Rich World Seen on Notice to Justify its Frugal Climate-Finance Habit

Oct. 20, 2020 — LONDON — Rich countries’ preference for offering climate finance via loans and carbon markets is seen getting in the way of an ambitious global climate deal next year.

When developed nations promised in 2009 to pay $100 billion of climate assistance a year by 2020 to developing countries, the emerging nations mostly expected to get the money in the form of grants, Tracy Carty, senior policy adviser, climate change, at charity Oxfam, said in an interview.

Instead, the true value of money provided by developed countries to help developing nations respond to the climate crisis may be just one fifth of the amount promised, once loan repayments, interest and other forms of over-reporting are stripped out, according to Oxfam estimates published today.

The lack of support by nations that are most responsible for climate change may block an ambitious deal when United Nations climate envoys meet in November 2021 to seek to finalise rules of the Paris climate agreement. That meeting, already delayed a year because of the coronavirus pandemic, is known as the 26th conference of the parties.

“Climate finance is a cornerstone of global co-operation on climate change — to avoid this getting in the way of an ambitious deal at COP26, developed countries must agree to put an end to unfair reporting practices and agree robust common accounting rules for climate finance,’’ Carty said.  “They also need to commit to providing far more climate finance as grants not loans, and to adaptation and vulnerable countries”.

Wealthy countries counter, saying that leveraging grants in the form of concessional loans makes the available money go a lot further — that is, more emissions can be cut once the funding is leveraged and made via concessional and non-concessional loans. And it’s the pace of emission reductions that matter, because greenhouse gases in the atmosphere can trap heat there for decades.

A recent example of a European Bank for Reconstruction and Development program approved by the Green Climate Fund demonstrates where climate finance is probably headed. The fund, built to help developing countries curb emissions and adapt to climate change, is managed by a panel of rich and poor-nation representatives.

Armenia, Jordan, Kazakhstan, Morocco, Serbia, Tunisia and Uzbekistan make up the program initially, which is designed to be repeated and expanded so more and more economies around the world begin including the cost of greenhouse gases in the business plans of private-sector companies, which produce most emissions damaging the climate.

The program, based on carbon pricing and emission credits, nearly didn’t make it off the ground. Developing countries are suspicious of carbon-market finance being offered by richer countries — after years of broken promises. The value of existing UN credits created by poor nations plunged to near zero because of weak demand, as the U.S., Japan and Russia pulled out of the system partly because the relevant 2012 and 2020 targets turned out to be weak.

Now, following its signoff, the “Accelerated Option” in the EBRD’s “High Impact Programme for the Corporate Sector” in the seven nations means an emitting company can accelerate its qualification for a discounted loan “any time beginning when the loan agreement is signed until the agreed operational start” of the emissions-cutting project by buying carbon credits, according to the 58-page funding proposal published last month.

Photo: Oxfam: Pastoralist communities in the Somali region have been suffering 4 years of erratic rains and droughts and millions have lost their animals and livelihoods. Crops have been decimated and communities that still have access to water and pastures are in a dire situation since those resources are not enough to cover their basic needs.


The program will provide total financing of about $1 billion over 20 years, with $252.5 million concessional finance and a $5.5 million grant from the GCF. Alongside concessional financing, co-financiers will offer $757.5 million to corporates through loans.

The EBRD structure should help the climate shift by leveraging money earned by European nations from selling carbon allowances to their own factories and power stations. The 20-year program should cut about 20 million tons of carbon dioxide equivalent, so a cost of about $50 a ton (NOTE: the money isn’t just for emission cuts but also for green-industrial expansion, allowing emerging countries to leap frog richer countries), which is about where many economists estimate carbon prices should be right now.

“In my view carbon transactions are almost like the purest form of climate finance because it’s money going toward reductions,’’ said Jan-Willem van de Ven, head of climate finance and carbon markets at the EBRD, said last week at a GCF online event.

Oxfam’s report:

Oxfam’s Climate Finance Shadow Report 2020 estimates that donors reported $59.5 billion per year on average in 2017 and 2018 – the latest years for which figures are available. But the true value of support for climate action may be as little as $19-22.5 billion per year once loan repayments, interest and other forms of over-reporting are stripped out. Oxfam’s analysis is being released ahead of a report by the Organisation for Economic Co-operation and Development (OECD) on developed countries’ progress towards the goal of providing $100 billion in climate finance per year by 2020.

