LowEmissionAsphalt-136pg-WhitePaper-May2023

P a g e | 19 Carbon Offsetting – Rapidly Evolving Industries and corporations are increasingly using carbon credits to offset greenhouse gas emissions as part of their climate goals. Volumes are expected to continue rising in the coming years due to proliferation of climate commitments and “soft” regulatory pressures in selectively targeted industries, including in paving construction. Carbon offsetting is a simple concept. Carbon emitted from one source, for example, burning fuel in the manufacturing of asphalt is counteracted or “offset” by carbon removed from the environment by another means. California led the United States in carbon offsets placed in 2022 with ~$45 billion in auction volume. Europe auctioned over $590 billion. 36 So, America already is falling behind . As noted, offsets can either be within a system or systematic, for example, removing traffic pollution directly on a roadway via post construction pavement additives. Or externally from an unrelated system or process. They can be “tradeable securities” meaning secondary market eligible or privately placed to be used as an “allowance asset” for carbon accounting . The “voluntary” (tradable) and quasi-voluntary or carbon allowance asset markets are illiquid and price discovery remains highly inefficient. The market(s), however, have been growing rapidly, doubling every eighteen months in recent years. To put into perspective, the combined carbon credit, allowance asset, and futures markets, total notional value created between 2016 and 2019 (pre pandemic) was less than $200 billion 37 globally (<1% global GDP) and heavily favored internal accounting allowances over tradable credits. The market value of Bitcoin (BTC), by comparison, reached $1 trillion at one point. So, the overall carbon offset market remains relatively small still, especially tradeable credits, but it is growing and perhaps most importantly evolving rapidly. In its embryonic state, the carbon offset market has encountered not unexpected qualitative issues with certain types of credits. 38 36 IHS Markit: KraneShares (KRBN): Is Carbon Poised for a Breakout Year in 2023 ? 37 IHS Markit 38 SourceMaterial and The Guardian , The Carbon Con , January 2023.