Glasgow Climate Talks Could Have Collapsed, On Carbon Market Push (4)

–Switzerland backed off on carbon markets when it might have collapsed Glasgow package
This story has been updated to clarify some sections
–Apologies — Verra responded to two questions last month, and I include its response in full in a note at the end (as of Jan. 26, 2022)
–I didn’t update crude and carbon prices since November (both are now higher)

By Mathew Carr

Nov. 30, 2021 -[Jan. 26, 2022] — (LONDON): As usual, the markets are way ahead of the global mainstream media discourse on climate action.

WTI crude oil is down 15% since the beginning of global climate talks in Glasgow starting Oct. 31. That’s not just about new coronavirus mutations.

EU carbon prices, the closest thing right now to a global carbon price, are up 26% in the same period.

The media? They are focused on demonizing China and India, two countries unfairly blamed for their contribution to the climate crisis, and for watering down the Glasgow Climate Pact’s statement, because they were in favour of phasing down coal instead of phasing it out.

It’s a shoddy state of affairs.

I’m not much better. For the past two weeks, there’s been major public confusion about what the Glasgow Climate Pact actually means for the trade in goods, fuels, services and, of course, carbon credits. There’s also confusion about what the pact means for politics and the wider world.

New coronavirus mutations are officially behind the postponing of the global trade talks in Geneva that were meant to start today and run through Friday. I suspect confusion over the implications of the Glasgow pact also gave the World Trade Organization, and hosts Switzerland, pause for thought.

The compexity of the texts means it’s easy to underplay the importance of the Article 6 and transparency outcomes from Glasgow. And the U.S. still has no carbon pricing. When speaking with officials and industry executives, it’s hard to cut through the negotiation stances and market noise.

There’s still hope that the Glasgow Climate Pact actually means a lot because it will spur carbon finance around the world. It’ll allow the global capitalist economy to factor in and account for the damage being caused.

The solution being proposed in Glasgow was worrying Franz Perrez, a senior climate negotiator for Switzerland, on November 13, the last day of the Glasgow talks (the negotiations were already running a day late because they were meant to end a day earlier).

Alok Sharma, the president of the talks from the U.K., had served up a compromise agreement on Article 6 of the Paris climate deal at 8am London time.

Perrez saw that the compromises in the text included some elements that might amount to loopholes that would be exploited by some companies and countries. Most of the huge multinationals keen on carbon trading are based in the global north (eg Europe, UK, US).

‘The pact will allow the global capitalist economy to factor in and account for the damage being caused’

The global north is outside the hotzone, which lies between the tropics of Cancer and Capricorn, where a global average temperature rise of 1.5C really means a terrifying rise of 3C in some places against an already hot baseline.

Perrez sought to re-open the text on Nov. 13, to make it more clear what corporations — and countries — needed to do when saying they were “carbon neutral” or headed toward “net zero” emissions.

Companies are increasingly adopting plans to shift to net zero and many want to use carbon markets to reduce the risk of doing so. In theory, they need to make steep cuts to their own physical emissions, and where they want to cut even more, they are seeking the freedom to buy credible carbon credits to offfset hard-to-reduce emissions.

It makes sense to cut the most emissions possible for each dollar spent, so it does not always make sense from the point of view of the climate if a company spends a lot of money cutting heat trapping gas, when the same money would cut or avoid more gas somewhere else.

Perrez wanted clearer ground rules.

Companies making net zero claims should not do so unless they are buying credits that would mean the country where the emission-reduction project was located also made a “corresponding adjustment” to its Paris climate target (in 2030 for example), known as a Nationally Determined Contribution (NDC), he said.

That means, the country hosting the emissions-reduction activity — for example an innovative green-hydrogen factory — would have to tighten its target if it transfers Paris carbon credits to other nations, or in Switzerland’s preference, even to companies.

Without such an adjustment, the carbon credit should be known instead as a Paris emissions mitigation “support credit” instead of a carbon credit, Perrez was arguing. That’s what he wanted made more clear in the Article 6 text, and so did others.

“Reopening the text” would have meant that further negotiations between countries would be needed on Nov. 13 and even on Nov. 14 (the last day that the UNFCCC had control of the Glasgow exhibition centre – Scottish Event Campus – where the talks were played out.)

“We were preparing ourselves for doing that (reopening), indeed, and we were therefore trying to find out who was having a problem with our proposal with the naming and claiming of the support units. It became clear that reopening this detail would endanger the whole Glasgow package. That was the reason why we did not insist,” Perrez said in an interview.

Emerging countries, those who have not been a major cause of the global climate crisis (but are increasingly so), were looking on at this situation with alarm.

“They (Switzerland) tried to undermine the deal when we had the deal,” said one important negotiator for a major emerging nation.

