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Landowners are earning millions for carbon cuts that may not occur

https://www.technologyreview.com/s/613326/californias-cap-and-trade-program-may-vastly-overestimate-emissions-cuts/

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Under a California program aimed at curbing climate pollution, landowners across the US have received hundreds of millions of dollars for promised carbon dioxide reductions that may not occur.

The state has issued carbon offset credits to projects that may overstate their emissions reductions by 80 million tons of carbon dioxide, a third of the total cuts that the state’s cap-and-trade program was expected to achieve in the next decade, according to a policy brief that will be released in the next few days by the University of California, Berkeley.

The findings raise troubling questions about the effectiveness of California’s cap-and-trade program, one of the world’s most high-profile tests of such a market-based mechanism for combating climate risks. Implemented in 2013, the system is a centerpiece of the state’s ambitious efforts to rollback greenhouse-gas emissions, expected to achieve nearly 40% of California’s total cuts.

“If [the] findings are correct, then it would appear that a substantial component of the cap-and-trade program is not producing real emission reductions,” said Danny Cullenward, a research associate at the Carnegie Institution and member of a California Environmental Protection Agency committee that analyzes the impacts of the cap-and-trade system, in an e-mail.

California’s offsets program allows timber companies, Native American tribes, and other private landowners to sell credits to climate polluters in exchange for growing trees or taking other steps that reduce or absorb greenhouse-gas emissions. To date, such forestry projects have received more than 122 million credits, worth more than $1 billion.

But more than 80% of the credits that California’s Air Resources Board (ARB) has issued to some three dozen analyzed forestry projects likely don’t represent “true emissions reductions,” according to the new analysis by Barbara Haya, a research fellow with the Center for Environmental Public Policy, who has been studying and raising concerns about the state’s offset system for years.

Under a cap-and-trade program, the government sets a limit on the total quantity of greenhouse gases that industries covered by the policy can emit, a cap that tightens over time. Companies can buy or sell allowances that enable them to emit set levels of greenhouse gases, effectively creating a market and price for the pollution.

But carbon emitters often have a second option as well: purchasing credits from carbon offset projects that claim, through one of several ways, to reduce greenhouse gas emissions. Different cap-and-trade programs have different standards for what types of projects qualify, and for how their impacts are measured and verified.

ARB’s US Forest Projects protocol, the subject of the UC Berkeley analysis, accounts for more than 80% of the issued credits to date. It enables forest landowners to sell credits if they halt plans to cut trees, agree to plant more, or manage forest lands in a way that increases the amount of carbon they store. Crucially, they can also secure credits for “business-as-usual land management” if their forest already holds more carbon than normal for a particular type and region, provided they commit to maintaining those levels for the next hundred years.

The main argument for offsets is that they allow the market to find cheap ways to reduce emissions, and push sectors beyond those covered in the cap-and-trade program to improve their carbon footprints as well.

But there are major challenges with properly accounting for offsets.

For starters, if a timber company reduces harvesting on one piece of land, but that firm or another one meets market demand by simply increasing logging on some other parcel, then the program hasn’t truly achieved a net emissions benefit. This is known as “leakage.”

California’s protocol assumes a 20% leakage rate, but Haya’s analysis notes that several earlier studies found such rates can reach around 80%. A related but bigger problem is that landowners earn offset credits “that allow emitters in California to emit more than the state’s emissions cap today, in exchange for promises to sequester carbon over 100 years.”

That presents an obvious problem, since the bulk of the world’s emissions cuts need to happen in the next three decades to avoid the gravest threats of climate change.

But Haya argues further that many of the promised cuts may not actually happen at all. For one thing, it will become increasingly difficult for forests to retain carbon over time as trees age, climate effects take hold, and wildfires occur. For another, Haya points to a number of complexities within the protocol that suggest it doesn’t properly account for the increased levels of logging likely to occur as a result of the program in the decades to come.

A separate problem with offsets is known as “additionality.” If the landowner had no intention of actually harvesting that plot of land, then that owner is just asking to get paid to maintain the status quo—in which case there’s no real-life impact on emissions.

For the offsets system to work, the action, or lack of action, had to occur because of the program. But accurately assessing this is famously difficult, since you can’t know a person’s or company’s intentions with certainty.

“From a technical and administrative perspective, creating an effective offsets system is extremely difficult because the baseline is so hard to measure reliably,” said David Victor, an energy policy researcher at the University of California, San Diego, who has closely studied earlier systems, in an e-mail.

“Moreover, the politics of offsets [are] somewhat one-sided,” he added. “There are huge pressures to generate excess credits—pressures that arise from people who want to show that markets are liquid, from project developers who want to maximize credits, and from compliance buyers.”

In 2017, Stanford researchers published a paper concluding that California’s offsets program was helping to cut emissions on the whole, in what was seen as an important stamp of approval. The central finding was that around 64% of the projects claiming credits for “improved forest management” were “actively logging at or prior to project inception.”

