Ever-topical, carbon markets have long been deployed as an essential and defining aspect of the global solution to our shared climate crisis.
The Kyoto Protocol in 1997 established the 1st international carbon market system and across close to 3 decades now we have seen this market-based solution evolve and expand; culminating in Article 6 of the Paris Agreement, which was further fortified by last year’s Glasgow Climate Pact.
As things lie, the international community has successfully managed to consolidate an approach to global carbon accounting, which promotes borderless collaboration and successfully incentivizes private-sector involvement. The aim is to extend the potential impact voluntary participation can have on mobilizing climate-transition finance.
Where COP26 helped to flesh out the rules of engagement and, importantly, established a channel of accountability by enshrining the UN Supervisory Body; “Africa’s” COP27 presents a forum for implementation where an equitable, collaborative market-solution can be fully realized. Sharm El Sheikh sits as the perfect location to crystallize how the rules established can and will be interpreted, given that it is located on the continent that stands to be most heavily impacted by the fallouts associated with climate change, despite having historically contributed least to the crisis.
COP27 has the potential to serve as a venue for a monumental shift in how the international community decides to look at climate change mitigation going forward…. Accepting and understanding that Africa and the rest of Global South cannot be expected to facilitate a green-economy transition on its own. Instead, the solution must be sensitive to this imbalance of power and choosing to govern Global Carbon Markets under a robust framework that facilitates increased international participation which helps to direct green finance towards these customarily under-served economies is the right place to start.
Administratively, several other uncertainties will also have to be addressed to ensure that Global Carbon Markets build upon any traction gained during the COP26 in Glasgow last year. This will mean guiding centralized action on how countries decide to establish national carbon accounting & inventory frameworks, modify credit authorizations & related ‘corresponding adjustments’ to address double counting as well as ultimately provide a collectively understood interpretation of how Articles 6.2 and 6.4 will interact. The outcome will be a clearer understanding of how carbon assets are transferred, emissions reductions are achieved and associated contributions to a country’s NDC are registered, thus ensuring Global Carbon Markets contribute meaningfully to help reduce the cost of fighting climate change.
Over the next 2 weeks, we could see global carbon markets being significantly bolstered or undermined. The market-based solution needs to play a role in facilitating the dissemination of green financing to regions in need, not further contributing to the existing inequality present across global capital markets and thus their associated limitations in helping to solve the climate crisis problem.
One thing is clear - whatever the outcome - Sharm El Sheikh will be at the centre of our carbon markets’ future.