Carney: Here is How Large Global Companies Like Google and Swiss Re Will Solve an Extra 10% of the Climate Crisis (5)

–Developing countries, where emission cuts come cheaper, will probably get accounting benefit under Paris climate deal: Carney

By Mathew Carr

Dec. 17-18, 2020 — (LONDON): Emerging countries could become a key beneficiary of the voluntary carbon market being promoted by Mark Carney as a key part of the climate solution.

That’s because well-meaning global companies might be about to double down on that market.

A businesses buying emission credits from an Indonesia forest project, for instance, would ideally get to put the emission-reduction into its annual report as it seeks to hit its net-zero target, Carney said Thursday in an online event hosted by the British Museum. He’s the former Bank of England governor and now a United Nations climate envoy.

But the emission cut would probably best remain Indonesia’s, Carney said. That country would benefit from a country accounting point of view, he said, citing the hypothetical example.

The $320 million a year global voluntary carbon market needs to be in the order of $100 billion a year, he said.

Some voluntary carbon credit prices are already rising and the volume of open positions on wider environmental markets in the U.S. and Europe has surged to a record near the end of the year, after President Donald Trump lost the U.S. vote.

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At the moment, investors in emission-reduction projects that generate voluntary greenhouse gas credits are worried about which country would be able to account for the emission reduction, because the rules are not set. That means capital is being held back from the climate fight.

The concerns stem from the complicated nature of cross-border carbon trades. There are usually at least four parties involved. The investor in the project, the host-country government, the buying company and the buying company’s country government.

By giving his version of the future, Carney is painting a scenario where the buying company’s country need not be involved in the “trade” because it isn’t really a trade. That cuts the parties involved to at least three from at least four.

Think of it like this: The company gets bragging rights but the country gets accounting rights. This is not double counting. In a world of global companies, it makes sense to cut emissions where you can cut the most emissions for a set amount of money — especially where that will help right climate injustice and speed the transition.

“There’s no double counting. If you want to count on geography, it’s Indonesia and national, on a country basis. If you want to count as a company, it shows up in that company’s annual report. If you just want to count for the planet, there’s only one reduction of carbon, which is the amount taken by the forest,” Carney said.

From ICE: Red star indicates current record level of positions that have not closed

Both countries and companies are setting “net zero” emissions targets to attract capital and persuade voters/customers they are serious about tackling the world’s most acute problem (after the coronavirus pandemic).

Under the Paris climate deal struck in 2015, nations voluntarily set their own emission targets, so the voluntary market would help them meet these. Some of these targets are ambitious, some are less so.

Importantly though, buying companies will benefit too because they will get more emission cuts for their euro or dollar — and they will favor deals in developing nations with ambitious targets — otherwise they may face damage to their brands.

This, in turn, provides an inventive to emerging nations wanting to attract capital to adopt ambitious targets.

Rich, pan-regional corporations focused on their costs will be incentivized to find the cheapest ways to cut emissions, especially once they’ve cut much of the pollution from their own operations.

More and more companies are seeking to burnish their brand by appearing green to increasingly important millennial customers who care about climate protection. But they won’t want to be accused of greenwash, Carney said. That would be a deal breaker.

“It can’t be there and then gone tomorrow. It cannot be greenwashing. It has to be real. We need a professional market,” Carney said.

So it’s a true win win win for the three parties.

(Continues under media)

SEE HERE for video of the arctic shrinking c/o British Museum:

Sled – No longer needed? C/O British Museum

Carney’s comments also may ease fraught climate politics, and that’s crucial because the climate as we know it might be falling apart. Carney’s suggestion gives rich companies most to blame for the climate crisis an easy way to help those less able to deal with it, as least for the first part of the climate transition.

Emerging nations have been suspicious of trading. They are concerned richer countries have used carbon markets to shirk their historical responsibility for the crisis — and their future need to rapidly cut their own heat-trapping emissions.

It will probably be cheaper to cut greenhouse gas in developing countries during the first part of the 30-40-year climate transition because those countries are just getting started and have been starved of global capital needed for modernization and energy efficiency. (Investors like strong credit ratings.)

