Why are COP27 attendees so nervous about John Kerry’s carbon offset plan?

Greetings from a fabulously sunny autumnal New York, where the unusually warm temperatures have caused heat injuries at Sunday’s marathon and underscored the reality of climate change — and where political pundits continue to parse what the US midterm elections mean for Congress. The final results will take time to emerge. But one thing is clear: when President Joe Biden arrives at the COP27 meeting in Egypt today he will do so with the political wind at his back.

As our colleagues at Energy Source note, the election breakdown suggests that not only were voters less concerned about petrol prices than Republicans had presumed — they were also less opposed to the clean energy and climate change agenda than rightwing voices had claimed. Hooray.

That means the (badly named) Inflation Reduction Act will almost certainly remain intact — giving Biden plenty of bragging rights at COP27. And the US government will be unveiling other measures, such as a move to “require major federal contractors to publicly disclose their greenhouse gas emissions and climate-related financial risks and set science-based emissions reduction targets” for the first time.

The big question now, however, is whether this upbeat mood will extend to meaningful aid for developing markets — or any joint US-China green initiatives. John Kerry, US climate envoy, has been frantically shuttling around trying to charm his long-running Chinese counterpart, with whom he seems to have good relations. But it remains an open question whether this behind-the-scenes schmoozing will deliver results.

Read on to hear Simon’s take on how COP27 attendees have responded to Kerry’s big proposal for a new system using carbon credits to accelerate the energy transition. And Kenza dives into the uncertainty surrounding the UK’s net zero ambitions. (Gillian Tett)

COP27 day 5 in brief:

• New data showed that global carbon dioxide emissions will hit a record high this year, despite a drop in China’s emissions

• Huge controversy continued to swirl around the plight of political dissident Alaa Abdel Fattah, who has gone on water strike in an Egyptian prison.

• Activists on bicycles tried to stop private jets leaving Amsterdam’s Schiphol Airport at the start of COP27. But 36 landed at Sharm el-Sheikh between November 4 and 6, with a further 64 flying into Cairo, according to BBC analysis. The plane flown into Egypt most often was the Gulfstream G650, using about 500 gallons (1,893 litres) of fuel per hour.

Carbon markets announcements at COP27: big breakthrough or ‘a massive distraction’?

With remarkably serendipitous timing amid the media extravaganza surrounding COP27, Verra — the world’s biggest carbon offset certifier — announced this morning from Sharm el-Sheikh that it had issued its one billionth carbon credit.

That historic credit, Verra said, came from a project that is conserving “a high-value wildlife and biodiversity area” in Kenya’s Chyulu Hills, maintaining “the ecological integrity of an iconic African landscape”.

That sounds like something we can all get behind. But the accompanying claim in Verra’s press release — “this announcement represents one billion fewer tonnes of CO₂ in the atmosphere” — is the sort of language that many climate experts have a very serious problem with.

While protecting iconic African landscapes is clearly a worthy cause, it is far from clear that each associated carbon credit represents one fewer tonne of CO₂ in the atmosphere. How can we be sure how much of the Chyulu Hills would go up in smoke without this initiative?

Many observers worry that the carbon impact of these “emissions avoidance” projects — which can in any case only be roughly estimated using hypothetical counterfactuals — is being heavily overstated by those with various financial incentives to do so. This suggestion is firmly denied by Verra and other certifiers, who stress the rigour of their work.

But if there is any overstatement going on here at all, it presents the very real risk of companies or whole nations using carbon credits to claim net zero status, while atmospheric carbon levels continue to rise.

This helps to explain the reaction at COP27 to the planned system announced on Wednesday by US climate envoy John Kerry, which would use carbon credit sales to fund the phaseout of coal power in developing nations. In my private conversations with a wide range of people at the summit, the response has been conspicuously wary.

One person, who said he was relatively sympathetic with Kerry on this issue, compared his position with Al Franken’s famous remark about a fellow US senator: “I like Ted Cruz more than most of my other colleagues like Ted Cruz. And I hate Ted Cruz.”

Much of the concern about Kerry’s plan centres on the fact that it could fuel a massive expansion in this unregulated area while standards are still hugely erratic. Various efforts are under way to tighten those standards. The co-chair of one of them — Rachel Kyte of the Voluntary Carbon Markets Integrity Initiative — called Kerry’s plan “a massive distraction”.

“There has been an extraordinary effort to build the rules,” she told our colleague Camilla Hodgson. “You can’t short-cut that.”

But it’s not just the US pushing for an accelerated expansion. This week brought the launch of the African Carbon Markets Initiative, which aims to foster massive growth of 300mn carbon credits a year by 2030, with $6bn in revenue.

Bogolo Kenewendo, the UN Climate Champions’ special adviser for Africa, told our FT colleague Heba Saleh that the scheme was not aimed at “giving fossil fuel companies a lifeline”, but helping countries and communities sustain ecosystems that give “lungs to the world”.

