–Rich-country green lobbyists are being enabled by western-based news media, countries … and even academics
–Global business, emerging countries are being unfairly downplayed, causing the climate crisis to worsen
By Mathew Carr
Jan. 16-21, 2021 — LONDON: When Trafigura Group explained how it plans to meet its sparkling new 2023 emissions-reduction target, the Singapore commodities giant is at pains to highlight that it plans to use carbon credits only in a limited way.
To meet its limited-scope 30% emission-reduction plan in the next three years, “we’ll consider offsetting them through the purchase of carbon offsets, although this will be a small part of the way the targets are achieved,” said Richard Head, leader of the group’s health, safety, environment & communities unit.
It’s a shame, because Trafigura is one of the world’s biggest trading businesses and one of it’s mottos is: “We grow prosperity by advancing trade.”
It’s important for companies like Trafigua to have ways of cutting emissions, in order to justify their strategy of exploiting oil in Arctic Russia, for instance. The company is the go-to trader for oil-giant Rosneft, which is expanding in Siberia via a venture, potentially with the help of China and India, according to the Financial Times.
See this press release: https://www.trafigura.com/press-releases/trafigura-acquires-10-percent-of-vostok-oil
Across the corporate landscape, businesses are worried they’ll be criticised as companies pretending to be green.
Trafigura didn’t say specifically why it’s limiting use of offsets and carbon trading, but my reporting shows companies face reputational damage because of unfair, muddled criticism. So, their entirely rational response is to hesitate to invest in vitally needed green projects.
They hang onto their money and the climate crisis gets steadily worse. Or even worse, they spend it on arctic oil.
Hesitating means capital isn’t flowing where it needs to flow — GHG-reductions are not increasing fast enough.
The stakes couldn’t be higher.
For companies, being seen as green and clean has gone from something nice to something compulsory.
Otherwise, millennial shoppers will go elsewhere, especially as the global pandemic highlights the fragility of life and the importance of health. There’s an increased risk investors will offload their shares, or insist on a new board of directors and CEO. Without a shift toward green, businesses might struggle to attract the best executive talent.
For the climate, the world has almost used up the remaining space in the atmosphere for heat-trapping gas. That’s stoking global warming even more — after the hottest decade ever recorded.
Carbon credits are crucial because they provide a risk-management tool for companies, giving them leeway to be much more ambitious with their targets and lobbying of politicians for action.
Fear of being tainted by accusations of greenwashing is rampant. A survey by CarrZee.org over the past two weeks of senior industry executives shows environment groups (and others) who claim they are fighting against greenwash are actually slowing climate action.
WWF, the World Wildlife Fund, and Carbon Market Watch are among the groups still erecting the barriers to companies trying to shift to net-zero emissions during the next few decades.
One of their biggest gripes currently is that corporates state they are on their way to net zero partly by cutting emissions in developing countries. One such instance is installing an innovative solar plant or new type of steelmaking.
The emerging nation getting the clean solar power or green steel also wants to claim it’s cutting emissions toward its pledge under the 2015 Paris climate deal. This Paris pact only started applying to signatories on January 1.
“It’s double counting,” said Brad Schallert, director, carbon market governance and aviation, at WWF U.S., speaking by phone.
Carbon Market Watch, another green group, said if the developing country accepts the clean investment that cuts emissions, it should tighten its Paris target by an equivalent amount.
This is known under the as-yet-unfinished UN negotiations for the Paris rulebook as a “corresponding adjustment.”
But the rules on how corresponding adjustments will work — under what circumstances they’ll be required or preferred — are not yet set, and they probably won’t be until November this year, at the earliest.
Since the voluntary-carbon-market reductions would enable the developing country (or any country for that matter) to meet its target, the host nation might decide it doesn’t need after all to adopt what may be a disruptive climate policy that it previously planned, Carbon Market Watch says.
The voluntary transaction will potentially replace new policies, rather than support extra reductions, it claims.
These arguments may be well intentioned, but they are ultimately damaging and misguided, say project developers, companies and standards bodies.
The volunatary carbon transactions are almost always genuine collaborations to help save the climate, they add.
Having more than one entity in a supply chain to create a clean product should not prevent each part of that chain from saying they were part of the winning, collaborative team that created that product, the project developers argue.
