Increased collaboration (and scrutiny) for carbon markets at COP28

A pilot uses carbon credits to retire a coal project early, carbon credit standards join forces to increase the positive impact of carbon markets and 10 corporate giants back a US-led carbon offsetting scheme, as regulators propose increasing carbon market scrutiny at COP28.

Several announcements made over the last two days at COP28 in Dubai suggest that carbon finance – which allows activities that mitigate or avoid emissions to receive funding through the use of carbon credits that can be purchased by polluters to offset emissions – is  an increasingly popular mechanism to support the world’s transition to net zero.

Coal to Clean Credit Initiative

The Rockefeller Foundation is working with the Monetary Authority of Singapore to phase out a Philippines coal plant before the end of its productive life by generating carbon credits for avoided emissions. The pilot project, announced today (December 4) at COP28, aims to “create the right incentives for asset owners and communities and mobilise additional finance” to phase out coal power worldwide, according to Dr. Rajiv J. Shah, President of the Rockefeller Foundation. 

Under the scheme, the South Luzon Thermal Energy Corporation (SLTEC) coal plant will leverage carbon credits to enable its early decommissioning and explore options to repurpose itself towards cleaner energy options as early as 2030 – 10 years before its planned retirement date.

Carbon crediting standards join forces for integrity

Also today, six of the leading organisations certifying the projects that emit carbon credits worldwide have announced their collaboration to promote best practices and increase integrity and transparency in the market. Their pledges aligned with most other integrity efforts: supporting the robust independent assessment of crediting programmes, extending the durability of carbon sinks, and improving transparency around the use of carbon credits, among others.

ACR (formerly known as the American Carbon Registry), ART, the Climate Action Reserve, Global Carbon Council, Gold Standard and Verra are all seeking certification under the Core Carbon Principles published this year by the Integrity Council for the Voluntary Carbon Market (ICVCM).

Energy Transition Accelerator gets private sector support

On December 3, a US public-private initiative launched last year at COP27 by Special Envoy for Climate John Kerry to catalyse carbon finance for emerging economies received the backing of Amazon, Bank of America, Boston Consulting Group, Mastercard, McDonald's, Morgan Stanley, PepsiCo, Salesforce, Schneider Electric, Standard Chartered Bank.

The Energy Transition Accelerator (ETA) could mobilise “anywhere from US$72 billion to US$207 billion” by 2035 to support the energy transition of developing countries through “high-integrity carbon crediting”. Specifically, participating companies and governments will offer advance purchase commitments for credits to be generated by host countries implementing “ambitious energy transition strategies”, with the credits issued once emissions reductions are achieved and verified.

"We all know the challenges we face, and that no government can solve this alone. We must all come together with the innovative solutions to catalyze the financing at the scale and speed required to transition off of dirty power and accelerate the clean energy future," said Kerry.

Proposed carbon market regulatory oversight

As has been the case with the Science-Based Targets Initiative, the increased popularity of carbon finance mechanisms is also leading to more scrutiny. The International Organization of Securities Commissions (IOSCO) yesterday launched a 90-day consultation on a set of 21 measures to promote the integrity and “orderly functioning” of the voluntary carbon markets (VCMs).

In the consultation document, IOSCO notes that while financial market regulators may lack authority to regulate all facets of VCMs, there is much that they can do to encourage and facilitate integrity improvements.

The good practices include regulatory oversight recommendations, standardisation and transparency measures, as well as disclosures around the use of carbon credits – something already proposed by the Global Reporting Initiative in its new climate standard.

“VCMs have gained significant importance in recent years. But, for these markets to succeed, they need integrity – both environmental and financial. I believe IOSCO and its international market expertise will be key in promoting financial integrity and building the trust these markets need to scale,” said Rodrigo Buenaventura, Chair of the IOSCO Sustainable Finance Taskforce (STF).