“A lot of these investments will be in developing economies, because that will be the cheapest and most effective way to reduce carbon. And that is hugely beneficial,” Carney said.

Offsetting will allow companies flexibility. While they invest in and build new, cleaner equipment, they will still need to use their old and dirty facilities.

The thinking will be something like this: “While I’m making those investments, I am going to be reducing my carbon footprint, because I’m going to be buying these offsets,” Carney said.

“This is a crucial point. This is a transitional market, it is not the end solution. It’s preserving a critical part, our very limited carbon budget for a period of time, while companies make the very large investments or the economy as a whole makes the very large investments that are needed to go from where we are today to where we need to get to. So it helps bridge that gap and create some time for us to get there and take carbon out of the atmosphere while it’s doing so. It’s definitely not the end solution,” he said.

So the voluntary carbon market can boost the volume of capital available for the world’s poor, improving climate justice, especially if deals are derisked by global development banks or rich-country green banks.

To be sure, Carney is now a UN staffer and Special Envoy on Climate Action and Finance, but he does not set the rules. Indeed, some of the views expressed in his speech he said were personal.

East London graffiti

Negotiations through November will bed down accounting and trading rules of Paris – a so far incomplete and so inadequate global pact.

The voluntary carbon market could probably contribute 5%-10% of the climate solution, he said Thursday.

Companies are being pushed by investors to demonstrate a long-term commitment to address climate change and commit to publishing annual climate-related financial reports in accordance with the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Some countries are seeking to make the recommendations mandatory.

This may prompt the companies who are targeted by the rules to buy emission credits.

“A number of large multinationals including Unilever, Microsoft, Mars, Maple Leaf Foods, Google, Nike, HSBC, Swiss Re have committed to making their business operations carbon neutral,” said Lisa DeMarco, senior partner at DeMarco Allan LLP and others, in an article published Wednesday on the Energy Regulation Quarterly website. The firm specialises in climate law.

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“And any number of entities are purchasing carbon offsets in the voluntary carbon market in order to achieve those targets. These developments herald a new age of climate commitment veracity that are certain to require additional climate-related financial disclosures to both shareholders, investors, and ultimately, end-use customers.

Supporting TCFD organizations represent 77 countries and include companies with a combined market capitalization of over $15 trillion, and more than 750 financial firms, responsible for assets of over $155 trillion.

Over 110 regulators and governmental entities from around the world support the TCFD, including the governments of France, Belgium, Canada, Chile, Denmark, Ireland, Japan, New Zealand, Sweden, and the United Kingdom.

Meanwhile, emerging nations are also disappointed they have not yet received promised technological help for climate action from developed countries, and carbon markets can also help boost collaboration with rich companies, according to sources close to continuing UN negotiations ahead of UN climate talks in Glasgow in November.

Some of the buying companies are high-tech companies indeed (see above) and UN-overseen regulators are digitizing emissions-cutting methodologies created under the Kyoto Protocol, to make them more robust and less prone to fraud or exaggeration.

So it’s even possible that the voluntary carbon market can help incentivise emission-reduction projects in the next 10 months, before the Glasgow talks, said Dirk Forrister, president of the International Emissions Trading Association, an industrial group that also includes banks, insurers and service providers.

“The voluntary markets could go through a real growth spurt in a pre-compliance sense,” said Forrister, who previously advised U.S. President Bill Clinton on climate policy.

The assumption is that both companies and countries would learn from the pioneering work in carbon markets made during the past three decades, including the mistakes, he said by phone.

That is, the new markets would not just repackage “old wine into new bottles,” he said.

Voluntary action can help developing countries attract capital over the next few months whether they plan domestic carbon markets or want to enter international emissions trading, he said. The Paris rules allow every nation to choose how they want to undertake climate action.

“The next big step is for host countries to say what they will include” when they update their contributions or pledges to the Paris agreement during the next few weeks and months, Forrister said. Countries are supposed to rachet up their ambition every five years, including in 2020.

“More clarity from host countries will help,” he said.

(Updates with more from Carney and with context on Thursday evening, DeMarco, adds comments Friday, including from Forrister, updates Sunday with chart and links to market moves.)