Carbon markets have sometimes struggled to gain traction and acceptance as an effective part of the climate toolbox. That seems to be changing, however, with carbon markets entering a new phase of movement and maturity. Momentum is also building around initiatives to fix some of the reputational risk behind carbon offset markets, and thus unleash more transactions and finance for low-carbon projects, That’s a key concern for oil and gas companies, many of which hope to use offsets to meet emissions goals while steering clear of questions about the integrity of those credits.
As speakers at recent Climate Week events in New York flagged, serious discussions on government-led carbon pricing regimes are advancing in Japan, India, Indonesia, Brazil and several countries in Africa — while the US has also since released more details of its Energy Transition Accelerator carbon offset program. “Putting a price on carbon is extremely powerful — maybe not popular with corporations because it puts a price on their emissions — but I see it as the only way that we are going to be able to solve this [climate] issue,” said Bill Pazos, CEO of carbon exchange ACX, which offers international carbon transactions.
Occidental CEO Vicki Hollub said business-led action would be preferable, with governments providing incentives for the private sector to invest in low-carbon technology, but said a government-led price could be important and “drive some behaviors of corporations” in a low-carbon direction. “If the market can be developed naturally, and business can drive the market, that’s a better solution. If that doesn’t happen, you have to impose some sort of price,” she told a Climate Week event hosted by the International Emissions Trading Association (IETA) and International Carbon Action Partnership.
Generous clean energy incentives included in the US Inflation Reduction Act, are an “enormous down payment” on climate action, said Dirk Forrister, IETA’s president and CEO. Yet that type of policy is “not enough to get us where we need to go,” he told Energy Intelligence. “It may get a sort of flywheel of change happening in certain sectors that delivers better than expected in some and maybe less than expected in others.”
Carbon Credit Credibility
COP28, set to kick off in less than two months in the United Arab Emirates, may move the needle forward on the integrity and reputation of carbon credits. This could happen either through the work of the Paris Agreement Article 6 Supervisory Body, which focuses on cooperative climate action, or through coalition-building on the sidelines. Majid al-Suwaidi, COP28’s director general, expressed hope that the conference will produce agreement on ways to improve the credibility of credits and, in turn, boost liquidity.
“At the moment, there is low buyer confidence, which is leading to low demand,” al-Suwaidi told the conference. Greater market activity would unleash significantly more money for low-carbon technologies and nature-based climate solutions, he added: “If we do this right, I’m confident the funding can increase.” He laid out several goals, including harmonizing verification standards across the many different verification initiatives and promoting a “significant increase in cooperation” across all spectrums of the carbon marketplace. These would aid a third and ultimate objective: scaling up high-integrity transactions.
Harmonized Standards
Several efforts are advancing on the goal of harmonized standards. IETA’s Forrister said it will be critical to watch the progress of the Integrity Council for the Voluntary Carbon Market, which is developing a single set of standards for verification companies to align behind. Excitement is also building around the Climate Action Data (CAD) Trust, which is making final preparations to launch a new data dashboard, pulling together global information on carbon credit transactions into one place to enhance transparency.
The CAD Trust — started by the World Bank, IETA and government of Singapore — could calm backlash against carbon credits by curbing the risk of double counting, said Dinesh Babu, CAD Trust’s CEO. The data would also include “real-time” updates on the projects underpinning offsets, thus building trust that promised climate benefits are indeed occurring, he told Energy Intelligence.
Government regulation of carbon markets would go the furthest toward minimizing reputational risk, said Pazos. When controversy mounted against the integrity of certain credits on the EU Emissions Trading System, corporate emitters were insulated from significant reputational damage. “The corporates would just say ‘here’s the address in Brussels, go and talk to them. We will do whatever they say,'” Pazos told Energy Intelligence.
Deeper Dilemma
Some panelists at Climate Week also suggest that the real, deeper reason for the lack of climate progress to date, underscored in the UN’s recent global stocktake report, is one that’s hard to measure — disunity. Oxy’s Hollub made the analogy of someone stranded in the middle of a flood who sees another person pulling up in a boat. The two would work together to bring the stranded person to safety, not asking if the other worked for an oil company or a climate transition company, not asking what political party the other supports.
“Those questions are not asked,” Hollub said. With “every crisis that’s happened in the world,” whether flooding, hurricanes or the aftermath of violence, people have united to push through and the climate crisis should be no different, she argued: “People come together. That’s the only way we win.”