An astonishing 80 percent ($47 billion) of all reported public climate finance was not provided in the form of grants – but mostly as loans.  Around half of this ($24 billion) was non-concessional, offered on ungenerous terms requiring higher repayments from poor countries.  Oxfam calculated that the ‘grant equivalent’ – the true value of the loans once repayments and interest are deducted – was less than half of the amount reported.

Taking the Political and Financial Fear Out of Climate Action — How Carbon Pricing Will Help Decarbonise Asia Like It’s Already Cleaning Europe (2)

By Mathew Carr

Oct. 13, 2020 — LONDON: The future of energy and climate policy around the world is still hazy, but it’s coming into much sharper focus.

That’s a relief for investors, who are pushing politicians and industry leaders to become more brave and more ambitious as they consider climate action. A global template is beginning to fall into place.

Politicians in Europe have used a mix of policies to achieve big reductions in emissions the past few decades.

Germany subsidised solar power, while Britain supported offshore wind generation.

While this government assistance was indeed costly, those forms of electricity have become largely cheaper than coal and natural gas, as power networks favour clean options.

Private money is flowing decisively into clean technology, with about 1 trillion euros of clean projects set to make financial close within two years in the EU, according to consulting firm EY.

One of the keys to Europe’s economic model is carbon pricing, which has increased to a level that’s probably high enough to deter a “brown bounce back” after the coronavirus pandemic. Politicians are seeking to direct coronavirus economic support to green initiatives so economic activity is cleaner after the health crisis and less focussed on dirty (or brown) fossil fuels.

So far the economic rebound has been patchy, according to the IMF, with China leading the charge (story continues below):

Carbon pricing simply hasn’t threatened Europe’s economy like it was feared it might when the region began its carbon market near the beginning of the century. Carbon pricing is slowly taking hold across the world and a national carbon market has not been ruled out by Joe Biden as he runs to become U.S. president.

Ten years ago, it was expected Europe might need a carbon price above 200 euros a ton to push the electricity industry to solar from coal. That would have boosted the region’s economic costs substantially.

“That’s not how we did it,’’ says Mark Lewis, chief sustainability strategist at BNP Paribas Asset Management. What Europe did, specifically Germany for solar and the U.K. for offshore wind, is drive down the cost of renewables using targeted subsidies, including feed-in tariffs, and mandatory levels of clean power. Costs are now still falling.

“It’s almost impossible for fossil fuels to compete any more with that very strong deflationary dynamic,’’ Lewis told an online OECD green finance event Oct. 9.

Because renewable power is now so cheap, Europe can protect its energy shift using much lower carbon prices — below 30 euros a ton. That’s probably enough to prevent a resurgent coal and natural gas industry.

“The risk is that if there is a near-term brown bounce back, investors will very much regret it, because they will be looking inevitably at stranded assets only a few years down the line, as the renewable energy revolution continues — the costs are still falling, that’s the point,’’ Lewis said.

With the power grid much cleaner, Europe’s now turning to heavy industry like steel and cement as it seeks even more ambitious decarbonization. In those industries, electricity can’t readily provide the high temperatures needed for production.

Hydrogen is seen as the probable answer because it can produce the needed heat and — as costs fall — renewables can probably produce it with no greenhouse gases closer to 2030.

The cost of producing green hydrogen (from renewables) today is about 5 or 6 euros per kilogram, Lewis said. That’s more than triple of the price of grey hydrogen (from fossil fuels) at 1.50 euros per kg. Europe’s in the process of using subsidies, mandates and research support to get the price of green hydrogen down to about 2.50 euros a kg within a few years.

“There comes a point where the capital costs of these new technologies – exactly what we’ve seen with renewable energy – allows the carbon price then to come in once the new technology is — let’s say — within the firing range of the incumbent fossil fuel,’’ Lewis said.

So, instead of needing carbon prices of several hundred euros to incentivize the shift to hydrogen, carbon prices around 90 euros a ton might do it (closer to the end of this decade), he said. That’s still more than triple today’s level in Europe’s carbon market, where prices are still below 30 euros a ton.

(Continues below)

Europe wants to reach net zero emissions by 2050 and it’s linking climate and trade policy to protect its own low-carbon industries.

“You can’t get to net zero without green hydrogen scaling up to 10% to 15% to 20% of the European energy mix. You can’t get to that outcome without green hydrogen first displacing grey hydrogen as an industrial feed stock,” Lewis said.

With carbon prices protecting the region from a reverse shift, private investors will be confident they can dramatically boost spending on clean tech, including hydrogen technology. Politicians can be more confident to bring in policies, knowing they won’t substantially hurt industry and employment. Carbon trading can provide nations with flexibility to hit emission targets without boosting economic costs.

