What has Marrakesh done for carbon markets?
As a broker, advisor and technology provider within the voluntary carbon market, European Environmental Markets has keenly followed developments at the COP22 in order to see if the momentum from Paris would translate into further significant developments within our sector and climate finance more broadly.
Reports suggest the general mood at Marrakesh was one of reassured optimism despite the surprise US election result. The EU was particularly steadfast and Miguel Canete summarised the bloc’s defiance that “[it] will stand by Paris, […] will defend Paris, and […] will implement Paris”. Despite this, the EU delegation was significantly smaller than at Paris; and while this may have been a noble attempt to lessen the carbon footprint of its delegation, it was observed by most as a key sign that the bloc saw Marrakesh as unlikely to inspire significant progress toward implementation.
COP22 president Mr Mezouar reminded the conference of the necessity “to respect the commitment [agreed in Paris] of $100 billion dollars from now until 2020”. The developing countries duly delivered a roadmap for mobilising $100bn a year of public finance, however there was scant evidence of firm commitments to support this.
Despite the lack of progress on national financial commitments, there is evidence that 2017 could be a bumper year for private low-carbon investment. The EU announced initiatives to leverage private finance, including the European External Investment Plan (EEIP), which could trigger up to €44 billion of public and private investments in Africa and the EU Neighborhood, and a renewal of the Global Environmental Facility (GEF), which includes first approvals for $2.5 billion worth of projects by 2020.
While firm decisions on accounting and governance were stalled until 2018, the implementation of Article 6 was heavily debated at COP22 and IETA has noted 92 “market-friendly” NDCs, amongst which several countries, including Colombia and South Africa, have already indicated eligibility for Gold Standard and Verified Carbon Standard VERs.
Further to this, private sector support for carbon pricing remains strong and, in the week following COP22, six of Europe’s largest utilities urged the EU to strengthen reforms to its ETS in order to provide clear pricing and policy signals for stimulating the investment required to fulfil Europe’s own 2050 decarbonisation commitments.
Carbon finance still a key funding mechanism for many low-carbon projects, and there was no shortage of opportunities at COP22. Perhaps the best example is the Climate Vulnerable Forum (CVF), a group of 47 climate-vulnerable countries who at COP 22 committed to 100% renewable energy “as soon as possible”. With the lack of financial commitments from developing nations, the CVF represents a significant opportunity to display the capacity of the voluntary carbon market to help countries bridge their funding gaps – especially when there are already projects issuing VERs in small islands states.
Decisions at COP 22 started a process of implementation that will not be finalised until at least 2018. It seems clear that significant public finance will not be mobilized within those next two years, creating a funding gap which only philanthropy and corporate climate action can bridge. Our industry has proven its capacity for delivering finance to low-carbon development projects, but offset buyers of the integrity of carbon offsetting, including a commitment to price transparency; clear trading rules; and provision of secure online trading venues.
As other markets for climate finance mature, the voluntary carbon market is still struggling to display certain characteristics of a mature, functioning market. Despite encompassing many exciting climate projects, initiatives and encouraging signs of business intent, we remain concerned to see participants defending opacity over the transparency, clarity and security required to grow corporate climate action through voluntary action.
The governments who, one year ago, celebrated the collective spirit of the Paris agreement are now cautious to pledge significant financial commitments. While these governments must be bold in their reaffirmation of commitment to global climate action, it is time for the carbon markets to be equally bold in reaffirming its vision of the voluntary carbon market as a dynamic mechanism for the rapid delivery of climate finance.