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December 5, 2023

Editor’s note: COP28 – all in on carbon markets?

John Kerry at COP28
‘[We] can’t wait two years for [JETPs], we need the power of the market,’ says US climate envoy John Kerry (Photo: Mahmoud Khaled /COP28 via Getty Images)

The latest edition of our Sustainable Views newsletter

Dear reader,

It’s “energy day” at COP28, which started with the appearance of a global stocktake report’s draft. We’ll have more on this and other key news at the end of today in our daily COP round-up. And to whet your appetite, you may wish to head to our knowledge hub for a report on how policy barriers are hindering the growth of renewable energy.

Subscribers will have already seen yesterday’s summary of “finance day” announcements, which included some context on why they mattered and what’s still missing. 

There was a lot to digest. Many of the discussions in Dubai centred around development banks’ role in the green transition, the use of carbon markets and the impact of regulation.

For the idealists among us (myself included, I’m afraid), the idea of a globally agreed system for, say, carbon pricing makes a lot of sense. A sufficiently high price of carbon changes the economics of the world’s highest emitters, and does not require any convulsions by investors trying to work out externalities and exert pressure on companies.

As the IMF’s Kristalina Georgieva said from a COP stage yesterday, the “biggest possible incentive for decarbonisation is putting a price on carbon, and that price has to go up, up, up”.

Pragmatists, on the other hand, might see this as a climate mirage, something that will never materialise. 

On a different stage, Bill Winters, Standard Chartered CEO – and an advocate of voluntary carbon markets – repeated what he’s been saying since heading a task force to scale up VCMs (which has since been dismantled to create an initiative focused on improving their integrity): “It’d be great to have a compliance [carbon] market and a global carbon tax – it’s not going to happen.”

The argument is that it’s just too hard to get a multitude of governments to agree on technical standards. “The Europeans tried it [with the emissions trading system], no one picked it up” as a cross-border tool, and the UN’s efforts to set carbon credit rules under Article 6.4 of the Paris Agreement are bound to fail too, he said. 

Government agreements like the Just Energy Transition Partnerships take too long to become operational, agreed Mark Carney, who is also a VCM supporter, in addition to co-chairing the Glasgow Financial Alliance for Net Zero and serving as the UN special envoy for climate finance.

Separately, US climate envoy John Kerry also commented on JETPs, some of which he was personally involved in: “[We] can’t wait two years for these [deals], we need the power of the market.”

The only realistic and efficient way of mobilising capital for developing economies and incentivising the global green transition, therefore, would be via a multitude of (higher-quality) VCMs.

Keen to hear your thoughts on this. 

(Kerry was also keen to highlight the support received by a carbon finance platform, dubbed the Energy Transition Accelerator, from a group of large banking and multinational companies, as well as countries like Chile, the Dominican Republic and Nigeria, which said they would join the initiative as pilot countries. The ETA, though, is a US state department-led initiative, so I guess the public sector still does have a role to play in this area.)

Meanwhile, Alex has the latest on efforts to improve trust in VCMs, as carbon market standard-setters gathered yesterday at COP28 to announce the launch of a joint “end-to-end integrity framework”. This followed shortly after Iosco, the global umbrella organisation for securities regulators, published a consultation saying regulators should consider imposing stricter standards and disclosure requirements on VCMs.

Alex also looks into non-profit Carbon Market Watch’s concerns about one of the carbon market standard-setters’ Scope 3 “flexibility claim”. And examines whether sustainability-linked bonds really are a green option.

As a final thought about policy intervention, I found discussions about sustainability disclosures particularly interesting. The need for better data and disclosures peppered many talks. And there even was a session yesterday dedicated to “private sector accountability and regulation for net zero”. If, like us, you enjoy studying new languages (of which ESG disclosures are one) you’d have appreciated it too.

But the most interesting comments may have come from one of the highest-level sessions of the day, where Carney, as a side remark while making a point about data, said: “For our American friends here, hurry up – don’t rely on California to make the rules”.

So I guess the conclusion here is that policymakers and regulators do need to intervene to put capital (public and private) to good use in the green transition – which also means helping investors understand where climate and broader sustainability risks lie. 

But perhaps they need to work a bit more closely with companies to get to the best outcomes faster.

Until tomorrow,

Silvia

Silvia Pavoni is the editor of Sustainable Views 

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