Europe’s “glide path” to fewer greenhouse gas emissions might represent something that can be adopted in Asia, said Michael Liebreich, founder of Liebreich Associates and consultancy New Energy Finance (now owned by Bloomberg LP).

“There are regulatory or investment interventions and then you get a carbon price that’s not ridiculous and that brings in the private capital, that allows people to then invest” and doesn’t always need to be matched by public support, Liebreich said.

This cuts cost and risk for governments, plus they get new revenue from selling carbon allowances. Low gas prices, such as those in the U.S., are also a risk-cutting benefit.

Gas prices have also dropped in Asia, where most of the world’s population lives. That region is beginning to understand that climate protection and better global trade rules represent a considerable financial and employment opportunity, according to Ahmed Saeed, a vice president at the Asia Development Bank.

China, which is implementing a national carbon price, is now targeting net zero emissions by 2060, only 10 years later than Europe.

Asia may be winding back its rhetoric on climate change, where it has historically blamed rich countries for the problem.

The region is beginning to leapfrog the west on its cleantech shift, Saeed told the OECD event, citing battery projects in Mongolia and a surge in spending on windpower, solar and street lighting in India.

“They recognise increasingly that they do have a systemic responsibility, and not just a responsibility for their own countries,’’ he said of unspecified leading Asian nations. Japan and Australia also have hydrogen strategies.

“I’ve seen this slight shift emerge over the last year or so as we confront various issues, where traditional sources of leadership may not be present,” said Saeed, who has worked for private banks and the U.S. Treasury.

“That awareness that they are beneficiaries of the global trading system — they feel that what’s good for global trade is good for them, what’s good for global climate is good for them, so they have this sense of commitment to what is in the best interests of the planet.’’

(Updated Tuesday afternoon with IMF chart showing patchy recovery from the pandemic, Lewis’s Tweet added Wednesday)

Europe Has About 1 Trillion Euros of Green Projects Ready to Go Within Two Years: EY (2)

Oct. 9, 2020 – London – The European Union has about 1 trillion euros of “shovel ready” green projects in its pipeline that could reach financial close within two years, according to a survey by management and accounting firm EY.

The survey covered respondents including about a quarter of the top 30 European construction companies and demonstrates the opportunity available to politicians and investors from the coronavirus pandemic recovery: Climate & Strategy Chief Executive Peter Sweatman, speaking at an online OECD green finance event on Friday about the EY study.

The EU is seeking to shift away from fossil fuels as it beds down a plan to recover from the pandemic. Technology cost reductions, green finance and policy frameworks are seen crucial to get that shift to include a boost to employment. Other regions, including Asia, are seen following similar economic strategies, according to speakers at the OECD event.

Here is a slide from Sweatman’s presentation; the EY report covered 1,000 green projects seen as the tip of the iceberg:

The report dated last month found “all and more of the 12 million full-time workers lost to Covid-19” could possibly be returned into “green and productive” employment if the recovery plan is set right.

Some political groups are worried factories will cut back on EU capacity and output, should the region shift too quickly away from fossil fuels, boosting economic costs versus other regions of the world.

For the full EY report ( eg p5) … see this link:

(Updated early Saturday with context in final paragraphs. Earlier version corrected Sweatman’s title – he was a member of the project steering board.)

EU Carbon Allowances Jump Briefly After Parliamentarians Push Nations to Adopt Surprisingly Ambitious 2030 Target (2)

By Mathew Carr

Oct. 7, 2020 — London — European carbon allowances fluctuated after members of the European Parliament voted for the world’s biggest trade block to adopt a 60% emission-reduction target for 2030.

The target, versus 1990 levels, would be 5 points tighter than that proposed by the European Commission.

EU carbon allowances immediately surged more than 4%, then erased the increase by the close of the market at 5pm London time, partly because of concern about Brexit negotiations, according to newsletter Carbon Pulse.

Finland was among nations immediately on board with the higher level of ambition for 2030, and countries will continue to debate the proposed target for at least the next several weeks:

The biggest group in Parliament said it was concerned that the tighter target may threaten jobs, according to Bloomberg News, which wrote:

The 60% target is higher than sought by the European People’s Party, the biggest political group in the EU Parliament. Still, the EPP will not vote against the climate law as amended in the final ballot scheduled for later on Wednesday, said Peter Liese, key German member of the assembly who oversees environment policies for the group.

“We will abstain, because we sincerely dislike the 60% and think it really endangers jobs,” he said on Twitter. “We are very confident that the Council of the EU will take care that we will come back to the Commission’s proposal of net 55%.”

