The US proposal to create a system that would help to finance the phaseout of coal power by raising funds from the sale of carbon credits to polluting companies triggered a deeply divided response at its COP27 launch.
The idea for new types of carbon credits linked to the replacement of coal power with renewable energy in developing countries was unveiled by US climate envoy John Kerry at the UN summit in Egypt at a packed event, briefly interrupted by a lone heckler who said it was a “false solution.”
The Energy Transition Accelerator, launched in conjunction with the Rockefeller Foundation and the Bezos Earth Fund, was described as potentially “catalytic” by Kerry, who said the system could be “up and running by no later than [next year’s] COP28”.
Under the sketched-out plan, Kerry said fossil fuel companies would not be allowed to buy the carbon credits, which companies use to compensate for their emissions.
How oil companies, for example, would be prevented from buying them on the secondary market was unclear, however.
The proposal was a “massive distraction,” said Rachel Kyte, co-chair of the Voluntary Carbon Markets Integrity Initiative. “There has been an extraordinary effort to build the rules [of the carbon credit market]. You can’t short-cut that,” she added. The ETA was “not baked yet”.
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A senior European official also said there were “massive concerns in some circles” about the idea.
The carbon credits market is unregulated, and critics say companies should focus on reducing emissions rather than compensating for them with relatively cheap credits.
But the units have soared in popularity as polluting companies look to make good on net zero emission commitments.
The proposal comes as countries scramble to fund the transition to clean energy, and amid demands from developing nations for financial support from rich countries.
The ETA aims to funnel private sector money from companies into the energy transition in developing countries, which would supplement other sources such as government and donor funds.
Credits linked to a reduction in power-sector emissions could be generated by countries and bought by companies under advanced purchase agreements, which would create a “predictable finance stream to de-risk and leverage other forms of finance,” the group said.
Five per cent of the value of the credits would go towards supporting international climate adaptation and resilience, it added.
The idea “could be catalytic” and increase the “bankability of clean energy projects,” said Kerry.
UN secretary-general, António Guterres, had given the mission his blessing, provided it came up with rigorous safeguards, he added.
But key aspects of the plan, such as when companies could buy the credits and how the system would be policed, are yet to be decided. The US-led group plans to consult carbon experts as well as governments, companies and non-profits over the next year.
There were some “very knotty questions” that the group would have to “grapple with,” said Andrew Steer, president of the Bezos Earth Fund. But “we mustn’t let the perfect be the enemy of the good”.
An analysis done for the initiative ahead of the launch by the consultancy Climate Advisers estimated the ETA could “mobilise $77bn-$139bn” by 2030 in an optimistic scenario, in which the scheme was widely adopted, and based on a carbon price of $30 a tonne.
More research was needed to establish what an effective and realistic credit price would be, the report said.
Some experts expressed concerns that the scheme could result in the market being flooded with new credits, which would drive down prices.
“Just to decommission coal in South Africa alone is going to be more credits than the total size of the carbon markets today,” said Kyte.
Others were cautiously optimistic, saying a new approach was needed to scale up climate financing. Ani Dasgupta, president of the World Resources Institute, said the “current mechanisms and levels of funding” were insufficient to drive the energy transition in developing countries at the pace necessary.
The ETA could be valuable provided it had strict “guardrails” to prevent “greenwashing,” he said.
Chile and Nigeria had expressed an interest in the idea, alongside companies including Bank of America, Microsoft and PepsiCo, the US administration said.
More than half of top 50 most polluting facilities are oil and gas, study finds
The top 500 most polluting assets accounted for 14 per cent of global greenhouse gas emissions in 2021, more than the annual pollution of the US, according to new data.
A study of the emissions from more than 72,000 individual facilities — from oil and gas production fields to coal mines, power plants and steel production facilities — also indicated a chronic under-reporting of emissions by countries to the UN, the non-profit coalition Climate Trace found.
It discovered that 26 of the 50 most polluting sources were oil and gasfields — including production, processing and transport — while power plants accounted for 60 per cent of the assets in the top 500.
“Globally, emissions from oil and gas production are significantly under-reported,” Climate Trace said. Emissions could be “as much as three times higher” than what countries had reported to the UN, with emissions of the potent greenhouse gas methane often underestimated.
UN secretary-general António Guterres thanked the researchers, calling the data set, which is publicly available, a “critical resource.”
“You are making it more difficult to greenwash or — to be more clear — to cheat,” he said. “One of the most striking early insights from this work is the scale of emissions from oil and gas production — particularly those that have not previously been reported.”
Almost half of the 500 top sources were in China, while the US had the second most, at 54. The largest non-oil and gas emissions source, a Chinese steel plant, was responsible for a greater volume of emissions than countries including Trinidad and Tobago, Serbia and Niger, the group said.
Climate Trace based its findings on satellite imagery, remote sensing, artificial intelligence and machine learning.
Many of the countries with significant methane emissions from oil and gas production and transport — including Russia, China and Iran — have not signed the COP26 Global Methane Pledge to cut methane emissions by a third by 2030.