But others found it conspicuous that about a quarter of the projects were owned by conservation nonprofits, which raises questions about the level of additional emissions probably achieved—since, as the study itself notes, such groups “are likely to be uninterested in logging their forest for profit, and their management practices may already sequester forest carbon.”

Haya stresses that she’s not arguing landowners are breaking any laws. Rather, she says, the state has set up “rules that invite false crediting,” and “the forest landowners are just playing along.”

ARB, for its part, defends the forestry protocol, stating that the way it accounts for leakage and additionality was based on the best available science.

Rajinder Sahota, the board’s assistant division chief, says that the program is designed to create economic incentives for landowners to keep trees intact. She adds that ARB is scheduled to review the forestry protocol later this year through a public process that will examine new studies, and seek input from academic experts, the US Forestry Service, and others.

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These ten enterprise M&A deals totaled over $40B in 2019

It would be hard to top the 2018 enterprise M&A total of a whopping $87 billion, and predictably this year didn’t come close. In fact, the top 10 enterprise M&A deals in 2019 were less than half last year’s, totaling $40.6 billion. This year’s biggest purchase was Salesforce buying Tableau for $15.7 billion, which would…

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These ten enterprise M&A deals totaled over $40B in 2019

It would be hard to top the 2018 enterprise M&A total of a whopping $87 billion, and predictably this year didn’t come close. In fact, the top 10 enterprise M&A deals in 2019 were less than half last year’s, totaling $40.6 billion.

This year’s biggest purchase was Salesforce buying Tableau for $15.7 billion, which would have been good for third place last year behind IBM’s mega deal plucking Red Hat for $34 billion and Broadcom grabbing CA Technologies for $18.8 billion.

Contributing to this year’s quieter activity was the fact that several typically acquisitive companies — Adobe, Oracle and IBM — stayed mostly on the sidelines after big investments last year. It’s not unusual for companies to take a go-slow approach after a big expenditure year. Adobe and Oracle bought just two companies each with neither revealing the prices. IBM didn’t buy any.

Microsoft didn’t show up on this year’s list either, but still managed to pick up eight new companies. It was just that none was large enough to make the list (or even for them to publicly reveal the prices). When a publicly traded company doesn’t reveal the price, it usually means that it didn’t reach the threshold of being material to the company’s results.

As always, just because you buy it doesn’t mean it’s always going to integrate smoothly or well, and we won’t know about the success or failure of these transactions for some years to come. For now, we can only look at the deals themselves.

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Jumia, DHL, and Alibaba will face off in African ecommerce 2.0

The business of selling consumer goods and services online is a relatively young endeavor across Africa, but ecommerce is set to boom. Over the last eight years, the sector has seen its first phase of big VC fundings, startup duels and attrition. To date, scaling e-commerce in Africa has straddled the line of challenge and…

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Jumia, DHL, and Alibaba will face off in African ecommerce 2.0

The business of selling consumer goods and services online is a relatively young endeavor across Africa, but ecommerce is set to boom.

Over the last eight years, the sector has seen its first phase of big VC fundings, startup duels and attrition.

To date, scaling e-commerce in Africa has straddled the line of challenge and opportunity, perhaps more than any other market in the world. Across major African economies, many of the requisites for online retail — internet access, digital payment adoption, and 3PL delivery options — have been severely lacking.

Still, startups jumped into this market for the chance to digitize a share of Africa’s fast growing consumer spending, expected to top $2 billion by 2025.

African e-commerce 2.0 will include some old and new players, play out across more countries, place more priority on internet services, and see the entry of China.

But before highlighting several things to look out for in the future of digital-retail on the continent, a look back is beneficial.

Jumia vs. Konga

The early years for development of African online shopping largely played out in Nigeria (and to some extent South Africa). Anyone who visited Nigeria from 2012 to 2016 likely saw evidence of one of the continent’s early e-commerce showdowns. Nigeria had its own Coke vs. Pepsi-like duel — a race between ventures Konga and Jumia to out-advertise and out-discount each other in a quest to scale online shopping in Africa’s largest economy and most populous nation.

Traveling in Lagos traffic, large billboards for each startup faced off across the skyline, as their delivery motorcycles buzzed between stopped cars.

Covering each company early on, it appeared a battle of VC attrition. The challenge: who could continue to raise enough capital to absorb the losses of simultaneously capturing and creating an e-commerce market in notoriously difficult conditions.

In addition to the aforementioned challenges, Nigeria also had (and continues to have) shoddy electricity.

Both Konga — founded by Nigerian Sim Shagaya — and Jumia — originally founded by two Nigerians and two Frenchman — were forced to burn capital building fulfillment operations most e-commerce startups source to third parties.

