Yesterday, the 28th United Nations Climate Change Conference, COP28, drew to a close — and disintegrated into chaos. As of the time of writing, the draft climate deal was absent any mention of ‘phasing out’ (or down) fossil fuels. The contentious phrase sits at the heart of debate at the heart of the conference, and its removal prompted immediate condemnation from political leaders and environmentalists alike.
Regardless of the final text, the last two weeks have underscored the need for progress on not one but two fronts. Decarbonization is not enough. Environmental scientists acknowledge that even a phaseout of fossil fuels will fail to halt climate disaster in the absence of commensurate nature conservation. Equally, any phase out depends on a phase in of renewables, which depends, in turn, on serious financing.
Rose-Tinted Optimism To Greenwashing Realism
Carbon markets, both voluntary and compliance, were high on the agenda at COP28. The tone, however, is changing. After a year of controversies, policymakers weren’t afraid to address market flaws — but warned against making perfection the enemy of progress.
Speaking to the Financial Times, US climate envoy John Kerry projected that carbon trading would deliver “the largest market the world will have ever known,” while reserving criticism for “fly-by-operations” that have “done an injustice to everyone.” Meanwhile, World Bank president Ajay Banga warned that “the intellectual argument… is holding up the production of credits,” stalling a transition that depends on “all the sources of money we can get.”
So, how are policymakers overcoming the crisis of confidence? Two concrete steps towards integrity in the voluntary carbon market (VCM) caught our attention.
- Consolidation and collaboration: The six leading registries — ACR, ART, Climate Action Reserve, Global Carbon Council, Gold Standard, and Verra — announced a ‘carbon standard coalition’ for improving and aligning their verification standards, endorsing Integrity Council for Voluntary Carbon Markets (ICVCM) principles. For its own part, the ICVCM joined forces with fellow initiatives the Voluntary Carbon Markets Integrity Initiative (VCMI), Science Based Target Initiative (SBTI) and Greenhouse Gas (GHG) Protocol to establish an an ‘end-to-end’ integrity framework, through which the group will provide consistent guidance on decarbonization and credit use.
- So what? In practice a universally recognized stamp of credibility, marketwide standards are good news for anyone looking to buy or sell high-quality credits (and bad news for anyone exploiting governance loopholes). The VCM’s leading standard-setters are showing how serious they are about building integrity. To paraphrase the ICVCM, scale will follow.
- Rules and Regulations: US derivatives regulator the Commodity Futures Trading Commission (CFTC) proposed new rules for trading voluntary carbon-credit derivatives. Under the requirements, exchanges will have to vet and verify voluntary carbon derivatives before listing.
- So what? Though their volume is small relative to the overall carbon trading market, derivative prices are anchored to spot prices — which means the proposal would drive more honest accounting and accurate pricing marketwide. It would also be a landmark first federal regulation for the VCM, joining a small but growing cadre of carbon rulings (most notably in California and Europe) with outsized significance.
COP28 rounds out a year that has delivered as many shocks as the VCM has made strides. The direction of travel is positive, but a market in progress is not a market without risks. From January 1st, corporate buyers can protect against them — while still capitalizing on carbon-credit benefits — with our flagship product, Carbon Protect™.
In the meantime, look out for our end-of-year review and predictions for 2024.
