At COP26 earlier this month, the mechanisms on the Paris Agreement rulebook have been lastly agreed upon, with key elements on carbon markets outlined in unison by world nations. So, will this new and strengthened carbon market help company net-zero targets, significantly by the lens of nature-based solutions?
Carbon markets can cowl solutions starting from artifical technological solutions to nature-based (NbS) solutions. In the present financial local weather, NbS are proving a preferred mechanism for corporates trying to speed up net-zero methods.
The common consensus from inexperienced teams is that local weather change exacerbates nature loss and vice-versa, however that well-delivered, nature-based solutions ought to play a key position in delivering local weather adaptation and mitigation. This consensus has been adopted by many nationwide governments and a rising cohort of enormous companies – most of that are utilizing nature initiatives in accounting in opposition to their very own local weather objectives.
Among them are hotelier Iberostar, FMCG big Procter & Gamble, media streaming service Netflix and window producer Velux, the latter of which is working with WWF to offset 100% of its carbon emissions in the future and seize the equal of its historic carbon footprint by 2041.
And but issues persist that corporates are focusing an excessive amount of on the “net” of their net-zero methods, leaning too closely on offsets by NbS and carbon markets somewhat than detailed decarbonisation plans.
The investor group Climate Action 100+, for instance, revealed analysis at the begin of the yr detailing that no firm had full disclosed plans to achieve net-zero. Only a handful of the world’s largest organisations have since revealed some kind of roadmap.
As these plans are fleshed out, the short-term fallback appears to be a reliance on offsetting and exploring carbon removing applied sciences that aren’t commercially viable but. On offsets, firms spend money on NbS and programmes, comparable to tree planting or restoration to steadiness their very own emissions. However, the present market for these initiatives has been greatest with accusations over inconsistent accounting, issues that they really gas local weather change and that they permit corporates to “greenwash” their strategy to net-zero.
With all of this in thoughts, company net-zero targets have been dubbed the “wild west”, the place something goes and never sufficient scrutiny is positioned on claims and actions.
At COP26 earlier this month, the mechanisms on the Paris Agreement rulebook have been lastly agreed, with key elements on carbon markets outlined in unison by world nations. So, will this new and strengthened carbon market help company net-zero targets?
Edward Rumsey is a managing accomplice at Permian Global, a enterprise that specialises in the improvement and administration of reforestation, biodiversity and NbS initiatives. Rumsey can also be a member of the of Verified Carbon Standard (VCS) Programme Advisory Group and a member of the Special Advisory Group to the World Bank, Carbon Markets and Innovation staff.
According to Rumsey, COP26 was one in all the key moments in the improvement of higher requirements and metrics for international carbon markets that can seemingly generate extra confidence from nations and corporates relating to the credit they’re buying and initiatives they’re investing in.
“A lot of improvement [will come to the market] by the commoditisation of reference contracts, fungibility, improved oversight and we’ve now got rating agencies that are looking through to address the inherent concern of the quality of the underlying units used in carbon offsetting and whether that was really demonstrable of a tonne of CO2 equivalent,” Rumsey informed edie.
“Now, with Article Six [of the Paris Agreement] we have robust standards and we’re looking at third party oversight. I think buyers are increasingly getting confident that what they’re actually buying does have integrity. And that’s really important. So corporate demand is bounding forward and which means we’ll see an uptick in pricing, and we’ve already seen in the last 12 months, because there’s far more transparency.”
What is Article 6?
Negotiations on Article 6 of the Paris Agreement – the part pertaining to carbon markets and the way emissions reductions beneath NDCs can and ought to be accounted for – have been a spotlight space all through COP26.
In approving the Glasgow Climate Package, world leaders have additionally made some key resolutions on Article 6. The ultimate settlement successfully resolves points relating to paragraphs 2 and 4 of the article, which covers bilateral carbon trades and a centralised accounting hub to switch the Kyoto Protocol’s Clean Development Mechanism (CDM).
After what has been reported as sluggish progress on this difficult challenge all through COP26, the ultimate textual content states that “internationally transferred mitigation outcomes” (i.e. carbon offsetting) ought to depend on “real, verified and additional” emissions removing going down from 2021 onward. There is a requirement for co-benefits by way of adaptation and the financial system, and for nations to place at the least 5% of the proceeds into adaptation.
Plans for a possible two-tier system, and to switch present forest credit Into Article 6, have been deleted from drafts, in a transfer most inexperienced teams have praised.
While Article 6 is of paramount significance to nations and their capability to achieve Nationally Determined Contributions (NDCs) to the Paris Agreement – which must be up to date subsequent yr – additionally it is serving to to strengthen the market for corporates and supplies them with extra certainty that their investments are making a tangible contribution to reaching net-zero.
The Taskforce on Scaling Voluntary Carbon Markets (TSVCM) is the organisation arrange by former Bank of England Governor Mark Carney late final yr, with the purpose of taking inventory of present voluntary offsetting schemes and figuring out key challenges to scaling them up whereas guaranteeing credibility.
In 2020, the Taskforce estimated that the present market for offsets might want to develop by at the least 15-fold by 2030 if the non-public sector is to align with the Paris Agreement’s 1.5C trajectory. By 2050, he warned, it could must be as much as 160 occasions greater than in 2020. But with issues about greenwashing, double-counting and requirements various between nations and areas persisting, the Taskforce has proposed measures to weed out the sector’s largest issues because it scales.