That included their own delivery and payment services (KongaPay and JumiaPay). In addition to sales of goods from mobile-phones to diapers, both startups also began experimenting with verticals for internet based services, such as food-delivery and classifieds.

While Jumia and Konga were competing in Nigeria, there was another VC driven race for e-commerce playing out in South Africa — the continent’s second largest and most advanced economy.

E-tailers Takealot and Kalahari had been jockeying for market share since 2011 after raising capital in the hundreds of millions of dollars from investors Naspers and U.S. fund Tiger Global Management.

So how did things turn out in West and Southern Africa? In 2014, the lead investor of a flailing Kalahari — Naspers — facilitated a merger with Takealot (that was more of an acquisition). They nixed the Kalahari brand in 2016 and bought out Takelot’s largest investor, Tiger Global, in 2018. Takealot is now South Africa’s leading e-commerce site by market share, but only operates in one country.

In Nigeria, by 2016 Jumia had outpaced its rival Konga in Alexa ratings (6 vs 14), while out-raising Konga (with backing of Goldman Sachs) to become Africa’s first VC backed, startup unicorn. By early 2018, Konga was purchased in a distressed acquisition and faded away as a competitor to Jumia.

Jumia went on to expand online goods and services verticals into 14 Africa countries (though it recently exited a few) and in April 2019 raised over $200 million in an NYSE IPO — the first on a major exchange for a VC-backed startup operating in Africa.

Jumia’s had bumpy road since going public — losing significant share-value after a short-sell attack earlier in 2019 — but the continent’s leading e-commerce company still has heap of capital and generates $100 million in revenues (even with losses).

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Airbnb’s New Year’s Eve guest volume shows its falling growth rate

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between. It’s finally 2020, the year that should bring us a direct listing from home-sharing giant Airbnb, a technology company valued at tens of billions of dollars. The company’s flotation will be a key event in…

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Airbnb’s New Year’s Eve guest volume shows its falling growth rate

Hello and welcome back to our regular morning look at private companies, public markets and the gray space in between.

It’s finally 2020, the year that should bring us a direct listing from home-sharing giant Airbnb, a technology company valued at tens of billions of dollars. The company’s flotation will be a key event in this coming year’s technology exit market. Expect the NYSE and Nasdaq to compete for the listing, bankers to queue to take part, and endless media coverage.

Given that that’s ahead, we’re going to take periodic looks at Airbnb as we tick closer to its eventual public market debut. And that means that this morning we’re looking back through time to see how fast the company has grown by using a quirky data point.

Airbnb releases a regular tally of its expected “guest stays” for New Year’s Eve each year, including 2019. We can therefore look back in time, tracking how quickly (or not) Airbnb’s New Year Eve guest tally has risen. This exercise will provide a loose, but fun proxy for the company’s growth as a whole.

The numbers

Before we look into the figures themselves, keep in mind that we are looking at a guest figure which is at best a proxy for revenue. We don’t know the revenue mix of the guest stays, for example, meaning that Airbnb could have seen a 10% drop in per-guest revenue this New Year’s Eve — even with more guest stays — and we’d have no idea.

So, the cliche about grains of salt and taking, please.

But as more guests tends to mean more rentals which points towards more revenue, the New Year’s Eve figures are useful as we work to understand how quickly Airbnb is growing now compared to how fast it grew in the past. The faster the company is expanding today, the more it’s worth. And given recent news that the company has ditched profitability in favor of boosting its sales and marketing spend (leading to sharp, regular deficits in its quarterly results), how fast Airbnb can grow through higher spend is a key question for the highly-backed, San Francisco-based private company.

Here’s the tally of guest stays in Airbnb’s during New Years Eve (data via CNBC, Jon Erlichman, Airbnb), and their resulting year-over-year growth rates:

  • 2009: 1,400
  • 2010: 6,000 (+329%)
  • 2011: 3,1000 (+417%)
  • 2012: 108,000 (248%)
  • 2013: 250,000 (+131%)
  • 2014: 540,000 (+116%)
  • 2015: 1,100,000 (+104%)
  • 2016: 2,000,000 (+82%)
  • 2017: 3,000,000 (+50%)
  • 2018: 3,700,000 (+23%)
  • 2019: 4,500,000 (+22%)

In chart form, that looks like this:

Let’s talk about a few things that stand out. First is that the company’s growth rate managed to stay over 100% for as long as it did. In case you’re a SaaS fan, what Airbnb pulled off in its early years (again, using this fun proxy for revenue growth) was far better than a triple-triple-double-double-double.

Next, the company’s growth rate in percentage terms has slowed dramatically, including in 2019. At the same time the firm managed to re-accelerate its gross guest growth in 2019. In numerical terms, Airbnb added 1,000,000 New Year’s Eve guest stays in 2017, 700,000 in 2018, and 800,000 in 2019. So 2019’s gross adds was not a record, but it was a better result than its year-ago tally.

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