Opinion by Mathew Carr
Nov. 10, 2022 —
Carbon allowances and credits fell yesterday, apparently concerned about oversupplied emissions markets in the future, after the U.S. unveiled a few details of its accelerator program to help speed the climate transition in emerging countries.
EU CO2 futures and Nature-Based Carbon dropped 4.5% on ICE. EU contracts are little changed Thursday.
U.S. Special Presidential Envoy for Climate John Kerry, The Rockefeller Foundation, and the Bezos Earth Fund announced the partnership “to work toward the creation of an Energy Transition Accelerator (ETA) intended to catalyze private capital to accelerate the clean-energy transition in developing countries.”
I’m hearing the U.S. program may be based on the $1.5 billion Lowering Emissions by Accelerating Forest Finance (“LEAF”) Coalition program, which is coordinated by Emergent Forest Finance Accelerator, Inc.
The LEAF program allows corporate buyers of carbon credits to sell the credits only once, but not profit from any increase in their value. Any profits from that single sale are then returned to the forest countries / projects supplying the credits — this boosts climate justice and stops brokers and other middle men from taking too-big-a-share of the carbon-value chain.
So, there’s potentially no real secondary market, and so no big increase in supply.
Source: LEAF proposal terms
In May, LEAF’s proposal-submission window for emission reductions for crediting years 2022-2026 had a floor price of US$10 per ton of CO2 equivalent. Emission reduction credits must be validated and verified against the ART TREES standard. Verification and validation can take two years, so the money would be delivered 2024-2028.
I’m summizing, but the ETA could — in a similar way — help finance renewables and batteries instead of coal, encouraging emerging countries to adapt a clean economy rather than copy the rich world’s dirty template.
Article 6 of the Paris climate deal could allow poorer nations to sell their space in the atmosphere to rich countries that have used more than their fair share. That is, two countries — rich and poor — could collaborate to help save the climate.
Indeed, while the Financial Times reported as its front-page lead Monday that the new partnership was the US “hatching a plan,” it really wasn’t.
Snip of FT’s p1 on Monday.
The US is finally taking advantage of policy that’s been in place since 2015, when the Paris climate deal was struck.
Back in 2015, the US was deeply involved in the structure of the Paris deal.
Yet the latest US plan was criticised in this story by the Guardian newspaper.
Taking a wide picture of where policy is going, the value of removal carbon credits — issued for taking CO2 out of the atmosphere — needs to be lower than the price of credits issued for preventing emissions in the first place.
Otherwise there’s a perverse incentive to keep putting emissions into the sky.
LEAF’s credits for protecting the forest that’s already there are also super important, to counter the value of timber and agricultural land.
A few media outlets covered ETA’s announcement yesterday in the following fashion (Carbon Pulse in this case):
What’s fascinating is how quickly LEAF has grown
On Monday, LEAF announced that it increased total financial commitments for high-integrity emissions reductions to over USD $1.5 billion.
This was a doubling since COP26. LEAF is about two years old.
Auto manufacturer Volkswagen Group and fashion retailer H&M Group became the latest global companies to join, with financial commitments to purchase high integrity emissions reductions credits from national or large-scale REDD+ programs. Volkswagen was the first auto manufacturer to join.
The companies joined over twenty-five global corporations including Amazon, Salesforce, Bayer, PwC, Unilever, Blackrock, E.ON, McKinsey and Company and GSK in supporting LEAF.
What if large companies were immediately required to (or decided to) offset all their emissions?
Demand for carbon credits would surge, swamping concerns right now about oversupply in the carbon markets.
(More to come; adds Guardian newspaper sentence on Nov. 14, so I can remember the strange criticisms of the new US program)
This opinion above is not investment advice.
U.S. DEPARTMENT OF STATE
For Immediate Release
November 9, 2022
U.S. Government and Foundations Announce New Public-Private Effort to Unlock Finance to Accelerate the Energy Transition
U.S. Special Presidential Envoy for Climate John Kerry, The Rockefeller Foundation, and the Bezos Earth Fund announced a partnership today to work toward the creation of an Energy Transition Accelerator (ETA) intended to catalyze private capital to accelerate the clean energy transition in developing countries.
