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SEB positions itself in emerging market for carbon removals

To achieve the goals of the Paris Agreement, it won’t be enough to reduce carbon emissions. It will also require removing carbon dioxide from the atmosphere. Here a new market is emerging for originating and trading in carbon removals, and SEB aims to take a leading role.

“The UN’s Intergovernmental Panel on Climate Change (IPCC) has made it very clear that it will not be possible to achieve the climate goals without removing CO2 from the atmosphere,” Olle Billinger, adviser in Sustainable Banking at SEB.

A carbon removal credit is an arrangement where companies that are not able to reduce all of their emissions to zero purchases a credit from a producer that have the technology and capacity to remove carbon dioxide from the atmosphere. The use of these carbon removal credits is usually seen as a complement to steep emission reduction, not to be utilized instead of.

In early June, SEB is hosting a seminar for companies, institutions and other key actors focusing on accelerating the market for high-quality carbon removals – a market that has major potential to create climate benefit, customer value and new revenue streams for the bank.

This venture is the result of a collaboration between Sustainable Banking and Commodities, the bank’s business unit for trading in the commodities market.

Carbon dioxide an increasingly important commodity

The Commodities business unit has long had the insight that carbon dioxide will be an increasingly important commodity.

“Our entire business is based on helping our corporate customers manage their risks in the commodities market. One of these risks is posed by the EU Emissions Trading System (EU ETS). If you belong to certain industries and have a certain size of your operations, you are included in the system and are compelled to buy emission allowances to compensate for your emissions,” explains Maximilian Brodin, Head of Commodities at SEB.

Previously the allocation of emission allowances was free of charge for certain companies, but the industries included in the system must now buy emission allowances at an accelerating pace. The price, which was around EUR 4–5 per tonne just over five years ago, has skyrocketed and is now around EUR 100 per tonne.

Today the Emissions Trading System covers approximately 1.5 bn tonnes of CO2 equivalents per year, which is nearly half of the EU zone’s total emissions. Total, annual global emissions are typically estimated to be around 40 billion tonnes.

“If you take the observed price of CO2 and compute the value for the entire market, already a few years ago it was arguably the largest commodity market. It just has not been tradable,” says Maximilian Brodin.

Market for voluntary trading

Aside from the regulatory-driven trading in emission allowances, there has long been a market for voluntary climate compensation, or carbon offsets. However, this has been set off from the banking system and has not been considered to be entirely legitimate due to the risk for so-called greenwashing.

But in recent years there has been a growing realisation of the need for a standardised, global market for voluntary trading in carbon credits. An important starting point for this came in 2015 when Mark Carney, then-governor of the Bank of England, gave a notable speech in which he predicted that the climate crisis could pose a risk for financial stability.

Carney also pointed to the need for a framework and system of governance to create a standardised market comprising of carbon credits with a higher quality than what is the case today. This now exists in the form of the Integrity Council for the Voluntary Carbon Market (ICVCM), one of several bodies that advocates for higher quality, integrity, standardisation, and transparency in these emerging markets.

Good for the bank, the customers, and the planet

For some time now the team in Commodities and an expert group in Sustainable Banking have been trying to determine what role SEB can play in this area.

“Our group has a mandate to try to find new, revenue-generating streams for the bank in sustainability,” says Olle Billinger. “When we look at new lines of business or areas, our starting point is that they must meet three criteria: it must be good for the bank, good for our customers, and good for the planet.”

The logic is simple. If an offering is good for the bank and the planet, but not for customers, no one will buy it. If the offering is good for customers and for the planet, but not for the bank, then it would be some form of charity. And if it is good for the bank and customers, but not for the planet, the risk is likely that it’s a matter of greenwashing.

“When we began building up expertise in the market for climate compensation through carbon offsets, we realised there would be a big risk for greenwashing. To address this, we began looking at carbon removal at an early stage, that is, technologies for removing carbon dioxide from the atmosphere on an industrial scale,” Olle Billinger adds.

Favourable conditions in Nordic region

The project group also identified the Nordic countries as a region that has favourable conditions to contribute to this market since there are many industries that use forest residues or other biomass to produce paper products and heat.

These carbon emissions are biogenic, not fossil. This means that they are climate-neutral since the plants and trees capture carbon dioxide from the atmosphere, which would be released into the atmosphere when the biomass decays. But if you can capture and store these biogenic carbon dioxide emissions and thereby remove them from the atmosphere, you would break the carbon circle, create negative emissions, and reduce the total amount of carbon dioxide in the atmosphere.

“These are emissions that can be captured and that have enormous potential to contribute to global and national climate targets, but also help companies reach their own net zero goals,” says Olle Billinger.

Many of SEB’s corporate customers have set science-based net zero targets in accordance with the Science Based Targets initiative (SBTi). They have thereby undertaken to, over time, reduce their own emissions as far as possible, but many will have a hard time reaching a 100 per cent reduction. For the remaining five or ten per cent, they have the option to buy carbon removals in accordance with the SBTi’s net zero standard.

“We have scientific support from the IPCC that this is good,” explains Maximilian Brodin. “We have very many companies that have committed themselves to having net zero emissions, which means that they need to address the emissions that they cannot reduce within their own value chains. The best way to do this is through high-quality carbon removals, which we believe will come in part from the Nordic value chain surrounding biomass. So here we have found a niche where we believe we can add value for the climate, for our customers and for the bank.”

Learn more:

How SEB can support you in your commodities business: Commodities | SEB (sebgroup.com)