Industry

Taskforce Issues Plan for Scalable Carbon Credit Market

Voluntary carbon market will need to increase in size by 15 times by 2030 to achieve climate change targets.

Plans for a global carbon offset market have been advanced with the release of a blueprint by a recently established private-sector taskforce, sponsored by the Institute of International Finance (IIF) and initiated by Mark Carney, Finance Advisor to UK Prime Minister Boris Johnson for the COP26 climate change conference.

Chaired by Standard Chartered Group CEO Bill Winters, the Taskforce on Scaling Voluntary Carbon Markets published a public consultation document, seeking input from stakeholders on its recommendations for a scalable voluntary carbon credit market.

“We don’t currently have a clear mechanism to get money from investors to the people who can make a different through cutting edge but expensive projects,” said Winters, speaking in a dedicated session during this week’s Green Horizon Summit, organised by the City of London Corporation, the Green Finance Institute and the World Economic Forum.

“The current market is not transparent, large or consistently credible. It is absolutely essential that the voluntary carbon market fills that gap,” said Winter, adding that the new market was needed to provide the additional capital and change required to meet the objective of maintaining climate change below 1.5 degrees in addition to emissions reduction efforts.

Centralised and transparent market

At present, the market for offsetting carbon emissions is regarded as highly fragmented and opaque, and is estimated to be worth just US$300 million per annum. The Taskforce intends to construct a centralised and transparent market which matches supply and demand for standardised carbon credit contracts to offset emissions. It estimates that the voluntary carbon market will need to increase in size by 15 times by 2030 to support the investment required to achieve climate change targets.

Carbon credits, purchased voluntarily rather than to meet obligations under regulated carbon market schemes, enable firms to compensate or neutralise emissions by financing the avoidance or reduction of emissions from other sources, or the removal of greenhouse gases. These sources are largely two-fold: avoidance and reduction projects, such as renewable energy or methane capture; and removal and sequestration projects, such as reforestation or technology-driven carbon capture. Such projects may also generate co-benefits, such as increased biodiversity, job creation, support for local communities, and health benefits from avoided pollution.

The Taskforce expects demand to be largely generated by companies with structurally high levels of greenhouse gas emissions incompatible with net-zero targets set by the United Nations. Supply is expected to come from entrepreneurs and innovators seeking investment into the technologies needed to help the global economy transition to net-zero emissions.

“A large, transparent, verifiable and robust voluntary carbon market is essential in the quest for global decarbonisation. Establishing a fair price for carbon offsets in a transparent and liquid market will allow those who seek to reduce their carbon footprint to more easily fund those who invest in actual carbon reduction projects,” said Winters.

Market launch in time for COP26

The Taskforce has asked for feedback by December 10 and aims to put together a finalised blueprint early next year. It hopes the market will be live in time for COP26, scheduled to be held in Glasgow in November 2021.

The initial consultation document outlines 17 recommendations across six areas, and is based on inputs from more than 50 Taskforce members, representing buyers and sellers of carbon credits, standard setters, the financial sector and market infrastructure providers, supported by a consultation group of subject-matter experts from almost 100 institutions.

The six topics include a proposed set of principles to help establish standardised benchmark contracts to be listed on exchanges and utilising existing infrastructure. Through the consultation exercise, the Taskforce intends to establish broad industry consensus on the legitimacy of its offsetting assumptions and framework, on steps to develop certainty regarding market integrity, and on ways to establish best practices for buyers and investors.

Also speaking at the Green Horizons Summit, Annette Nazareth, Taskforce Operating Lead and former commissioner at the Securities and Exchange Commission, said she expected the market to attract financial institutions as investors, as well as large carbon emitting corporates.

“As more firms commit to net zero, they will increasingly need to show how they plan to meet their net zero targets through an appropriate mix of emissions reductions and offsets,” said Carney, also UN Special Envoy for Climate Action. “This presents an enormous green investment opportunity, which can help generate large flows of private capital from advanced to developing economies, and help fund projects from nature-based solutions to technological solutions like carbon capture and storage.”

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