COP28 finance leaders try to revive decimated carbon credits market


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Banks, regulators and top officials at the COP28 climate summit have thrown their weight behind efforts to revive the global trade in voluntary carbon credits, battered by allegations of a lack of credibility.

Independent certification bodies that have suffered from a collapse in the market have also joined the effort. One of the organisations, Verra, said it would aim to meet standards laid out by the independent governance body, the Integrity Council for Voluntary Carbon Markets.

In theory, each credit represents a tonne of carbon avoided or removed from the atmosphere, but the lack of verification and credibility of the credits has undermined the system.

Conservation projects that aimed to reduce deforestation relative to a hypothetical future scenario in which trees are chopped down, for example in Zimbabwe and Peru, have faced particular scrutiny over accurately accounting for the carbon saved or emissions avoided.

The standards to be put in place include checking that emissions reduction is credible and durable and ensuring there is no double-counting between countries and companies claiming the credit.

Carbon credit purchases linked to cuts in the carbon dioxide emitted by burning fossil fuels and deforestation could create “the largest marketplace the world will have ever known”, said US climate envoy John Kerry.

“Fly-by-night operations” touting cheap carbon credits in voluntary markets in recent years have “done an injustice to everybody”, he added.

Bank of America, Morgan Stanley and Standard Chartered were among the companies to back a US state department-led scheme dubbed the Energy Transition Accelerator this week, alongside the Bezos Earth Fund, Boston Consulting Group, Mastercard, McDonald’s, Morgan Stanley, PepsiCo, Salesforce and Schneider Electric.

The ETA plans to create a framework for countries and power sectors, including in Chile and Nigeria, to start selling emission reductions from next April to help fund a move away from polluting power sources.

It is meant to improve on existing voluntary models by using high-level national data and measuring emission reductions in relation to the past, rather than hypothetical future emission savings.

Other top officials were hopeful the market could help raise the estimated seven-fold increase in annual clean energy investment needed to finance emerging markets’ shift away from polluting forms of energy.

Leaders from coal-dependent countries including Singapore, Indonesia and the Philippines pitched carbon finance as a crucial top-up to existing capital commitments for their energy transitions on Monday. The Rockefeller Foundation said it aimed to facilitate the first closure of a coal-fired power plant using carbon credits in the Philippines by 2030.

The push to revive a decimated market that was estimated at just $2bn at its peak comes as investors continue to question the accounting and integrity standards that underpin it.

Jean-Paul Servais, chair of the International Organization of Securities Commissions, proposed a set of measures to prevent fraud and promote greater liquidity, with the goal of bringing “financial integrity”.

Voluntary carbon credits lack “some characteristics of fair, efficient and transparent markets that protect investors”, “in addition to environmental integrity vulnerabilities”, said Verena Ross, chair of the European Securities and Markets Authority.

The World Bank has also waded into the discussions, with the aim of delivering 24mn carbon credits to market in the next two years, including from projects in Vietnam, Guatemala and the Democratic Republic of Congo.

“The intellectual argument about this issue is holding up the production of credits,” Ajay Banga, president of the World Bank, told the Financial Times. “But we need all the sources of money [for the transition] we can get.”

Climate experts fear that schemes linked to carbon reduction in some countries could be used by companies and governments to cut their own emissions more slowly.

“Voluntary markets cannot substitute for robust internal emission cuts by the private sector,” said Simon Stiell, executive secretary of the UN’s climate body. 

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