Environmental groups should instead focus on non-ambitious governments in whatever country those governments oversee, they say. If the lawmakers are the true problem, they should be the target of the environmental lobby groups’ attack.
Chastizing companies who are seeking to lead isn’t genuine climate protection.
Corporates don’t have targets under the Paris deal, until they are imposed by governments at least; most countries do have limits under that agreement and they’ve made them voluntarily.
If a country has weak climate policies or targets, it won’t be an attractive place for global companies to invest in …for emission-reduction projects or other projects, developers argue.
What is true is that each company will ultimately have to account for emissions in each nation it operates in — and if it’s not transparent, their shareholders will shy away.
“People are all bent out of shape” when a developed-nation company is claiming an offset from a project in Kenya, for example, said David Antonioli, chief executive officer of Verra, which manages standards for reducing GHG emissions.
“People are obsessing, to be perfectly frank, on this issue of accountancy purity. We are looking at the trees and not the forest. We don’t want to disincentivize” companies seeking to cut emissions, he said by phone. “There’s a lot of resistance” to offsetting. “It’s unfortunate it’s an ongoing debate.”
For a country like Kenya, the stakes are huge, as well.
Last month, the east African nation renewed its climate pledge for the Paris deal, seeking about $54 billion of “international support” for emission limits and adaptation through 2030. Kenya is largely blameless for the climate crisis, yet it’s facing big costs to adapt to the warming world.
The stance of western-based lobby groups, and news outlets that enable the misinformation is worsening its plight.
Some industrial groups want to be able to install the innovative solar plants in such developing countries. For instance, where $100 may cut 20 tons of carbon dioxide and reduce the need for a new coal station. In rich countries, the same money will only remove two or three tons because the easiest and cheapest ways to remove greenhouse gas has already been done.
That is, if companies spend $100 to cut just a couple of tons of co2 in a rich country, then that’s at least 17 tons of emissions that could have been cut in an emerging nation. That’s bad because the pace of emissions cuts is crucial and we are not doing it fast enough.
It means this bucket is filling up much faster than it needs to:
I’m not saying the environmental groups are more to blame for the climate crisis than politicians, or the media, or business itself. Those are other stories to tell.
The bottom line for this story is discouraging cost-effective emissions reductions is a very serious mistake indeed — and it’s not taken seriously enough by the green lobby.
“Some NGOs are right now unknowingly blocking climate action,” said Renat Heuberger, CEO of South Pole, which develops GHG-cutting projects. “For too long, emission reduction projects have not communicated clearly enough about the power and necessity of voluntary climate action. We’ve let the NGOs sing their song and create the narrative.”
Research by South Pole shows companies are not offsetting instead of cutting their own emissions— they are doing both, he said.
Carbon Market Watch denies NGOs are to blame. “When you are embarking on carbon offsetting, there are lots of checks and balances that need to be in place in order to ensure it makes sense from a climate perspective,” said Sam Van den plas, policy director, by phone.
“Accusing us of blocking climate action is really over the top,” he said by email after an earlier version of this story was published.
The problem faced by the lobbies, by policymakers, by the media and by companies is the overlapping, unfinished emissions accounting systems — several for companies, insurers and banks and at least one for countries.
“You have some folks who say ‘no, the accounting systems are different’; there’s actually the corporate accounting system, the greenhouse gas protocols that most companies will use to compile their emissions inventories, and then there’s the national accounts for emissions that are reported to the UN Framework Convention on Climate Change and the two systems don’t talk to each other,” said WWF’s Schallert.
This rings true.
The immediate solution is probably to not require the corresponding adjustment, according to Mark Carney, former governor of the Bank of England and Bank of Canada. Such adjustments become optional, at least for a few years/decades.
A business offsetting emissions at an Indonesian 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 says. (He now has a role as a United Nations climate envoy and is helping lead a charge to scale up the voluntary carbon market.)
The emissions cut would probably best remain Indonesia’s for Paris accounting purposes, Carney said last month. That country (Indonesia) would benefit from a country accounting point of view, he said.
It could also then strive to set a more-ambitious carbon limit (a lower one).
The $320 million-a-year global voluntary carbon market needs to be in the order of $100 billion a year to speed up the climate transition, Carney said.
