FEATURE: Oil price provider eyes cashing in on UN carbon trade

Quantum Commodity Intelligence - The biggest provider of crude and refined oil price benchmarks in the world is eyeing UN carbon markets as a source of new revenue as it seeks to leverage its technology to cash in on the transfer of billions of dollars earmarked to help poor nations decarbonise.

S&P Global announced this week the first digital connection of its 'Meta' registry with Cercarbono, a carbon standard based in Colombia, a move that is meant to help place it at the centre of global carbon trade.

The connection was made via EcoRegistry, which has run Cercarbono's registry ever since its inception, and has one of the most sophisticated software systems in the registry business.

UN tender

The news comes after it emerged that the US-listed financial services provider won a UN tender to run the Article 6 registry, which will govern new UN carbon credit markets that some estimate could generate a wealth transfer of $250 billion per year from rich nations to poor ones.

"Meta Registry is a functional connection with registries rather than just a 'view' on them," said Jonty Rushforth, the head of environmental solutions at S&P.

"If the carbon market was a city, Meta Registry would be the subway, CAD Trust would be the news agency and exchanges would be the shops," he said.

While S&P is a behemoth of an organisation with 40,000 employees working in a range of financial services functions, the executives running its carbon registry business and who attended the COP29 UN climate talks in Baku, Azerbaijan, earlier this month, cut their teeth in financial services by monetising data from the trade of oil.

Before being involved in S&P's registry business, Rushforth was an executive at Platts, the S&P subsidiary that makes hundreds of millions of dollars a year in profit by providing oil benchmarks and taking a cut on oil transactions through its platforms and the use of its data.

By selling licences to use data created from supplying technology to aid oil and fossil fuel trade, Platts had profit margins of around 50% and revenues close to $1 billion dollars a few years ago, according to people with knowledge of the matter.

These models are often seen as monopolistic, as trade based on commodity indices is often ingrained in a network of contracts stretching over many years that is hard to shift.

And there is now the expectation it will apply the same commercial model in the carbon sector by getting in early at UN climate talks as negotiations to build the market begin in earnest.

A long-term industry observer with close knowledge of the space speculated S&P's goal may be to "gather as much data as they can and then funnel it to their price-reporting arm on an exclusive basis so they can be the sole provider of prices for the space".

Roadmap

S&P's Rushforth said: "Our roadmap includes the addition of a wide variety of third-party data and services. S&P Global Commodity Insights already receives and publishes a wide array of transaction data across its services in the energy transition space."

In the carbon markets, registries are an essential piece of infrastructure to enable the smooth transfer of carbon credits, the equivalent of ports and terminals in the oil market and high-voltage transmission lines in electricity.

Meta enables registries from around the world to connect with each other, track, transfer and retire carbon credits, and acts as an extra data layer 'on top' of the tens of individual carbon standards that exist in the market.

For now, in the provision of trading infrastructure, S&P competes with but lags behind Xpansiv, a US and Australian firm that operates a similar data layer as well as an exchange, and was first to market.

Xpansiv acquired US emissions registry developer APX in 2022 in a transaction rumoured to have fetched well above $100 million, effectively gaining control of the largest registry business in the market used by US-based Verra, ACR and Climate Action Reserve.

It has also built connections to Cercarbono, Puro.earth and the Ecosystem Restoration Standard.

Meanwhile, S&P's wider acquisition of IHS, completed the same year, gave it access to the IHS Markit carbon registry, which offers services to the likes of Plan Vivo, Coalition for Rainforest Nations and the UK's Woodland Carbon Code.

Collaboration

But the idea of being the hub for carbon trade has caused friction between S&P Global and Xpansiv, in which S&P owns a small stake and lists itself as a "strategic partner".

The two companies have an ongoing collaboration in carbon pricing, with S&P's pricing division responsible for assessing settlement prices for carbon credits on CBL's exchange.
Multiple sources have confirmed the two companies have increasingly become 'frenemies' as a result of S&P's desire, not just to be a price provider, but to own the registries that track trade and compete directly with Xpansiv.

One source said the relationship between the two companies became more fraught after S&P hired staff from Xpansiv's registry business, including Joe Varnas, who is the son of APX founder Joe Varnas (Senior).

He was also head of client management at the company before and after the acquisition by Xpansiv.

"S&P is betting on Article 6 and has just fired a shot across Xpansiv's bow. They'll both compete for national registries," said Rene Velasquez, who is now a managing partner at investment firm Valitera but had been a strategic adviser to Xpansiv until May this year.

"Let's see how the (carbon credit) market shapes out and whether it is as big as people hope," Velasquez said.

Long-term

Longer-term, sources said a key question is whether S&P will seek to leverage its position in the Article 6 market to be an exclusive provider of pricing information to the market, which would boost the competition with Xpansiv to a new level.

Currently, Meta does not give it access to detailed transactions data, but sources said this could change in future.

Xpansiv declined to comment for this story.

Quantum competes with S&P in providing data and news on oil and carbon trade.