Author: Angelik Nehme
With the increasing magnitude of climate change, many initiatives have been put forth globally to meet The Paris Agreement’s target of limiting global temperature rise to below 2°C. One of the key strategies is carbon pricing, which assigns a cost to carbon emissions to reflect the external costs of pollution by incentivising polluters to either reduce emissions or pay for the damages caused. Within this framework, carbon markets play a crucial role, allowing governments and non-state entities to trade credits for greenhouse gas emissions.
In this light, The Conference Corner spoke with Björn Fondén, a Singapore-based policy advisor working for the International Emissions Trade Association (IETA). Björn began climate advocacy already at the age of 16 by founding an environmental NGO in Sweden. He has since worked with the United Nations, civil society, private sector and international organisations, highlighting carbon markets as a critical tool for financing decarbonisation.
Carbon markets are a complex issue. Fondén highlighted how many stakeholders - governments, civil societies, and private sectors - do not understand how they work, causing misconceptions about their quality and integrity. Hence, the following article will explore the nuances of carbon markets and their role in climate action.
Global Trends: Carbon Markets and Emissions Trading Schemes
Carbon markets have existed for over 25 years and are gaining momentum. Fondén differentiated between two types of carbon markets, one driven by government regulation and compliance and the other by voluntary commitments of companies not obliged by governments to participate in them.
Fondén stated that "Since we share the same atmosphere and climate change is a global issue, emission reductions can take place anywhere. Therefore, we should strive to implement them where it is the most cost-effective. We all have limited budgets and many important issues to address, e.g. education, healthcare and climate objectives, so we should use the money where it can deliver the most bang for the buck."
Despite their promise, voluntary carbon markets have faced criticism for lack of additionality, meaning that a project must show that the reductions are additional to what would have otherwise occurred in a usual business scenario, leakage outside of project boundaries, and permanence, which ensures carbon reductions are stable and not reversed in the long haul.
On the other hand, compliance market where governments put a price on carbon is seen as one of the most effective policy instruments for reducing emissions, especially through the introduction of emissions trading systems (ETS). In an ETS, the government caps total emissions and issues permits that companies must hold to cover their emissions. This system then allows these heavy emitters to trade the permits and incentivise cost-effective reductions.
This kind of compliance markets, Fondén said, can push industries to innovate and earn profits from sustainable operations while lowering their emissions. As a good example, the EU launched its emissions trading system in 2005, and has since reduced emissions by over 40%.
Evolving Carbon Markets: Article 6 in Action
Fondén explained that carbon markets are "evolving quickly", highlighting how several governments and private sector companies in Indonesia, Vietnam, Malaysia, China, Japan, and India are looking at different strategies to participate in Article 6 in international carbon markets.
Article 6 is a crucial element of the Paris Agreement, which set forward the creation of international carbon markets that enable trading of credits for greenhouse gas emissions among countries, companies, and individuals.
As per a 2019 IETA report, carbon credit trading could cut the cost of achieving countries’ Nationally Determined Contributions (NDCs) by more than half, saving up to $250 billion and increasing emission reductions by 50% by 2030.
"Singapore, a small and highly urbanised country with limited space for renewable energy or large-scale afforestation projects, faces significant challenges in achieving zero emissions within its territory. However, Article 6 can allow the country to invest in cost-effective emissions reduction projects abroad. Indeed, Singapore has signed agreements with numerous countries to buy carbon credits by helping them implement emissions reduction measures", he added.
For example, in Vietnam, rice cultivation is responsible for about 48% of the agriculture sector's greenhouse gas emissions, with methane making up more than 75%. The sector has significant opportunities to improve technologies for emission reductions. Through Article 6, Singapore could assist Vietnam in implementing new ways of reducing methane emissions from rice production, which would allow Singapore to count the reductions toward its national climate targets and deliver benefits in both countries.
Asia's Diversity: Tailored Approaches to Coal Transition and Forest Conservation
Fondén explained that many Asian countries remain heavily reliant on coal, as the region accounts for over 80% of global demand, making it challenging to phase out despite the need to meet the Paris Agreement targets.