“On article 6.4, they went crazy. Like batshit crazy. They wanted to undermine the deal,” the person said.

In the end, Switzerland lost the argument, the text was not reopened and the conference finished very late on Nov. 13.

The outcome provides loopholes, in the view of some. It smooths the way to better capitalism, in the view of others.

Key players in carbon markets seem to remain confused.

See this from Verra, a non‐profit organization headquartered in Washington DC, which oversees voluntary carbon frameworks.

https://verra.org/moving-forward-together-verras-reflections-on-the-cop26-outcome-in-glasgow/ VCM = voluntary carbon markets

The slide above indicates countries are firmly in control of how they decarbonize under the Glasgow pact rules and guidance. Yet, the slide does not display the scenario where there’s no transfer, where a country authorizes the emission reduction to be cancelled (not transferred at all) and applied against a corporate carbon neutral target and / or a nationally determined contribution (Paris climate deal country emissions target) that’s conditional on finance.

See this section of the text (and importantly the note below from Verra):

NOTE 3 HERE: https://carrzee.org/2021/11/25/un-carbon-credits-seen-trading-higher-than-voluntary-market/

And see this post-Glasgow snip below from Gold Standard, which apparently also isn’t acknowledging the same scenario, which may become the most preferred route to finance for some countries and emissions-project developers:

Gold Standard

Hugh Salway, head of environmental markets at Geneva-based Gold Standard, is sticking by his pre-Glasgow mantra: “You need to have that unique claim for a corresponding adjustment to make a credible offset claim,” he said in an interview on Nov. 29.

Switzerland’s Perrez is also sticking to his guns, saying only transactions with corresponding adjustments should be used for offsetting. He acknowledged this language was not agreed in Glasgow, but was widely supported.

I sense though, that this is yesterday’s debate and others are now moving on to a world without adjustments. Remember, the atmosphere does not care where the greenhouse gas is cut or avoided. The important thing is it is cut and avoided urgently and at scale.

The non-adjustment solution is important because if a company does not have to go through the complicated process of dealing with countries to negotiate the adjustment, it will be easier to justify their investment and their accounting. They will still need to show that the emissions cutting activity is additional to what would have happened without the carbon finance.

‘They will still need to show that the emissions cutting activity is additional to what would have happened without the carbon finance.’

The rules will cut red tape and allow for a huge surge in capital toward the green and clean. I mean trillions of US dollars, not just billions.

Making national target adjustments may still be seen by many companies and countries as the preferred choice, according to negotiators and carbon market participants.

The emerging country negotiator mentioned above said that while the final outcome was not necessarily perfect, it just might work. It requires making a leap of faith that existing private markets, and new ones, will help slow climate change at scale.

So, while this person wasn’t wholly in favour of the shape of the Glasgow deal, they said the outcome was better than nothing. And that sentiment is also echoed by Perrez.

Overall, the freedom not to make corresponding adjustments and the freedom to use voluntary markets is part of the reason why the crude and carbon markets have reacted the way they have.

Another element of the Glasgow talks that’s fascinating is HOW countries including the U.S. forced progress on the Article 6 measures.

They pushed through progress in the transparency stream of the talks, which surprised some in the Article 6 negotiation room, according to some negotiators. See this snip mentioning 77d.

MPG= modalities, procedures, guidelines. See UN transparency text here (bottom): https://carrzee.org/2021/11/14/paris-rulebook-seen-getting-trillions-flowing-to-emissions-cutting-projects/

(Adds note / Verra response, transparency push, Verra and Gold Standard, more Perrez; smoothed language; fixed typo)

NOTE:

Regarding your question why our Verra slide does not include the scenario where there is no transfer of a carbon credit:

Many voluntary market transactions are implemented by a buyer prompting the cancellation of credits directly in the registries in which they were originally issued. This is done because registries in the voluntary market are not linked to other registries, as would be needed to enact a transfer (as is the case for example with registries under the Kyoto Protocol or the EU/Swiss ETS link). However, for accounting purposes, these transactions are in effect still international transfers because a mitigation outcome that occurred in one place is being used elsewhere towards a corporate climate neutral target. Such transactions therefore fall within transfers that occur either with or without authorization and corresponding adjustments (row 3 or 4 of the above table). The fact that such transactions do not need a credit to pass from one registry to another is a matter of registry implementation but doesn’t affect the underlying purpose of the transaction. 

Regarding your question if Art 6 threatens Verra’s business?

Verra sees Article 6 as an opportunity, not a threat. Verra believes firmly in the urgency of reducing emissions, as well as the role of international cooperation in accelerating and enhancing this process. We are just as keen to assist companies and governments to cooperate under Article 6, as we have always been to assist companies and communities to cooperate in voluntary markets.

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