Ideally, something like this could happen as soon as this year.
Carney, then, is among a growing number of people saying offsetting need only be transitory. But it’s very useful during the transition to net zero because it sends the right market signals and allows companies to use fossil-fuel assets until near the end of their useful lives, boosting the economic efficiency of the transition.
Picture this: The buying company gets bragging rights and can rightfully claim it’s on track to its net-zero target. But the country gets accounting rights.
Companies need to be careful about what they say publicly about their progress. But making that progress is not double counting.
To be fair, environmental lobby groups recognise there’s a problem.
Last month, the Environmental Defense Fund and French utility group Engie SA, said offsetting can credibly work “when done right”.
Carbon Market Watch’s Van den plas is willing to concede he “struggles with” striking the right balance between the climate and the right incentives for business.
Even WWF, who still favours corresponding adjustments, seems to be wavering, slightly — and might allow companies a so-far-undefined transition period.
“It’s very murky. The reason why we’ve been talking about this for five years in the voluntary carbon market community is that ultimately [we’re] trying to determine what the ultimate outcome is…in terms of higher ambition from countries, from companies, to set the right incentives,” WWF’s Schallert said.
“It’s not entirely clear in all cases that an immediate shift towards corresponding adjustments for all carbon neutrality targets will work. In fact, I don’t know if there would be a country out there – very few – that would be able to give you a corresponding adjustment for your carbon credits. So this is why there is this notion of a transition toward that direction.”
Environmental lobby groups have been climate-action blockers for years, because their push for perfection has prevented the merely good.
And they are still at it. Check out this apparently credible essay published just a few days ago.
To be fair, I should say up front I’ve got a lot of time for the folks at The Conversation, Trove Research and UCL.
But here, their argument seems to be spectacularly wrong.
They say that the potentially 7 billion tons is somehow tainted.
But, the simple fact is, it isn’t tainted.
These emission credits were created when the windfarms were new tech. Yet, the professors claim the credits are “outdated”.
No wonder oil major Total SA was reluctant to engage with their flawed thinking:
Emission credits being bought by Total were “additional” at the time they were created. That’s what counts. When they were bought seems pretty irrelevant to me.
(Click “The Conversation” link above if you’re not familiar with the slightly arcane notion of additionality.)
Yes, time has moved on and additionality’s definition has changed with that. That’s the nature of carbon markets. That’s the whole point of carbon trading. It allows countries and companies to smooth transition risks, not only across geographies but across timeframes. This is another notion that western environmental lobby groups seem to misunderstand.
As technology evolves, new technology becomes additional and old tech loses its additionality — ie the right to be financed by carbon credits.
If the carbon credits were additional when created, they are good to be used whenever. Otherwise, the contract that was struck when the credit was created is being broken. If countries break promises under Kyoto, investors won’t want to invest under Paris.
The professors seem to downplay this or not understand it.
I’m not complaining about their overarching analysis. This chart is very useful in explaining how the curent UN carbon system is comprehensively oversupplied:
I agree seven billion tons of spare emission reductions would be pretty big.
But it’s only big until you consider the size of the climate challenge the world faces during the next 10 years. Hint: it’s absolutely huge:
The uncontested chart shows the world needs to cut emissions by at least 29 billion tons in 10 years. That’s an average of 2.9 billion tons each year.
So, the 7 billion tons of oversupply could be taken care of by tightening Paris targets by less than 1 billion tons a year.
That’s a tightening of about 2% a year — does not sound so intimidating, right? That small change in the targets would reward the early movers in the climate fight instead of punishing them.
So — what UCL and Trove shouldn’t be advocating is to kill the spare supply — they should be advocating for rich countries that have caused the climate crisis to tighten their emission reduction targets during the next 10 years by at least 7 billion tons to suck up that oversupply.
That would be a much more rational lobbying strategy.
To put it another way, business does not like it when they put money into an emissions-cutting venture on the promise they will get valuable co2 credits — and then prices fall so low the money was wasted. If lawmakers now go and cancel the credits entirely, a lot of investors will be very angry indeed.