Unprecedented investment in clean energy is needed in this critical decade to limit warming to 1.5°C and avert catastrophic climate impacts on communities worldwide. Annual clean energy investment must triple to $4.2 trillion by 2030, according to the International Energy Agency, and more than half of that investment must be in emerging and developing economies.
The partnership will work towards launching the ETA as an innovative, independent initiative to drive private investment in comprehensive energy transition strategies that accelerate the deployment of renewable power and the retirement of fossil fuel assets in developing countries.
The ETA is expected to deliver deeper and earlier emissions reductions, help developing countries achieve and strengthen their nationally determined contributions (NDCs) under the Paris Agreement, and help them advance broader sustainable development goals, including expanded energy access. It will also generate new finance to strengthen adaptation efforts in vulnerable countries.
The U.S. government and the two philanthropies will work with input from governments, experts, the private sector, and civil society to develop and launch the Energy Transition Accelerator. The ETA is expected to operate through 2030, possibly extending to 2035.
Chile and Nigeria are among the developing countries expressing early interest in exploring the ETA’s potential benefits. Bank of America, Microsoft, PepsiCo, and Standard Chartered Bank have also expressed interest in informing the ETA’s development, with decisions on whether to formally participate pending the completion of its design. The ETA will also be open to sovereign government investments and engagement.
Vision for a High-Integrity Framework
The goal of the partnership is to establish a high-integrity framework enabling developing countries to attract finance to support their clean energy transitions. Operating at the scale of national or subnational jurisdictions, the ETA will produce verified greenhouse gas emission reductions, which participating jurisdictions will have the option of issuing as marketable carbon credits.
The jurisdictional approach, similar to approaches currently employed in the forestry sector, will help avoid emissions leakage, ensure that emissions reductions are real and additional, and align a jurisdiction’s power sector policies, investment priorities, and just transition strategies. While incentivizing system-wide transformation, jurisdictional arrangements can also help steer finance to discrete projects producing deep, rapid emission reductions.
Revenue raised through the ETA will supplement other sources of finance being mobilized by governments, donors, and multilateral and private financial institutions in support of developing countries’ energy transition. It will also help catalyze additional investment. By providing jurisdictions with fixed-price advance purchase commitments for verified emission reductions, the ETA will create a predictable finance stream that can unlock upfront private finance at more favorable rates.
Social and Environmental Safeguards
To help promote an inclusive, just transition, the energy transition strategies of participating jurisdictions will include social safeguards and benefits to local economies, including support for job creation and training.
To promote environmental integrity in the use of carbon credits, one idea for the ETA will be to open it only to companies committed to achieving net zero no later than 2050 and science-based interim targets. Other provisions will establish strong transparency requirements and address how companies’ investments in verified emissions reductions through the ETA could be recognized.
For instance, companies could use credits to support mitigation above and beyond their interim targets, to contribute to climate finance or other voluntary goals, or to contribute to a host country’s NDC achievement. Another approach to be explored is the use of some credits to address a limited portion of Scope 3 emissions within a company’s near-term target, in which case companies would be required to pay for additional credits solely to magnify the ETA’s financial and climate benefits.
A range of stakeholders will be consulted on the ETA’s technical aspects as well as environmental, social, and just transition safeguards. Organizations to be consulted include the Science Based Targets Initiative (SBTi), the Voluntary Carbon Markets Initiative (VCMI), the Integrity Council for the Voluntary Carbon Market (ICVCM), and the World Resources Institute (WRI) for GHG Protocol.
With safeguards in place, participating companies will need to achieve deep reductions in their own value chain emissions, with emission reductions generated through the ETA supplementing their internal abatement. The final ETA participation and use criteria will be informed by further analysis of potential emissions and financial implications and will seek broad alignment with evolving best-practice standards, including those of SBTi and VCMI.
To help strengthen climate adaption efforts in vulnerable countries, five percent of the value of all credits generated through the ETA will be dedicated to international support for adaptation and resilience.