from expulsion, not once but twice 👀, to creating ey’s german blockchain practice and now founding his second startup! adrian sets out to introduce one of the most promising sectors of the next decade.
carbon markets ♻️
Our planet is broken. Seriously.
Every year we pump 60 billion tons of CO2 into the atmosphere. If we continue, global warming will increase the world's temperature by at least 1.5 °C by 2040.
We’re fu****.
But there’s hope. I’ve been down the rabbit hole and read everything there is to read. One of the best answers I’ve come across: carbon markets.
Markets? Really? Yeah, that's what I thought too. But let me explain why they are one of our best picks.
How carbon markets work 📉
Carbon markets were initiated somewhat 20 years ago. There are two types:
Compliance Markets:
These markets have been initiated by governments. They regulate the emissions of heavy emitters (think the power sector, industrial plants etc.).
Every listed company must buy credits for their emissions or reduce their output.
Annually, the market emission cap is regulated down ⬇️ and prices for credits go up ⬆️, leading to fewer and more expensive emissions.
It’s a smart and very tightly regulated system. But it works: Participating companies in the European Union Emissions Trading Scheme—the world's most established carbon market—have reduced their emissions by 35% between 2005 and 2019.
Voluntary Market:
This market thrives on increasing voluntary commitments by companies to achieve net-zero emissions.
You've probably heard of Verra or Gold Standard, two of the major registries and standards for carbon credits and offsets.
The idea is:
You have companies that want to compensate for their ‘+1’ emissions.
On the other hand you have ‘-1’ climate projects, that remove carbon from the atmosphere via natural sinks (woods, peatlands, ocean systems etc) or technological installations (e.g. Climeworks or Carbon Engineering).
Both meet and try to reach ‘0’ or even ‘-x’.
Where carbon markets are heading 📈
Both markets are skyrocketing.
Compliance markets had a turnover of €760 billion in 2021 — a 164% increase to 2020.
Opportunities in the voluntary carbon market have grown even faster. The market is expected to grow 15x in the next 8 years and up to 100-fold by 2050 due to climate goals gaining more attention. The voluntary market had a turnover of $1+ billion in 2021, an all-time high.
Furthermore, VC investments into climate tech and carbon removal projects have increased. It's as if everyone has finally realised how important the climate is to us and that you can actually make money while doing something good.
Why are carbon markets important? 🌱
One word: incentives.
The interest in carbon responsibility ensures that climate projects are finally getting the attention they deserve. More funding leads to more scale, which leads to more carbon sequestration, which increases the price of carbon credits and leads to more investment.
Carbon markets are one of our best chances to do that. They enable us to create high-quality carbon removal projects around the world to offset hard-to-reduce emissions at scale.
It’s not too late. But we have to reroute climate investments into the real impactful stuff. Let’s act and grow together!
adrian
oligopolistic plays ♟
Allow me to take you back to first year economics…
🚶♂️ A monopoly: one player dominating the majority of the market.
👯♂️ A duopoly: two players dominating the majority of the market.
👨👩👧👦 An oligopoly: a small group of players dominating the majority of the market.
For the purpose of this piece, I’ll hone in on oligopolies...
But first, why do they exist? 🤔
Oligopolies exist because of what economists call “imperfect competition”. This is essentially when the barriers to entry for newcomers are so high, that only the incumbents dominate (and grow).
Even in South Africa? 🇿🇦
Let’s take a look at the concentration in 2x major sectors in the country…
🏦 Banking (by # of active consumers as of 2021):
Capitec (the newest kid on the block): ~16M
ABSA Bank: ~10M
Standard Bank: ~9M
FirstRand: ~8M
Nedbank: ~7M
📱Telco (by # of subscribers as of 2021):
Vodacom: ~45M
MTN: ~34M
Telkom: ~16M
Cell-C: ~13M
You’ll see a similar pattern of concentration (of 5 or less major players) if you were to look at the insurance, retail and even private healthcare sectors too.
The benefits 👀
It goes without saying, but there are some highly sought-after benefits of being a big player… exactly the type of benefits that any newcomer would love to have access to:
📊 Consumer data: Thanks to the sheer volume of consumers that they transact with, the big players understand consumer behaviour better than anyone else, with unmatched first-party data and insights.
📈 Upsell: The big players have existing pools of consumers who can be seamlessly upsold and cross-sold to.
💰 Balance sheet: The big players have the financial muscle to make strategic acquisitions to increase their market share / increase their consumer base.
How can you (reactively) leverage this? 🤓
When it comes to how businesses plan to grow and transact with consumers, we generally categorise this into 3x types:
B2C: Business-to-consumer (think retailer who sells to you i.e. Checkers).
B2B: Business-to-business (think enterprise solutions i.e. Google Cloud).
💡 B2B2C: Business-to-business-to-consumer (think brand that sells its goods to Checkers to sell to you i.e. Coca-Cola)
If the goal of a newcomer is to scale to more consumers, I’d argue that – given our oligopolistic market – it would be wise to consider the B2B2C route and attempt to make the imperfect competition work for you.
Hypothetically, using B2B2C in this instance could allow a business to effectively reach new customers by leveraging a bank or telco’s existing database, existing consumer insights and a strong balance sheet (amongst other things).
But of course, these companies don’t just do business with anyone… your product / solution would have to be a great fit and a real value-add for them.
(Proactively) intentional 🥸
What if instead of trying to leverage a big player as a channel, you were tailored for them? Consider this:
Ideate + build with the ambition to service a user base of one of the big players.
Ideate + build with the ambition to be acquired by one of the big players.
IMO, if you can’t beat them…
sash
mark zuckerberg's take on style transfer during this intimate podcast reminded karl of claude’s vol.4 piece, artificial flattery 🥸
sash thought elon musk’s tweet about activating starlink in ukraine was really cool