Crucially, she said, there would be a focus on “unlocking value for asset owners who are African communities and governments”. That sits uneasily, however, with a presentation from a major consultancy that I hear is getting passed around at COP27 — offering a vision of a carbon credit market in which about half the revenue goes to various middlemen.

Ecosystem conservation is desperately needed. So are emission reductions. So is clean energy investment in developing and developed countries alike. And so — as the Intergovernmental Panel on Climate Change made clear this year — is carbon dioxide removal, which currently produces a tiny percentage of carbon credits in circulation.

What role the carbon offset markets will play in all this will remain a topic of intense debate over the next week here in Sharm el-Sheikh. As ever, we’d love to hear your thoughts — drop us a line at [email protected]. (Simon Mundy)

Quote of the day 

“There is no money going to sub-Saharan Africa. Full stop,” Axel van Trotsenburg, the World Bank’s managing director of operations, told Reuters on Wednesday. “I would like to challenge everybody: Do more.”

Beyond COP27: Why transition plans matter to investors

“Do you consider the UK’s green finance regulatory framework to be world class?” This was one of the questions the government put to investors and other stakeholders in a recent consultation on financing the national transition to net zero.

The question may be grandiose, but more details on the strategy — announced by then chancellor Rishi Sunak at COP26 in Glasgow, and expected to be published in full at COP27 this week — are still months away from being ready.

Political turmoil since Glasgow, and an independent review of the UK’s net zero goals launched by shortlived prime minister Liz Truss, have all scuppered ambitions to add meat to the bones at this month’s climate summit or later this year.

Last year’s ambitious announcement was important but “not really a strategic plan”, as it did not detail how an economy-wide transition could deliver on the UK’s central net zero goals, says Kate Levick, associate director of sustainable finance for the think-tank E3G. Levick is also co-head of the secretariat of a Treasury-appointed task force designing the format of company-level transition plans.

As other countries lay out ambitious strategies at COP27, “the risk is not to momentum overall but more to the UK’s profile,” Levick said on the phone from Sharm el-Sheikh. “We have historically been a leader on this, but the more we delay, the more others are catching up.” 

The detail is crucial because, if the UK is to reach its net zero target, the government must encourage capital investment in key sectors and technologies to grow from present levels of £10bn-£15bn a year to at least £50bn-£60bn a year in the late 2020s, it says.

The government is committed to “an ambitious programme of work” on green finance, according to the Treasury, and in the process of reviewing responses to a call for evidence it concluded in June.

One area where the UK is perceived to be excelling is on transition plans, an important tool for investors to measure and manage climate risk in portfolios. This week, the Transition Plan Taskforce released one of the world’s first detailed standards, in draft form, for what a plan should look like. Already published by a handful of companies, including the British insurer Aviva, these formally set out an organisation’s ESG ambitions and how it will respond to climate risks.

Importantly, transition plans as imagined by the TPT should also focus on how these ambitions and mitigation strategies will be financed and become an integral and audited part of annual reports.

The Financial Conduct Authority has been working closely with the TPT and is likely to bring its vision into regulatory guidelines by the end of 2023 or the start of 2024, the task force says. This means listed companies and financial institutions in the UK could be publishing standardised plans by 2024 or 2025.

This comes as the UK’s largest registered companies and financial institutions will start having to publish data using the Task Force on Climate-Related Financial Disclosures’s framework from next year.

For Euan McVicar, senior climate adviser at the UK law firm Pinsent Masons, transition plans “are bound to create a better dialogue with investors”. “That kind of discipline [a formal transition plan] helps keep everybody honest and transparent about what’s being achieved and not achieved, and what difficulties they’re facing in delivering,” he told Moral Money.

But here again the UK’s chances of shining could be scuppered by a somewhat lax timeline. The TPT suggests plans are most useful when they have a “whole economy approach” and when all companies, including smaller or private ones, draw them up. This allows for comparison across an entire sector — steel companies for example — so investors can find the best in class to prepare for transition risks.

Neither the Companies Act nor the financial services and markets bill this year however made provision for transition plans to be extended across the economy, meaning private and medium-sized companies are unlikely to publish in a standardised way for years to come.

Mandatory transition plans can’t come too soon, says Damian Payiatakis, head of sustainable investing at Barclays Private Bank. “The specificity and comparability, that and consistency is going to make a massive difference to understand what companies are actually planning.” “And the further into the real economy they go, the more useful it will be for the investor.” (Kenza Bryan)

Smart Reads

• This is an optimistic take from The Atlantic on why the Paris Agreement seems to be working exactly as it should be — against all odds.

• What happened when a group of designers tried to cut down on midseason sales to reduce textile waste? This report from The New York Times shows how Europe’s competition authority cracked down on attempts by the fashion industry to improve its sustainability.

• This thought-provoking Reuters opinion column can’t resist telling the “Gfanz is losing its fans” joke. It then makes the case for achievements of the Glasgow Alliance for Net Zero this year, including helping financial markets effectively price risks and opportunities related to global warming.