation mechanism is necessary for Article 6 may also be required for eligible CORSIA offsets. While the details of cancellation are still being hammered out, the demand for offsets from the U.S., which has signaled its withdrawal from the Paris Accords and does not have obligations to cancel offsets at the federal level, may increase. An International Emissions Trading Association and Carbon Pricing Leadership Coalition report, published in September of 2019, estimates that Article 6 will drive demand for 2 gigatonnes of reductions in 2020 and increase to 11 gigatonnes by 2100.

4. Emerging Local and Regional Programs

Momentum continues to gather for U.S. States and Canadian Provinces launching their own cap-and-trade programs and other market-based solutions to climate change. Offsets are an important cost-containment measure in many such program designs, and an existing bank of voluntary offsets can provide critical supply in a program’s early years. Whether or not these emerging programs link with other existing local and regional programs may be relevant in terms of fungibility and determining qualifying project types, the actual demand represented by each can be completely independent of such existing jurisdictions.

5. California’s CEQA Requirements

Lastly, a strong driver of offset supply is the California Environmental Quality Act (CEQA), which requires land developers to procure offsets equal to the greenhouse gas emissions that will result from their developments. Each County in California decides which offsets qualify. Some counties like San Diego require that local offsets be sourced first, followed by offsets within the State of California. Only after these offsets have been depleted can national and international offsets be considered. This requirement has the unintended consequence of favoring those developers who purchase offsets after the higher-priced local and state supply has been exhausted. The total state CEQA demand for developments that have already been approved is 24.9 million offsets per year from 2018-2030; however, the lack of California-sited voluntary projects combined with the patchwork of local rules governing offset fungibility in each jurisdiction is causing confusion among developers. Furthermore, the emergence of new standards and approaches, such as the Climate Action Reserve’s Climate Forward program, is helping the industry rethink compliance with CEQA and create new investment opportunities for emission reduction technologies.

Supply of Offsets 

The CORSIA, Article 6, emerging cap and trade, and CEQA demands for offsets blur the lines between voluntary and compliance markets as current voluntary offsets are (and for CORSIA and Article 6, most likely will be) eligible for these regulatory schemes. In 2016 Ecosystem Marketplace reported that while 63.4 million metric tons were transacted, there were another 56.2 million metric tons still available for sale in the market. Nevertheless, these offsets are mostly from older vintages of commercial/industrial project types like renewables, energy efficiency and fuel switching, which will not be eligible for some schemes like CORSIA.

The table below shows the expected demand from five major sources for 2021. There are several important notes related to the data:

  • CEQA demand is from credits from the Climate Forward program, so these would be credits from new projects.  
  • Article 6 demand represents a rough estimate of credit demand from developed countries in the first compliance year under the Paris Accords.   
  • Demand for CORSIA is expected to be about 100M credits in the first three years of the program.  
  • It’s expected that the voluntary market demand data for 2019 will show a sizable increase over the 98M credits in 2018.  
  • We’ve seen a wide range of CORSIA credit supply analyses, and the range below is a rough approximation of that range.  

The COVID-19 pandemic will likely affect many of the sources of supply and demand, but it’s too early to know the extent of those impacts. Looking at the current statistics, our takeaway is that the CORSIA program and increasing corporate demand in the voluntary market are likely to require many credits from existing carbon projects. While the total volume of credits in the market today is likely enough to cover this new and increasing demand in the short term, it should be noted that there will likely be credit supply shortages from certain regions, vintages, and project types. Each credit buyer should assess their credit purchase history and/or strategy going forward to understand the potential impacts of these sources of demand on the credits the buyer may want.

To hedge some of the risks associated with uncertain supply in voluntary offset markets, Bluesource works with clients to design strategies to help de-risk supply and price volatility. To learn more, please don’t hesitate to contact Lizzie Aldrich ( or Ben Massie (  


In December 2019, Bluesource was named “Best Project Developer” in all North American Markets and “Best Offset Originator” in California for the fifth year in a row in Environmental Finance’s Annual Market Rankings. The rankings are determined through a vote of industry participants active in environmental markets.


CORSIA Insights: How Airlines and Carbon Markets are Preparing and the Role of Sustainable Aviation Fuel
APRIL 9, 2020 | 10:00 – 11:00 a.m. PT
The International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is the way by which airlines will neutralize the carbon from their international flights starting in 2021. Tune in to this webinar to learn more about the CORSIA basics, who will participate, how United Airlines is positioning itself for CORSIA, how CORSIA will affect offset markets, the role sustainable aviation fuel (SAF) will play in lowering emissions and a new centralized exchange for CORSIA-eligible emission units, the IATA Aviation Carbon Exchange (ACE).


How Can Conservation Authorities and Municipalities use Carbon Markets to Protect Forests?
MARCH 31, 2020

Eastern Ontario Model Forest and Bluesource present an introduction to forest carbon and explain how this market can help conservation authorities and municipalities protect their forests.

Unlocking Corporate Action on Climate Change
January 21, 2020
Voluntary carbon offset markets can be opaque and intimidating for new corporate buyers. This webinar highlights some common challenges faced by corporates looking to take climate action and will present several ideas for getting started. Sustainability leaders Microsoft and Interface discuss their sustainability strategies and how they’ve overcome challenges.




The Klawock Heenya Project protects 10,000 acres of forest on Prince of Wales Island in Alaska—1,000 acres of which is old-growth forest, boasting 1,000 year old trees. The forests of Klawock Heenya have been utilized by Native populations for centuries for subsistence uses such as firewood, housing materials and canoe logs. Numerous cataloged anadromous fish streams within the property are inhabited predominantly by Pink Salmon and Coho Salmon. It is estimated there are approximately 50 salmon-bearing streams on the project property. The registration and management of this project help ensure the long-term governance of the forest aligns with the values and goals of the Native peoples who have inhabited the land for centuries.


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