Carbon Pricing Standards Needed to Accelerate Green Transition

January 23, 2023

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(Bioenergy International) In order to reach 2050 emissions reduction targets, trillions of dollars in public and private capital are needed to adopt and scale green energy technologies. Carbon pricing is essential to unlocking the vault, financial experts told participants at a session on climate finance at the 53rd World Economic Forum (WEF) Annual Meeting.

Despite the urgent need for climate finance, numerous barriers have impeded the flow of private capital to decarbonization projects around the world and especially in the Global South.

Carbon has to be priced

Financial experts agreed that a major hurdle is a need for carbon pricing.

We’re still resisting the necessity that carbon has to be priced, and the price has to climb up, said Kristalina Georgieva, Managing Director of the International Monetary Fund (IMF).

Public resistance to a carbon tax has prevented many nations from establishing carbon pricing via taxation, but taxation is not the only way to deter emissions.

Carbon trading, regulation, and different pricing schemes are alternative strategies that countries have used to impose costs for emissions.

Better coordination of these strategies would incentivize private capital to invest in more net-zero projects around the world.

Common standards and data needed

Another barrier to private finance has been the lack of common standards and data on reducing emissions.

Experts expressed frustration that, after nearly three decades of COP summits, there is still a lack of common metrics on many environmental goals.

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Moreover, data-sharing between development banks and private funders could increase investors’ confidence in financing risky projects.

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Delaying mitigation in developing countries could cost hundreds of billions of dollars – a price that vastly outweighs several million dollars lost to corruption or imperfect project design.

Experts agreed that many of the tools and technologies necessary to accelerate decarbonization already exist, from sustainable aviation fuel (SAF) to green hydrogen.

The challenge is implementing these innovations, spreading them worldwide, and doing so quickly. READ MORE

Can wild carbon markets be tamed? (E&E News)

Here’s what we know about Kerry’s offset gambit (E&E News)

Excerpt from E&E News: One major obstacle for voluntary carbon markets is that participation is optional — and entirely unregulated.

That sets voluntary carbon markets apart from government-backed “compliance markets,” which require companies to manage their carbon emissions. One of the few mandated U.S. examples is California’s cap-and-trade program, which was launched in 2013 and sets a declining cap on the emissions of major polluters, which they can then meet in part by buying and trading carbon credits.

For the average business, the appeal of voluntary carbon markets is a mix of good marketing and ensuring they won’t be caught flat footed amid the clean energy transition. Companies can use voluntary carbon markets to reduce their carbon footprint, burnish their public image, or — in many cases — both.

Those markets have exploded in recent years amid an onslaught of lofty corporate climate goals — many of which rely in some form on carbon offsets. So much so that voluntary carbon markets have quadrupled in value between 2020 and 2021, topping the $2 billion mark, according to Ecosystem Marketplace, an environmental finance nonprofit.

“The voluntary carbon market right now, yes, it’s booming,” said Pedro Barata, an associate vice president at the Environmental Defense Fund. “But it’s booming from a very low basis and with not a lot of infrastructure around it.”

Working to address that issue: two international groups that are months away from establishing new guardrails intended to get the market in order.

Those organizations — the Integrity Council for the Voluntary Carbon Market (ICVCM) and the Voluntary Carbon Markets Integrity Initiative (VCMI) — were stood up in 2021, and they include representatives from governments, businesses, nonprofits and more.

Both groups already have fielded preliminary versions of their guidance — and plan to release final iterations in the first quarter of this year. ICVCM focuses on the characteristics that would render a particular carbon offset project legitimate. VCMI’s work looks at the other side of the coin: how companies should be permitted to use the markets.

Depending on their final approach, those standards stand to become the first-ever international guardrails around the unwieldy markets.

Not everyone’s on board. Critics say third-party efforts to corral the markets are unlikely to move the needle — and could provide even more cover for bad corporate behavior. French nonprofit Reclaim Finance, for instance, has argued that any effort to expand carbon markets is “at best hazardous from a climate perspective.”

But proponents say it’s a vital effort because the credibility problem only will intensify if the market remains unchecked. Another possible outcome: companies get cold feet amid an unreliable market and heightened corporate scrutiny — surrendering billions of dollars for climate action.

“The voluntary carbon market is all about credibility,” EDF’s Barata said. “If you don’t have that, the companies just walk away.”

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And so was born the Integrity Council for the Voluntary Carbon Market, an organization made up of dozens of climate change and carbon market experts.

The group’s “theory of change” is to come up with a “seal of approval” that could make it less risky for companies to purchase high-quality offsets, said Broekhoff, who sits on ICVCM’s expert panel. “And that will grease the skids for the market.”

