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TPG sets up to ride ‘massive increase in demand’ for carbon credits

Element Markets, a portfolio company TPG acquired last year, has combined with Bluesource to offer voluntary and mandatory carbon offsets in North America.

Carbon offset providers Element Markets and Bluesource have merged to form a global decarbonisation platform backed by TPG Rise’s climate strategy.

The two companies are forming a yet-to-be-named entity after receiving a “significant” commitment from TPG Rise Climate, a private markets energy transition fund launched last year by TPG Capital, according to a statement. After acquiring Element Markets in January 2021, TPG Rise, the firm’s global impact strategy, also invested in the partnership alongside the energy transition group formed by NGP Energy Capital. Further transaction details were not disclosed.

To meet net zero goals, a growing number of private markets investors are purchasing credits from companies like Bluesource and Element Markets, which offer exposure to projects benefiting the environment to offset portfolio greenhouse gas emissions.

Element Markets was founded in 2005 and has sold offset credits for over 40 projects in the US, representing more than 60 million tonnes of reduced emissions. Chief executive Angela Schwarz will lead the new entity, the statement said.

There are both voluntary and mandatory markets for carbon offset credits. The Bluesource-Element Markets merger creates a “two-by-two matrix” where the single new entity will offer both voluntary and mandatory credits across North America, Marc Mezvinsky, business unit partner at TPG Rise, told New Private Markets.

“There’s no silver bullet to decarbonisation. We need multiple solutions at scale to combat the climate crisis,” Mezvinsky said. “Carbon offsets are part of the decarbonisation transition, and Bluesource has an acute focus on quality, delivering meaningful impact in terms of restoration and conservation.”

While voluntary credits are purchased to satisfy sustainability initiatives and improve ESG measurements, according to Kevin Townsend, Bluesource’s chief commercial officer, mandatory or “compliance” markets offer investors a vehicle to meet regulatory obligations to reduce emissions.

Bluesource has seen a “massive increase in demand” for voluntary carbon credits in recent years, Townsend told New Private Markets. Since launching in 2001, Bluesource has sold offset credits financing over 200 projects, representing $1 billion of capital raised and 170 million tonnes of reduced emissions, according to the company’s website.

The merger with Element Markets and its global reach “allows us to go both vertical and horizontal”, he said. “It allows us to vertically integrate and go further upstream and downstream in our respective supply chains than either company would be able to do on its own.”

In January 2021, a report from the Taskforce on Scaling Voluntary Carbon Markets said that, between 2017 and 2020, the number of credits issued had more than tripled from 60 million to 181 million metric tonnes of carbon dioxide equivalent.

Last July, TPG launched its Rise Climate strategy to deliver “impact-driven capital” and scale businesses focused on addressing the global climate crisis, the firm said at the time. TPG Rise Climate has raised at least $5.4 billion so far towards a $7 billion hard-cap.