The carbon markets cliffhanger at COP
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Just when you might have thought the COP26 summit was underwhelming — or, at least, running low on headline grabbing news — John Kerry, US climate envoy, managed to pull a green rabbit from the hat. Last night he staged a press conference with Xie Zhenhua, China’s special climate envoy, where they announced a joint commitment to “work actively to address climate change” together.
What does this mean for investors (or green activists)? Details are tantalisingly sparse. China has pledged for the first time to take (limited) action on its methane emissions. The joint statement also raises hopes that there might yet be a deal on the carbon offset market, which is of critical importance to companies seeking to hit net zero, as Simon Mundy writes below. But the more tangible implications of this hint of detente are still being thrashed out in conference rooms.
Nevertheless, the stakes are rising. After all, a few hours before this upbeat announcement, another — more depressing — piece of news emerged: consumer prices are surging in the US, primarily because of higher energy costs. This could fuel the chance of a populist backlash in the west against green reforms in the coming months, unless world leaders can do one of three things: offer better safety nets for vulnerable voters with a “just transition”; develop non-carbon energy sources (say, by (re)-embracing nuclear, as I argue in a column); or show a strong global stance in cutting emissions. Better still, they should do all three. That seems a long stretch. But all eyes are on Kerry and Xie to see if they have more green rabbits under their hats. — Gillian Tett
Day 10 in brief
A working draft of a proposed COP26 accord called on countries to stop subsidising fossil fuels and “accelerate the phasing out of coal”.
Big carmakers including General Motors and Mercedes-Benz joined with 33 national governments to work towards ending sales of carbon-emitting vehicles by 2040 — but some of the world’s biggest automotive companies declined to sign up.
To many people I’ve spoken with over the past couple of weeks in Glasgow, there seems to be a striking disconnect when it comes to carbon pricing. Despite a widespread consensus that an effective global carbon market will be a crucial element of any serious response to climate change, there’s been a striking lack of progress towards it. And as COP26 enters its last stretch, it remains unclear how much that will change in the final days.
At the heart of the discussion is Article 6 of the 2015 Paris Agreement, which set out some basic principles for a functioning international carbon market. One of these was the idea that countries that cut their emissions more than the required amount should be able to claim credits and sell them to other nations that have fallen short of their commitments. Another relates to specific projects to reduce atmospheric carbon, which would also generate tradable credits.
But six years on from Paris, a comprehensive framework for these systems has yet to emerge. FT climate reporter Camilla Hodgson says that one of the key sticking points is a legacy of the 1997 Kyoto protocol: the Clean Development Mechanism. That system came under scrutiny for issuing tradable credits to renewable energy projects in developing nations which, according to critics, would in many cases have been built anyway. This means the actual emissions reductions from the scheme would have been far less than claimed. Some want to effectively scrap the CDM system and start over — but Brazil, one of its big beneficiaries, has been resisting such a move.
While governments struggle to progress on building rules and frameworks for carbon trading, the private sector is driving action in the voluntary carbon market as companies increase purchases of carbon credits to offset emissions. It’s been striking to see the level of interest in this field among business figures in Glasgow this month, says Nili Gilbert, who chairs the advisory panel to the Mark Carney-led Glasgow Financial Alliance for Net Zero.
In the first eight months of this year, traded volumes of voluntary carbon credits reached 239m tonnes of carbon dioxide equivalent, worth $748m, according to Ecosystem Marketplace. That’s up from 188m tonnes in all of 2020, and just 46m tonnes in 2017. Gilbert hopes the surge in private sector activity could provide a useful foundation for governments to set up a high-functioning, rigorously assessed global carbon market.
But it must not be treated as a substitute for state-level action, said Gilbert, who is also the vice-chair of Carbon Direct, an investor in carbon removal projects. Like many others in the space, she warns there is a huge problem of inconsistent quality, and is concerned that many offset schemes may have far less impact than claimed.
“We know that a healthy market for offsets is one of the best routes that we have to achieve net zero,” Gilbert said, while warning that “the lack of government and regulatory clarity around this market is part of what contributes to public concerns and lack of confidence”.
The government delegates at COP26 have just a couple of days to make serious progress in addressing these concerns. (Simon Mundy)
Quote of the day
Frans Timmermans, the EU’s vice-president for green policy, rallied the COP congregants on Wednesday to keep from backsliding on a final COP deal expected later this week.
“Let’s keep it up. Let’s make sure we keep pushing forward. Let’s make sure that the cover text is the bedrock of our ambition. But let’s not give in on anything and continue to be more ambitious,” he said.
Beyond Glasgow: The worldview
As COP delegates were typing up Wednesday’s draft deal, the leader Down Under embarked on a different, and controversial, course to combat global warming.
At a breakfast gathering in Melbourne, Scott Morrison, Australia’s prime minister, threw down the gauntlet to other world leaders struggling with how to address climate change without stifling business.
Calling it “the Australian way”, Morrison forcefully advocated for a pro-business, regulation-lite climate strategy. He argued that business — not tax increases or “a resolution at the UN” — led to the development of a vaccine for Covid-19.
“Just as the animal spirits of enterprise” led to medical and technological breakthroughs, “I am more than convinced they also hold the answer to solving the challenge of a decarbonised economy,” Morrison said to the Victorian Chamber of Commerce and Industry breakfast.
COP26 “has marked the passing of the baton from the political dictates of targets and timetables” to a private enterprise approach, he said. Private-sector funds are “pouring like a waterfall” into climate mitigation projects.
“We believe climate change will ultimately be solved by can-do capitalism, not don’t do governments seeking to control people’s lives and tell them what to do with interventionist regulations and taxes that just forced up your cost of living and forced businesses to close,” he said.
Already a controversial figure on climate change strategy, Morrison is sure to draw criticism for his remarks. True, businesses created the Covid-19 vaccines, but governments funded their development and distributed shots to the public. Still, he is right to point out the “passing of the baton” at this COP as companies have stepped forward to fund mitigation.
The “Australian way” might make for a good, political slogan, but climate change action needs global consensus to make headway. (Patrick Temple-West)
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