See this link (paywall):

This analyst wasn’t so sure the EPP was right, because the energy transition has already created many jobs and brought in green money to Europe’s governments:

Those countries have benefitted from billions of euros of revenue from selling the right to emit greenhouse gases since the EU carbon market began in 2005.

Having a tighter target for 2030 would mean even higher market prices for emission allowances — and even more revenue for cash-strapped government coffers.

Nations around the world are seen considering carbon pricing as they seek to rebuild their economies after the damage wrought by the coronavirus pandemic.

That’s because carbon taxes and markets, unlike company and payroll taxes, can spur employment as they encourage a shift away from coal, oil and natural gas and toward huge new cleantech investments.

In April, the International Energy Agency said investing in the climate transition would help economies recover and many countries are still finishing their post-Covid-19 recovery plans.

“We believe that by making clean energy an integral part of their plans, governments can deliver jobs and economic growth while also ensuring that their energy systems are modernised, more resilient and less polluting,” the IEA said.

See this for the immediate market reaction to the EU parliament’s vote, announced earlier today:

(This story was updated Wednesday afternoon London time, and again in the evening)

Open Bets on Carbon Futures in North America Are at Record Levels Ahead of Presidential Election

By Mathew Carr

Oct. 7, 2020 — London — Traders are making record bets on North American carbon and renewable futures, as Joe Biden leads in polls ahead of next month’s presidential vote.

Open interest, a measure of trades that have not yet been closed, is at record levels for the time of year, according to data from ICE, the exchange group with most environmental business.

See this snip of a chart on ICE’s website:

From ICE website:

The chart shows open positions and trading volume for California carbon allowances, Regional Greenhouse Gas Initiative contracts and Renewable Energy Certificates, by month.

While the August “open interest” figure is slightly lower than previous months this year, it’s the highest ever for August. September data will be published soon.

Biden has an ambitious plan to tackle climate change in the U.S., which is the single country most to blame for the global problem. Near-record greenhouse gas emissions are trapping heat in the atmosphere, which is boosting wildfire, drought, storm and flooding costs around the world.

China, which has overtaken the U.S. as the world’s biggest emitter, has set a target to become carbon neutral by 2060.

With a bigger economy, but much smaller population, the U.S. would seek to achieve a 100% clean energy economy and net-zero emissions no later than 2050, Biden has said (should he win office). He wants to enact legislation in the first year of his presidency that establishes an enforcement mechanism to achieve the 2050 goal, including a target no later than the end of his first term in 2025.

Polls put Biden in the lead to beat incumbent Donald Trump, after the latter was hospitalised for the #coronavirus.

(Updated Thursday Oct. 8 to add details of Biden’s climate plan)

Risk of Gap in UN Carbon Markets Persists After Panel Delays Key Decisions

Oct. 6, 2020 — London: The panel overseeing the main United Nations carbon market delayed key decisions that would have overcome a potential gap in the market’s operation at the end of the year.

The Clean Development Mechanism Executive Board considered the implications of the postponement of UN climate talks to November next year because of the coronavirus pandemic, it said in a report detailing the outcome of meetings that took place during the past two weeks in Bonn and virtually.

The panel would further consider at a meeting scheduled through Dec. 14 whether emission credits generated “on or after” Jan. 1 can be approved in the first 10 months of next year, it said.

The market has suffered weak demand for years and now the one-year delay in the global climate talks in Glasgow to November 2021 is causing further complications for the regulators. The impact of the virus means the market may have to halt at least some of its operations. Investors and project developers face rising uncertainty on what will happen to their projects for those months.

The panel did provide some certainty that pre-2021 emission reductions could still be processed.

Audit firms handling requests from emission-reduction projects in the market will continue as “provisionally designated,” until November next year, when further guidance may be provided by the Glasgow talks, it said. Requirements by regulators of the firms “would remain the same.”

“The submission and processing of requests for issuance related to emission reductions or removals achieved before or on 31 December 2020 will continue in accordance with the current CDM requirements.”

See link to meeting report:

See link to earlier story:

The Paris Climate Deal Might be About to Get a Bit Bitey … Finally (2)

By Mathew Carr

London — Oct. 2: Patricia Espinosa, executive secretary at the UNFCCC, said Friday the Kyoto Protocol would be extended through this year.

The missive shows multilateral climate talks have not completely fallen off track.

