Ratings are an essential tool in any investment process. They increase transparency in the market and improve the investors’ confidence in a certain asset.
Carbon assets present a wide new range of delivery risks not always captured by traditional approaches to credit ratings. Carbon assets not only face the risk of normal project delivery – country, financial and performance uncertainties – but are also subject to a high degree of regulatory and measurement risk. Methodologies, compliance with local and international authorities, and monitoring of carbon emissions provide additional risks to the delivery of forward contracts for emissions.
Our market research reflects that the carbon market buy-side is interested in an independent view on likely delivery risk, i.e. Ratings. Further discussions have illustrated that a closer correlation between price and delivery risk would help the market to mature.
IDEAcarbon has created risk assessment tools to enhance the market transparency and transactional efficiency. An important outcome of our risk analysis is an independent opinion on the likely performance of an emission reduction project. Our risk analysis is based on a combination of expert evaluation; a standardised and transparent risk analysis tool; and the input from a highly expert independent rating committee.
The analytical rigour of The Carbon Rating Agency delivers value to a range of market players by:
- Helping carbon market buyers to assess the risks associated with their purchasing decisions.
- Helping project developers to position their projects and get access to finance.
- Improving the overall working of the carbon market by increasing transparency and improve the understanding of risk.
In such a new market, it is important for participants to have different tools to evaluate their risk exposure. IDEAcarbon provides a range of products to increase market confidence in the carbon business.