What Is Carbon Financing?
Carbon financing is a financial mechanism that leverages the revenue from the sale of carbon-offset credits to reduce the initial capital costs of projects that result in greenhouse gas emissions reductions, such as natural refrigerant installations. Carbon-offset credits are determined based on emissions reductions that have been quantified and verified by an approved protocol.
Why Is This Important for Supermarket Retailers?
Amidst increasing regulatory pressures to transition away from traditional hydrofluorocarbon (HFC) refrigerants, a growing number of US grocers are looking to climate-friendly natural refrigerants as a future-proof option. But upfront cost premiums associated with natural refrigerant technologies remain the greatest barrier preventing the transition. Incentives and other funding support can offset upfront costs and make natural refrigerants a more feasible business choice, but there are currently no funding sources to support the transition on a national level.
How Can It Apply to Natural Refrigerants?
Refrigerant carbon-offset credits are based on the emissions avoided by installing a natural refrigerant-based system instead of or in replacement of a high-global warming potential (GWP) HFC system. Credits are quantified using the American Carbon Registry’s Methodology for Advanced Refrigeration Systems. The methodology is currently being updated to reflect requirements under the new American Innovation & Manufacturing (AIM) Act, but projects completed in 2020 are still eligible for credits in the meantime.
How Much Funding Are We Talking About?
Carbon-offset-credits are measured in terms of tons of carbon dioxide-equivalent (CO2e). The price per ton will vary depending on whether the credits are sold on the voluntary or compliance market and how much the buyer is willing to pay. Carbon credit prices range greatly but are typically valued between $5 and $25 per ton. We estimate that a typical supermarket system project using natural refrigerants could qualify for $5,000 to $25,000 in carbon financing revenue.
But the real opportunity is the potential future value of the credits. Earlier this year, a senior official with the Bank of England predicted that carbon prices could increase to $100 per ton by 2030 due to more stringent pollution allowances that will result from countries acting on their Paris Agreement commitments. Under those conditions, a typical supermarket could qualify for over $100,000 in carbon financing revenue, which could tip the scales to eliminate natural refrigerant cost barriers and allow for their widespread adoption.
NASRC Carbon Financing Pilot
To stimulate a scalable market of refrigerant carbon-offset credits, NASRC has launched a pilot to establish both a supply and demand for refrigerant carbon-offset credits and demonstrate the potential. To that end, we are applying the methodology to several natural refrigerant systems installed in grocery stores in 2020. We expect to complete the pilot by early next year. The long-term goal is to leverage carbon financing to support the volumes of adoption needed to trigger economies of scale and enable the widespread adoption of natural refrigerants.
Contact NASRC to learn more.