Nov. 22-30, 2022

I’m recasting this story to make it more clear.

The U.S.’s planned Energy Transition Accelerator could operate like the LEAF Coalition. But, instead of protecting forests, it would reward countries that are switching to clean electricity instead of relying on coal, crude oil and natural gas generation.

Distributed energy programs, not linked to a power grid, may also win carbon credits, if they are done in an efficient way and deemed to be “additional”.

This story explains a little about how LEAF works, as well as how corporate preferences and country choices are beginning to play out:

Carbon Credit Suppliers Eye Market Upside in System on Cusp of Demand Surge

So, the Energy Transition Accelerator could do for avoiding emissions from electricity what LEAF is doing to protect forests.

What the ETA needs is a clear standard that ensures activity rewarded with carbon credits is additional compared to what would have happened anyway. LEAF uses ART Tree.

“Additionality” is an important concept in carbon markets because companies or governments should not be awarded carbon credits unless the carbon credit value was needed to make the activity happen in the first place.

Having said that, additionality changes over time.

Renewable power is additional if it is more expensive than fossil generation in a given place at a given time. If the government of that place suddenly creates other incentives for renewable power, additionality may disappear. Carbon credits shouldn’t be awarded if they are not needed to incentivize clean power.

Nuance Needed

Additionality is a concept that requires thought and it’s nuanced. One of ETA’s challenges will be to convince potential buyers of carbon credits that the credits created have not been created too cheaply or easily or from countries with weak emissions targets under the Paris climate deal.

One way of doing this would be to link additionality to the host country’s historical emissions per capita and / or also link it to the host country’s historical revenue from fossil fuels.

An emissions-cutting activity or program could be potentially made more additional in a place that hasn’t emitted a lot in the past or in a location that has not made a lot of money from selling fossil fuels. Think least-developed countries.

Emissions-cutting methodologies that deploy ground-breaking incentives for renewable energy / batteries in a place with little history in fossil fuels, boosting the the scale of green electricity, could be regarded as additional.

The importance of incentives for solar and wind, for instance, will depend whether those technologies are already cheaper in the relevant country, given existing incentives. Countries are not allowed to backtrack on their incentives.

I think it’s reasonable “to consider that new methodologies might be needed for it (the ETA standard, when it adopts or formulates one), not just due to scale but because existing grid-connected renewable-energy methods are being phased out,” said Zubair Zakir, founder of Anthropocene.io, which helps companies navigate carbon markets, manage risk and contribute to GHG cuts and development.

See this paper from June 2019 about assessing additionality under the Paris climate deal.

There’s probably even better solutions.

Note that news broke on extra support for the LEAF Coalition during COP27, including from four Brazil states — letters of intent.

More solid deals are expected within about four months (there’s a lot of work to do, even for LEAF). LEAF works via Article 6 of the Paris climate deal.

See here:

17 November 2022 | Sharm El Sheikh: Amapá, Amazonas, Mato Grosso and Pará have become the first Brazilian states to sign Letters of Intent (LOI) with Emergent, the coordinator of The LEAF Coalition. These LOIs demonstrate the commitment of all parties to progress negotiations towards binding agreements to supply emissions reductions to LEAF Coalition participants, and signal significant progress for LEAF in Brazil. Read more in the press release.

LEAF also announced that Costa Rica and Nepal have signed memorandums of agreement (MOAs) with Emergent. These agreements, for countries who have already signed LOIs, outline the next steps and put in place a clear roadmap and timetable for the signing of binding Emissions Reduction Purchase Agreements (ERPAs) by the end of April 2023.  Costa Rica and Nepal join Ecuador, which was announced earlier at COP27 as the first country to sign a MOA. Read more in the press release. 

The Coalition’s support base is impressive by most measures and it is getting bigger by the day. That does not mean it won’t have challenges going forward, for example in locking in prices that will appeal to both buyers and sellers.

Check this out — participants cover a good portion of the global economy:

And do you think China is not engaged on Article 6? Think again. (The Nancy Pelosi distraction tiff between the U.S. and China was just that, I reckon. Perhaps it was designed to limit progress on article 6 at COP27. There’s more to come on this.)

See this on LinkedIn:

Stian Reklev• Reporter, Co-founder & Asia-Pacific director at Carbon Pulse • 1 week ago

China hasn’t shown much interest in the Paris Agreement’s Article 6 so far, but on Tuesday Duan Maosheng – prominent Tsinghua University professor and a key advisor to the Chinese government on carbon market matters – told a side event at COP27 that might be about to change.

China is open to use Article 6 ITMOs generated in Belt & Road Initiative countries for offset purposes in its national ETS, given the dearth of CCER supply at home.

Not going to happen tomorrow, but in time this could create a significant source of demand for ITMOs.

Read Carbon Pulse’s story here ($): https://lnkd.in/gZyBuVei

(Adds paper on assessing additionality under Paris, Carbon Pulse on China, context, Zakir, Gold Standard doc, more to come)

NOTES

One

ITMO: Internationally Transferred Mitigation Outcome (and remember Paris article 6 carbon credits don’t need to be transferred to be authorized for use by corporates by emerging-market host countries. It’s up to each country.)

Two

Read this from Gold Standard, EY (from before COP27) and supported by Sweden