With the extension (known as the Doha amendment) secure, UN climate envoys can more easily finish the complicated task of agreeing international accounting and carbon-trading rules under the Paris climate deal. This will stop two countries claiming the same emission reduction, for instance.

At talks in Madrid late last year, UN envoys considered allowing a certain portion of emission credits created during the period ending 2020 into the Paris deal after 2021. Under than plan, which wasn’t agreed, developing nations would be allowed to use more pre- 2021 credits than richer nations that have caused most of the climate problem.

Allowing countries to trade carbon across borders and across phases gives them a reserve of carbon credits they can tap if they need to — cutting the risk of climate action.

Nations that are allowed to trade carbon credits will be more likely to take on much tighter emission reduction targets under Paris because the pool of credits and allowances will give them comfort. The EU has set up a reserve of allowances to give it flexibility and keep scarcity in its carbon market.

There’ll probably be strict conditions applied under Paris to nations wanting to tap this flexibility.

Whether nations want to join the system will be voluntary, so countries outside may have no or limited access to emission credits to plug gaps in their emissions targets. (For example, if their nuclear plants need to close down after a terrorist attack.) Because they will feel less comfortable, they’ll be less likely to be ambitious when setting their targets.

The targets are known in the Paris deal as “nationally determined contributions” and the world’s almost 200 nations are meant to make their Paris targets stricter this year.

Had the countries failed to extend Kyoto, it would have been more difficult for emission-reduction projects that have cut emissions in the Clean Development Mechanism (the main existing UN carbon market) to generate any money for their effort. China, which plans a national carbon market, produced most credits under the CDM.

Regulators are considering the future of the CDM on Monday (see link below for a little of the background). The panel that’s meeting in Bonn, Germany, and virtually, is known as the CDM executive board.

Not only the UN carbon markets, but the possibility of a truly global and effective climate-action framework is at risk.

Without a global solution, the world will continue to be hit for years by a flood of national and corporate greenwashing, as politicians are gripped by fear and companies are forced to try to make sense of a patchwork of complicated voluntary, regional and national environmental standards.


Here’s some of the other news coverage on Kyoto’s extension (I’m not endorsing it):

See this for context on UN climate effort:

(This story was updated Sunday afternoon and made more clear on Monday morning London time, headline updated Monday evening)

Attempt to Loan Money Against UN Emission Credits Hit by Defaults

Oct. 2, 2020 — London — More money in a small United Nations loan program to encourage renewable energy in developing nations was written off than repaid.

The Clean Development Mechanism Loan Scheme was launched in April 2012. About $1.6 million was written off, while $1.3 million was repaid, according to a report being considered through Monday at a meeting of administrators of the CDM, the UN carbon offsetting market.

A fundamental assumption underpinning the program was that once the CDM projects had achieved registration, the loans would be repaid using the proceeds from selling Certified Emission Reduction credits generated under the CDM by the supported project — the CERs were both the collateral and the source of repayment income.

But there’s barely any market for the CERs. Prices are near zero because global carbon trading rules aren’t set and countries have not adopted ambitious emissions targets, so this strategy didn’t go well.

With the collapse of the CER price in 2012, the assumption that CERs would repay the loans “became invalid, and the business case for many CDM projects also became invalid. This is probably the foremost reason why 40% of the loans had to be written off. The design of the Loan Scheme did not consider any possibility of the market for CERs not being as buoyant as it was when the scheme was designed. In addition, the overly detailed CMP (UN climate talks) decisions on exactly how the loan scheme operated prevented the implementing agency or the secretariat from adapting to these severe market changes in any material way.”

While the program was a first-of-its kind initiative, its problems were not only the result of its design and operation, but were “even more affected by the changing fates of the CDM itself and the markets within which it is operating.”

It provided a much-needed financial life-line to allow project developers to engage experts to help move their CDM projects forward, “but did not in itself improve the conditions for CDM projects in these countries. Considering this, the fact that more than 50% of the approved loans resulted in new CDM project registrations must be seen as a success.”

Related government agencies in each nation should have been underpinned, which could have made the program more successful.

“Mostly due to the difficult conditions in the project countries, a majority of the projects supported by approved loans were delayed, and loan agreements had to be amended repeatedly to avoid breach of the loan contracts. Partly contributing to this were the loan conditions set at CMP level, which reduced the administrative flexibility of the Loan Scheme. A lesson learned in this regard is that development of CDM projects in countries with less favourable conditions typically requires more time than such projects would need in other countries. This could have been foreseen and built into the loan conditions from the outset to avoid the extra administrative burden associated with the delays and contract amendments.”

For the full report, technology types, countries, click: