The Market for Green Premiums: Where Did it Go Wrong?

Opinion Piece: The Market for Green Premiums: Where Did it Go Wrong?

Over the past few years, much has been made of the ‘green premium’. This fantastic creature is a notionally higher price for raw materials or inputs that are more sustainable.

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This week I’ve heard from two investors in sustainable manufacturing innovations that produce necessary raw materials with radically lower emissions. In both cases, there’s a struggle to make these materials commercially viable.

Two reasons:

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• Buy side: the prospective buyers of these green raw materials are giving no indication that they are interested in purchasing these materials in preference to the regular alternative (let alone at a premium). I believe this is actually not true for buying organisations as a whole (where in many cases I know there is long term excitement and appetite). But I don’t think the procurement teams have been aligned, and I think there’s some foot-dragging internally on the COGS inflation.

• Sell side: the innovations tend to be led by research and engineering leaders (often the CEO), who sometimes struggle to pitch the product commercially, and often struggle to pitch it at the right level. They need to generate excitement beyond the immediate buyer and raise it to the leadership level, where these innovations can be fodder for the Davos conversation of CEOs. This may sound cynical, but a core part of selling innovation is the ability to create a vision for a non-technical audience.

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By Saif Hameed, CEO of Altruistiq

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Industry Insight: 2024: A Wild Year Ahead for Carbon Markets

This year will be a happening one for carbon markets, building on a wild 2023. Highlights from last year (in case you missed it):

• Offset players were hammered by some seriously pugilistic media coverage.
• Major buyers such as Nestlé publicly declared a shift away from offsets altogether.
• On the flip side, December 2023 looks to have been the biggest ever month (by >40%) for offset purchase and retirement.

Anecdotally, we’re seeing lots of new actors enter the space, significant investment (potentially off the back of capital raised in 2021), and meaningful talk on regulations and standards that should raise the bar on quality. What we think will make this year interesting is:

• Changes to the value chain structure. I expect value chains to shorten, as more sellers go direct to buyers or via Frontier, an advanced market commitment platform. Frontier is a bit unique because it’s owned by one of the largest buyers (Stripe), so out of the countless ‘market makers’, Frontier is one of the only ones that sits on captive demand.
• Evolving standards shaping quality, and therefore suppliers and price. Price changes could trigger a meaningful shift in demand as more companies look to substitute products (which I think are most likely to be in value chain reductions).
• Insetting and regenerative agriculture were the life of the party last year, and this year we’ll all have to figure out how to make them work at some kind of scale. This will require innovation on market mechanisms, contract structures, and financing - beyond the operational ‘on farm’ challenges (which I think are more straightforward if cash is available).

Short of it is: 2024 will bring this Tarantino movie a big sequel. Stay tuned.

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Policy Pulse: Farmer Protests and the EU Parliament's Ambition Scale Back

What’s been happening

The start of the year has been marked by continued farmer's protests in countries throughout the EU. Demands vary, but a common theme is to reverse elements of the EU’s Farm to Fork strategy that impact farmers. As June elections loom closer for the EU parliament, politicians have been quick to climb down the ambition of sustainable agriculture policies.

What are farmer’s demands?

Farmer’s protests started in Germany in response to a reduction in subsidies for agricultural diesel. This quickly spread across the EU with varied asks.

Common points of protest are:

• Cheap imported food - ongoing trade talks around the Mercosur free trade deal, and the threat of cheap imports from Ukraine mean that EU farmers can’t compete.
• Diesel prices rising - farmers are opposing any subsidy reductions for diesel as it is a key input for large-scale agriculture.
• Fertiliser and pesticide restrictions - the EU set the ambition for fertiliser and pesticide use to be cut in half by 2030. This is another key input for farmers.
• Fallow land and restoration laws - in order to get CAP subsidies, farmers are required to set aside 4% from farming uses, leaving productive land in fallow.

How has the EU responded?

The president Ursula von de Leyen quickly pivoted to demonstrate support for farmers, dropping elements of the EU Green Deal. Namely:

• Dropping calls in the 2040 climate plan for agricultural methane and N2O emissions to drop by at least 30% and for reductions in meat consumption.
• Scrapping the proposal to halve pesticides use by 2030.
• Delaying rules to set aside fallow space for biodiversity by at least a year.

It’s an odd juxtaposition that the EU’s ambitious 90% target for emissions reduction by 2040 comes at the same time as the watering down of ambition in the high-impact agricultural sector.

What this all means:

Most would agree with the aims of the EU’s Farm to Fork strategy: to create an improved food system that supports farmers in producing enough healthy food through practices that benefit the planet. Yet the protests show that too much of this responsibility has been put on stretched farmers, and not on the wider food industry and retailers.

Key takeaways:

• Environmental agriculture targets require broader support - with lessened central regulation for biodiversity and climate, it now becomes even more important for food manufacturers and retailers to support their farmers in investing in regenerative agriculture practices.
• Power of organised protest - this concerted and broad action by farmers quickly achieved concessions (however short-sighted), showing how effective more positive climate protest may be.

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Learn more

• The Observer - ‘They’re drowning us in regulations’: how Europe’s furious farmers took on Brussels and won
• Politico - Facing farm protests, EU eases demands in 2040 climate proposal
• Carbon Brief - How farmer protests’ demands relate to climate change
• EU - reduction in CAP requirements for fallow land
• Carbon Brief - EU 2040 90% reduction target

By Dan Enzer, Senior Sustainability Research Associate at Altruistiq

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Related Resources:

1. Maximising your Sustainability Budget, Podcast
2. Build vs Buy: Making the Right Choice for Emission Measurement Tools, Guide
3. Avoid Unexpected Spend on Initiatives with Carbon Pricing, Podcast

Articles to Read:

• Labour’s U-turn: Starmer dropped 28bn: Starmer (nicknamed “Mr Flip Flop” slashed Labour’s signature promise to spend £28bn annually on green initiatives, via the “Green Prosperity Plan” which mirrored Biden’s Inflation Reduction Act, to a mere $4.7bn. This will have implications for the UK’s “green prosperity plan” and transition to Net Zero. Specific initiatives impacted: Labour’s ‘warm homes plan’, the transition to EV’s, and the Clean Power Pledge to decarbonise the UK’s energy suppliers by 2030.
• World's first year-long breach of key 1.5C warming limit: For the first time, global warming has exceeded 1.5C over a 12-month period.
• Barclays to stop financing new oil and gas projects: They have been under intense pressure this year, as the biggest funder of the fossil fuel sector in Europe between 2016 and 2021 (according to a report by the Rainforest Action Network), with campaigners saying that Barclays is "profiting from climate chaos".

Events:

• State of Sustainability Gathering: Building a Sustainable Brand and Business with Greg Jackson, CEO and Founder of Octopus Energy, Monday 19th February, 6.30 - 8.30, London. Register interest here.
• ENG F&B Event, 28th-29th February, Berlin.
• Edie 24, 20-21st March, London.
• State of Sustainability North America, focusing on agri-value sustainability data challenges, April 17th Chicago. Register interest here.