The UN-convened Net-Zero Asset Owner Alliance, whose members manage $6.6trn of assets, is warning that the world won’t decarbonise rapidly enough to deliver the Paris Agreement without a “radical overhaul” of carbon pricing.
In the recently published discussion paper, the Alliance sets out its vision for transforming global carbon pricing mechanisms in line with the Paris Agreement’s 1.5C trajectory. The Intergovernmental Panel on Climate Change (IPCC) has stated that the world will have the best chance of delivering this aim if net global emissions are halved by 2030 and brought to zero by 2050.
The discussion paper argues the case for nations collaborating on a carbon pricing “floor” and “ceiling”, to discourage prices that are too low to incentivise a shift to low-carbon technologies while also ensuring that carbon markets remain attractive. The “floor”, the paper states, should reach $147 per tonne of CO2e by the early 2030s, as per previous research from the OECD.
In contrast, the EU’s Emissions Trading System (ETS) has seen an average price of $59 per tonne since May. This is a new high for the bloc, which hosts the world’s largest ETS with a carbon price floor of $13. The UK’s domestic ETS, launched post-Brexit, has also seen similar prices.
While the difference between current EU and UK carbon prices and those recommended by the Alliance is steep, it will be steeper still for almost all other geographies. As of 2019, the global average carbon price was around $25, according to Carbon Brief.
The Alliance’s paper additionally calls for all nations and regions without an ETS to launch one as a matter of urgency, aligning them with legally binding net-zero targets and interim emissions reduction milestones.
Refinitiv’s annual Carbon Market Year in Review found that emissions covered by trading schemes were valued at €229bn in 2020, a figure more than five times greater than levels recorded in 2017. Yet, according to the Alliance, some 80% of global annual emissions are not yet covered by carbon pricing mechanisms. This figure covers trading schemes as well as taxes.
But it cautions against unambitious carbon budgets as a means to launch or expand ETSs. All nations should, the report states, accept carbon budgets with tighter restrictions, lest the world fails to mitigate the worst impact of climate change. The UK has notably enshrined the Climate Change Committee’s (CCC) advice on the Sixth Carbon Budget into law but remains on course to breach the fifth.
The chair of the Net-Zero Asset Owner Alliance’s steering group Dr Gunther Thallinger said: “Non-regressive and revenue-neutral carbon-pricing instruments – harmonised across borders – will not only unleash massive investment in renewable power systems globally but boost sectors from construction to cars which are in urgent need of transition.”
The report came out two days before the Taskforce on Scaling Voluntary Carbon Markets – an initiative set up by Mark Carney in the hopes of helping businesses access the credible offsets they need to reach net-zero –published an update on the creation of a market governance body.
In 2020, the Taskforce estimated that the current market for offsets will need to grow by at least 15-fold by 2030 if the private sector is to align with the Paris Agreement’s 1.5C trajectory. By 2050, he warned, it may need to be up to 160 times bigger than in 2020. But with concerns about greenwashing, double-counting and standards varying between nations and regions persisting, the Taskforce has proposed measures to weed out the sector’s biggest problems as it scales.
A set of ‘Core Carbon Principles’ has therefore been outlined for the new governance body. Principles stipulate that credits must be real; based on realistic and credible baselines; monitored, reported and verified; permanent; additional; minimise leakage; only counted once and not contribute to any other net-harm (e.g. on biodiversity or local communities). The hope is that the Core Carbon Principles can be embedded into legal standards by nations and through international agreements.
However, the new TSVCM report does state that the body “will not exclude any credits from the market”. Instead, only “high-quality” credits will be labelled as compliant with the Core Carbon Principles.
There are also principles concerning the operation of the Taskforce. These cover issues such as programme transparency and public participation; independent, third-party verification; operating a publicly accessible registry and having strong governance.
In other major carbon offsetting news this week, a group of large banks have announced plans to collaboratively pilot a digital platform for trading carbon offsetting next month, using blockchain to ensure credibility.
The platform, called Project Carbon, is being developed by NatWest, CIBC, ITAU and the National Australia Bank. It will provide a book of record for the ownership of carbon credits, allowing holders to demonstrate possession. Blockchain will be used to create a tamper-proof chain of audit, enabling the holders of the credits to trace credits back to their source projects. This, it is hoped, will minimise the risk of double-counting and weed out projects that do not offer additionality.
Project Carbon will launch as a pilot in August. This trial, the banks said in a statement, will be used to “demonstrate the operational, legal and technical capability of the platform” ahead of a broader roll-out.