The EU’s Gambit to Link Trade and Climate Action Pays Off, Drawing China and the U.S. (3)

–Humility and justice on climate begin emitting from U.S. officials for the first time in four years

–The foundation of a global carbon market is laid, with the voluntary system immediately providing some glue and investment incentive

by Mathew Carr

Jan. 20-27, 2021 — LONDON: On Donald Trump’s last day in office, it was becoming clearer that the European Union’s push to link climate action and trade policy is rapidly paying dividends.

Portugal has taken over the presidency of the EU for this six-month period ending June, and one of its priorities is to focus on the region’s plan to install a carbon border adjustment mechanism in Europe, according to sources.

This is supplemented by a push to digitize the global trade in good that will allow more accountability for who precisely is damaging the climate…and who’s not.

“We will promote a comprehensive digital cooperation strategy aligned with the United Nations 2030 Sustainable Development Goals, highlighting the EU’s role as a global actor and benchmark in terms of ethics and trust,” Portugal said last month in its plan.

The mechanism is meant to focus the minds of EU trading partners’ on protecting the climate as they seek to build back better and greener from the hugely damaging global coronavirus pandemic.

That means instead of doubling down on fossil-fuel subsidies, nations are set to scale them back. Instead of rewarding use of oil, natural gas and coal, companies that use dirty fuels will need to make up for the damage they cause.

We are not quite there yet, but it’s getting closer.

China’s apparently on board, agreeing to cap its emissions starting 2026 or soon after, but its pitch to cap at a level that’s higher bodes ill for meeting the Paris target for a 1.5C rise in temperatures.

See this and below:

The most populous nation’s national carbon market is getting underway starting next month.

The country, which produces the world’s biggest volume of heat-trapping gases, will at an undefined time begin to charge its huge industries for the right to pollute.

“At present, the carbon emission allowances obtained by enterprises are allocated for free,” the Chinese Communist Party said via its China Daily newspaper on Jan. 18.

“In the long term, the allocation method of allowances may gradually transform to a combination of allocation and auction. In addition to buying carbon emissions, companies can also use the national certified voluntary emissions reductions generated by voluntary greenhouse gas emissions reduction projects to offset their carbon emissions,” it said.

(More on the voluntary carbon markets below)

See this:

Some of my readers are calling for China to be more explicit about its plans to cap emissions in the period from 2025-2030. EU officials express doubt about whether the cap will be for the full five years or only for 2030.

China could clarify.

U.S. President Joe Biden is now boosting ambition.

America needs to press on with humility, said special climate envoy John Kerry:

Not only is Biden seeking net zero emissions by 2050 and 100% clean power by 2035 but there is a push to right some wrongs about the nation’s fossil-fuel obsession.

A third plank of the new Biden plan is to “direct 40% of our investment to distressed communities, which is an indicator of his commitment to environmental and climate justice,” said Todd Stern, former U.S. climate envoy.

“Now the U.S. is back,” not just for 2050 but for the 2020s, Stern told the BBC. “The goal posts have moved now,” after other nations took over leadership on the issue, he said.

“Nobody’s ever accused me of being a dewy-eyed optimist. That’s not who I am. But do I think Biden is going to go all out and get a lot done and move the ball significantly? Yeah.”

See this:

Other Americans are showing some humility about the precarious position that the U.S. now finds itself in.

Biden will be seeking to mobilize a “50 gigawatts or 100 gigawatts extravaganza of renewable energy,” every year, said Tim Williamson, former renewable energy official under President Barack Obama. The U.S. almost hit 42 gigawatts last year under Trump, Williamson said.

For perspective, the U.K.’s entire power capacity is about 75 gigawatts.

Europe is absolutely killing the U.S. on the investment side in some areas:

That could be about to change.

“The Europeans pushing for carbon border adjustments is a good thing,” because it will force the U.S. to adopt carbon pricing in some way, shape or form, Williamson said recently.

“Putting a price on carbon in the United States is not going to happen until somebody forces the United States to do it,” and that’s what the EU has done. If the U.S. can’t price carbon via a national market or by linking state programs, it’ll do so less efficiently via ESG standards and the Securities Exchange Commission, he said.

“By the end of the Biden administration you’ll [Europe will] have a cross-border adjustment tax. I think that’s true.”

More importantly for the climate, China, India, Brazil and Russia are among the nations that need to hasten their transition … and there the EU pressure via trade will probably work its magic too. The timing there remains even more unclear.

Where there’s trade in goods, there’s the giant companies that underpin it. They too, are more on board than ever before in tackling the climate crisis, seeking to back projects that absorb greenhouse gas to burnish green credentials where they can’t cut their operational emissions quickly.

See this:

Those corporates are keen to use cost-effective systems like global carbon markets.

A likely scenario is the world will come to a deal to combine compliance and voluntary carbon markets during the next few months, said Guy Turner, chief executive officer of Trove Research, which is examining the barriers to scaled-up climate action and carbon markets.

There’s still a substantial risk that some debates about market structure can’t be resolved before the Glasgow climate talks in November, extending the delay of the transition into a fourth decade, Turner said.

One complicated issue to be decided is what to do with an oversupply of emission credits created before this year, which has the potential to dampen prices if targets are not made tight enough.

The combination of voluntary and compliance markets under Paris needs to happen fairly quickly indeed, “otherwise you are going to basically choke off all investment” in emission-reduction projects, Turner said by phone.

If climate negotiators manage to agree a market structure that satisfies the big countries and suits the needs of business, the upside for capital flows to cleantech is substantial, even in the nine months before the Glasgow talks, according to Dirk Forrister, president of the International Emissions Trading Association and former advisor to President Bill Clinton, speaking by phone last month.

Natural climate solutions (NCS) — where forests are enhanced, protected and created — are key. They would also right some climate injustice.

“With close to 7 billion tons of CO2 in annual potential by 2030, assuming an illustrative price per ton of $20 would suggest potential capital flows greater than $100 billion, with opportunity
across the world, especially in the Global South,” consultants McKinsey said this week.

“Consequently, nature more broadly, and NCS specifically, should be an integral component of economic strategies to ensure a green recovery from the ravages of COVID-19,” it said in its report.

East London graffiti

For McKinsey’s report:

(Updates to include the challenge of dealing with the existing oversupply; clarifies Williamson’s title; adds Forrister; adds McKinsey)


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