A set of ‘Core Carbon Principles’ has due to this fact been outlined for the new governance physique. Principles stipulate that credit have to be actual; based mostly on real looking and credible baselines; monitored, reported and verified; everlasting; further; minimise leakage; solely counted as soon as and never contribute to some other net-harm (e.g. on biodiversity or native communities). The hope is that the Core Carbon Principles may be embedded into authorized requirements by nations and thru worldwide agreements.
However, as traders and companies turn out to be extra conscious of the advantages and impacts of NbS, extra market challenges emerge.
The State of Finance for Nature report from the UN Environment Programme highlights the huge monetary hole dealing with NbS, which may help in combatting local weather change if sufficiently supported.
The report discovered that present funding into NbS sits at $133bn – 0.10% of world GDP – the most of which comes from public sources. However, as much as $4.1trn is required by 2030, which rises to $8.1trn 2050, a four-fold improve.
The new report echoes findings from the Green Purposes Company (GPC), which just lately detailed how a $700bn funding hole into NbS must be addressed with a view to meet wider net-zero objectives and fight the local weather disaster.
Rumsey believes that the non-public sector will probably be a giant driver in addressing this funding hole, supplied the high quality of the market continues to develop. But apart from pricing, Permian Global’s managing accomplice Gerry Elias can also be warning that corporates will probably be dealing with a “supply squeeze” which will require them to revisit short-term steps to reaching net-zero.
“There’s a provide squeeze in the market proper now, attributable to Covid-19 but in addition the change in the demand, that’s in all probability going to proceed for the subsequent 12 to 18 months. So at the second, we want a kind of bodily presence in the precise initiatives to confirm them, and simply getting out on to the discipline has been tough due to the pandemic.
“So I think, for corporates, they have to consider supply against the competing demands, and what the change in pricing will mean and how that looks in their own net-zero hierarchy. It may incentivise action in other areas and solutions.”
As the market continues to seek out its ft, each Rumsey and Elias be aware that many corporates are actively looking for involvement in restoration and NbS initiatives to alleviate a few of the challenges.
Amazon, for instance, has unveiled a brand new agroforestry and restoration programme that can utilise NbS whereas bettering livelihoods for native farmers in the Brazilian Amazonian area.
The advantages of this method are that the company good points higher oversight of the deliverables and outcomes of the venture, together with higher measurements on carbon sequestration and reputational boosts from the added social worth that these initiatives can carry.
Indeed, some are advocating that NbS and offsetting mechanisms may be launched with out fears of greenwash, supplied it’s embedded into an organization’s worth perspective.
James Cameron acted as an impartial advisor to COP26 and likewise advises the likes of Pollination and the London Sustainable Development Commission.
According to Cameron, NbS are essential in serving to corporates and decision-makers perceive the significance of nature in the battle in opposition to local weather change, however that funding and metrics are once more key.
“Businesses should look at both the strengths and weaknesses of the case for valuing carbon, starting with the very obvious proposition that we absolutely must, in one way or another, have a value of carbon,” Cameron informed edie.
“Failure to attribute any financial or economic value to forests, or other natural systems, makes them vulnerable, makes them persistently consistently undervalued. Nothing stops you from valuing a natural system spiritually, emotionally, aesthetically, as well. But to date, we’ve not created sufficient incentives, pathways or conduits for that money to move to those atoms and that’s part of what we’re doing with Article Six with these other kinds of devices.”
Cameron believes that company can advocate for NbS as a part of formidable net-zero methods that, whereas they need to finally give attention to decarbonisation, also can depend on offsetting with out issues that it’s thought of greenwash.
Last month, the Science Based Targets initiative (SBTi) unveiled the world’s first customary for company net-zero emissions aligned to local weather science. The SBTi has clarified that science-based net-zero targets would require firms to realize deep decarbonisation of 90-95% earlier than 2050. From that time, firms ought to neutralise unavoidable emissions by offsets and removals. Crucially, the SBTi states that carbon offsetting and removals can not exceed 5-10% of an organization’s emissions, though that is sector dependent.
So, if offsets and nature have key roles to play in serving to corporates attain net-zero, how ought to they be approached? For Cameron, this once more comes all the way down to a enterprise’s willingness to articulate its objective.
“There are many different pathways you can go down to reach net-zero. But if you’re seriously committing your company to net-zero, you’re probably going to fund a transition for yourselves and you may also have to fund effort outside your firm, to help you deliver that on that target,” Cameron provides.
“Effectively, what you are doing is you are committing assets to ship good, and you have to be utilizing your company as a well-managed firm, to ship that public good. And there ought to be zero disgrace in any of that. But it’s good to be very clear that that’s what you are doing. And due to this fact when you do not, in case your cash, or your company, or the individual you’re employed doesn’t in actual fact, ship the public good, then you might be actually losing money and time. Scrutiny is required, and calling out unhealthy apply is critical, however now’s the time to take that danger that comes with innovation.
“I think Article Six helps because it tells you that the global community has met and thrashed out over many years, a set of rules. These rules are now being put in place and it’s up to governments and corporates to shape the market by abiding by them.”
Article Six is a serious milestone in an effort to form carbon markets and buying and selling mechanisms, however it could additionally ship a serious enhance for traders and companies trying to harness NbS to deal with the local weather disaster and ecological breakdown. More finesse is required in the governance of the these markets, however COP26 could also be the begin of a really clear and transformative method.