To be sure, ICVCM is not the first group to tackle the challenge. Organizations known as carbon crediting accounting registries have long set their own standards for carbon offsets, accredited them accordingly and then issued them on the market. The four key ones are Verra, Gold Standard, the Climate Action Reserve and the American Carbon Registry.

The major registries’ different policies and practices — combined with repeated controversies over approved offsets and a proliferation of newer, less known standards — has convinced outside groups there needs to be additional, overarching oversight.

Just the latest example: an investigation published this week by The Guardian. It examined some of Verra’s rainforest preservation projects and found 90 percent of approved forest carbon offsets within them are “largely worthless and could make global warming worse” because they do not represent legitimate carbon reductions.

Verra forcefully rejected the findings. In a statement, Verra CEO David Antonioli called the article inaccurate — accusing the researchers of using a flawed methodology, disregarding the organization’s updated methods and downplaying the “considerable success” of Verra’s efforts to preserve forests.

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Among the most vital issues the group will focus on is ensuring carbon credits are “additional” — that the emissions reductions would not have happened absent the carbon offset — and that they are permanent. Also critical: ensuring carbon offsets do not finance projects that have adverse impacts on the environment or surrounding communities.

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Even after the two standards are released there will be other issues to handle. A major one: accountability.

“If you say that you’re VCMI gold, who checks if you really are or not, right? Where’s the accountability?” Kyte said. “There’s lots of pieces of a mature market which don’t exist yet” but will be in the works over the coming year, she said.

Another challenge will be striking a balance between setting standards that could fundamentally transform voluntary carbon markets and ensuring those standards aren’t so stringent that companies look elsewhere for guidance or back away from carbon markets entirely.

“The reason why most people want these guardrails to work and to be broadly accepted is because the more certainty that you get the more trade there could be,” Kyte added. “The more trade there could be, maybe we could start to see the benefits of [the markets] where it’s really needed.” READ MORE

Excerpt from E&E News: Those come as the program’s organizers seem to disagree about whether it is, in fact, a carbon offsets program.

New details of the plan came to light when the State Department, Rockefeller Foundation and the Bezos Earth Fund released a set of principles last week showing that corporations are expected to finance the initiative’s efforts to replace fossil fuel-fired electricity with renewable energy in developing countries.

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The proposal, known as the Energy Transition Accelerator, would generate carbon credits to be purchased by companies and financial institutions that are trying to reduce their carbon footprint. A group of at least 20 business leaders, U.N. officials, climate advocates and financial experts will help design the program over the next 10 months. It is expected to be formally launched at the Dubai, United Arab Emirates, climate talks kicking off in November.

The money is aimed at helping fill a persistent gap in climate finance that U.S. climate envoy John Kerry, who first conceived of the idea, insists can’t be satisfied through public contributions from the Biden administration or other wealthy governments.

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There are other uncertainties about the program, such as how it would ensure the credits it generates are trustworthy and whether they would successfully reduce emissions. But perhaps the most pressing questions involve money: Will enough businesses buy credits to help the world’s emerging economies transition from dirty to clean energy?

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Other concerns are more fundamental, such as whether the program is, in fact, designed to offset carbon emissions.

Kerry has said it will attract private capital by offering an inexpensive way for corporations to meet their voluntary net-zero emissions targets through investments abroad. But project leaders from the Bezos Earth Fund and the Rockefeller Foundation hinted to E&E News that participants might not purchase credits to cancel out carbon they plan to emit.

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“What we propose is a jurisdictional crediting framework aimed at mobilizing new sources of climate finance to where they are most urgently needed — developing and emerging markets,” Joseph Curtin, managing director of power and climate at the Rockefeller Foundation, said in an email.

“We would not describe it as an ‘offsetting’ program,” he added.

Kelley Kizzier, director of corporate action and markets at the Bezos Earth Fund, said credit purchases might indeed offset a company’s emissions. Alternatively, a company’s climate plan might call for investments in clean power in emerging markets alongside steps to reduce emissions in its own operations.

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Credits will be issued for two actions: closing down fossil fuel-fired power plants and building renewable energy facilities that replace polluting sources, Kerry said.

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There are also questions about how the carbon credits will be generated and where the money will go.

A core principle in carbon markets is that the credits need to finance carbon reduction projects that otherwise would not have happened, said Gilles Dufrasne, a policy officer at Carbon Market Watch in Brussels.

But it’s notoriously challenging to measure the emissions baseline to ensure that additional carbon reductions are occurring, particularly in countries that are still trying to develop their grids and meet growing power demand. READ MORE