Furthermore, despite 39 countries in the region pledging carbon neutrality and 23 creating long-term low-emission strategies, the collective ambition is insufficient to meet the 1.5°C target.
Fondén added, "The rapid economic growth of countries in the region is putting significant pressures on both energy systems and natural ecosystems. Deforestation is another major issue in Southeast Asia, for which carbon markets can help as one of the tools to incentivise forest preservation and reforestation".
Carbon Markets Scrutiny: Tackling Greenwashing and Strengthening Safeguards
Investigations at the Center for Strategic and International Studies (CSIS) revealed that many carbon credits may not reflect real emissions reductions, increasing scepticism and hesitancy among buyers due to greenwashing concerns.
Fondén argued, "It’s important to understand the differences between voluntary crediting mechanisms and regulatory compliance markets (ETS). Governments and companies looking to participate in carbon crediting markets must ensure integrity, considering various factors, including both environmental and social safeguards." These safeguards are implemented to guarantee that carbon market initiatives prevent adverse effects and foster beneficial, sustainable development impacts.
Earlier this year, government negotiators introduced an appeals and grievance process under the new Article 6.4 mechanism of the Paris Agreement, allowing communities to challenge carbon projects to ensure their rights and interests are considered before the projects proceed. A number of new initiatives, such as the Integrity Council for Voluntary Carbon Markets (ICVCM) has also published a set of Core Carbon Principles (CCPs) that crediting programmes should follow.
Climate Change Politicisation: Tales of Emissions, Elections, and Agendas
Climate change affects all our lives. Fondén stated, "In a way, it is natural for it to become a political question, even though ideally we would all agree on taking more ambitious action".
According to the World Bank, climate change disproportionately impacts the poorest and most vulnerable populations, contributing the least to the crisis. As mentioned by the World Health Organisation, around 3.6 billion people live in areas highly susceptible to climate change, which could lead to approximately 250,000 extra deaths per year between 2030 and 2050.
Fondén argued that in several countries, the climate discussion has been held up by corporate and political interests, and been conflated with other social issues e.g. around immigration and gender, which has delayed the passing of important climate policy interventions. Furthermore, he conveyed that political struggle is "inevitable" whenever different powerful stakeholders in an economic system benefit from various policies. With the US elections well underway, he expects to see further politicization of climate change, both at the regional and international levels.
Conflicting Targets: Crucial Policy Coordination in Climate Action
According to the IMF, fossil fuel subsidies hit a record $7 trillion in 2022 as governments responded to rising energy prices.
Fondén emphasised that while contexts differ for each country, it is of critical importance to strengthen communication within governments to avoid setting conflicting targets. Various sectors and ministries need to collaborate without one sector bearing excessive tradeoffs to its profits. As an example, he mentioned that "One ministry will introduce a carbon tax while the other will give fossil fuel subsidies to the same taxed companies. Lacking communication is a real dilemma in many regions, including Asia, so we have to acknowledge that there are tradeoffs, but if policies are well-designed, then the impact may be reduced."
Tips for Newcomers
According to LinkedIn's Global Green Skills Report, the number of professionals with environmental expertise rose by 12.3% between 2022 and 2023. Still, job openings demanding green competencies surged by 22.4%, making candidates with these skills 29% more likely to be hired.
Fondén urged those entering the industry to connect with others and to see where they can make the most impact, stating, "We need to transform our entire society and economy, not just one sector or space". Furthermore, he reflected on his career, conveying, "Working across different sectors has allowed me to understand the disconnect among civil society, the private sector and governments, and identify how we can collaborate more meaningfully to deliver real change.”
Optimistic Realism: A Balanced Perspective
In conclusion, the magnitude of climate change is mirrored in the impacts we are witnessing. Therefore, a multi-sector approach is necessary; "We need to combine finance and politics and examine the different instruments available - because we cannot simply stand on one end of the spectrum to try to solve this issue", Fondén stated.
As an "optimistic realist," he also emphasised the complexity of environmental work and the importance of inspiring others with a realistic yet positive message. The path forward is complex, but with hope and action, the future can be ours.
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Featured images provided by Björn Fondén.
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