It makes absolutely no sense to punish those companies (largely in emerging countries) who put real money into emission reduction projects the past 20 years to create that 7 billion tons of spare credits. It’s those very companies in emerging countries that are the key to solving the climate crisis during the next 30 years.
There are quite a few making this argument erroneously, even the EU (though it may just be a negotiation position under the Paris climate talks through November). See this: http://carrzee.org/2020/11/12/former-un-leader-says-the-eus-behaviour-on-climate-is-a-little-like-trump/
I’m not arguing against the professors’ push to set up an “independent international body to oversee and carefully regulate the market.”
What’s key is to make that body work properly. The Green Climate Fund in Korea is already doing some work like this. It’s controlled by a board of emerging and developed country representatives.
I would argue the regulator probably needs to be overseen by the 7 billion people on earth who have not created the climate crisis.
Another simple truth is that it’s only 1 billion people of the 8 billion in the world who are largely to blame for causing this crisis. Indeed, it’s probably only a few million people who have mainly benefitted financially from the extraction of fossil fuels.
That’s where environmental lobby groups need to focus their attention, surely…
…Which makes me look at who supported the UCL/Trove research. See this:
We can see that linkages include western environmental lobby groups including WWF and the Greenpeace Fund.
There are a bunch of other linkages there, including the U.K. government and the EU, two regions most to blame for the climate crisis. Indeed, it’s a pretty decent representation of the 1 billion that are most responsible for the crisis.
Where is the represenation for their solution from the China, India, Brazil, India, Russia, Africa, other developing country realms?
Guy Turner, CEO of Trove Research, stands by the notion that some of the older credits probably need to be written off because they were not environmentally credible enough when approved. No one may want to buy them, for instance, he said.
Importantly though, Turner told me the oversupply could indeed be dealt with by using tighter emission-reduction targets. Here’s a link to the research: https://trove-research.com/research-and-insights-download-reports/
There are certainly ways the carbon markets can be improved, said Yvo de boer, former executive secretary of the UNFCCC.
There are some “crappy credits” being put into the markets, “so I think the environmentalists are right to be critical. The buyers of credits are right to be very careful…so they don’t buy something that explodes in their face.”
Yet … “there’s more advantage in ensuring a credible carbon market rather than trying to close the carbon market down, because the carbon market offers significant advantages in terms of cost optimization and can help you get to your net-zero target much more affordably than if you don’t have the market opportunities.”
The green lobbies once argued against catalytic converters for autos, because they were determined to limit driving rather than making driving more clean, de Boer said by phone.
Now, they are realising they need to bring business and consumers along in their climate advocacy.
Josh Margolis, senior commercial advisor, Emergent Forest Finance Accelerator and CarbonSim administrator, says the concerns of the environmental lobby groups can be dealt with in other ways. See his reaction on LinkedIn to this post:
Which takes me back to Trafigura. Its 2020 sustainability report makes for some interesting reading, because it taps into the argument that the world’s poorest are most vulnerable if the climate transition continues to drag its feet.
You might think that Trafigura is firmly part of the 1 billion realm. It has been subject of some environmental scandles. But not so fast — perhaps it’s learned some lessions.
The commodity trader says it’s not only seeking to engage with the environmental lobby groups, but because of its operations in emerging countries, it’s understanding the urgency of the climate situation — for instance it’s advocating for carbon prices as high as $300 a ton in the shipping industry to cut emissions from that industry and speed the climate shift.
Companies arguing for $300 a ton carbon prices don’t appear to me to be the ones holding up the climate fight. Trafigura would probably be willing to take on much stricter immediate emissions targets if it had the comfort of a carbon market to fall back on should prices get near those levels.
I will give Trafigura the almost-final word, which sits awkwardly with its Arctic expansion. See this snip from its report:
The world has barely made a dent in the climate fight in the past 30 years. Western environmental lobby groups, the media, and politicians generally, need to start giving big business (and their customers) more legitimacy in guiding what will work in the real world, otherwise we’ll get a fourth decade of delay.
(Smoothed Saturday afternoon to make more clear; adds de Boer on Sunday; corrects headquarters of Trafigura to Singapore — registered office is Geneva, Switzerland; updates Tuesday with Trove, updates with another Carbon Market Watch comment on Jan. 21, and Trafigura’s Arctic expansion details)