Carbon offsets – bigger bang for the buck

Policy Pulse - 1 August 2019 - George Anjaparidze

Only 7 weeks remain until the UN Climate Action Summit. The Summit aims to address the urgent need to boost ambition and accelerate action to implement the Paris Agreement on climate change (See our post Paris Agreement: the inconvenient gap between ambition and reality). In addition to scaling-up finance and action, the Summit needs to improve the political acceptance of using international collaboration for achieving emission reductions.

The World Bank estimates that international collaboration (the use of offsetting, emission trading and other market-based measures) will lower 2030 mitigation costs by 32%. By 2050, international collaboration will lower mitigation costs by 54% (See chart). Widely used global standards, such as the Gold Standard, offer certification mechanisms that ensure projects that reduce carbon emissions offer the highest levels of environmental integrity and also contribute to sustainable development.

The 2019 World Bank report on State and Trends of Carbon Pricing, highlights the continued uptick in carbon pricing initiatives. In 2020, about 20% of global greenhouse gas will have a price signal for emitting. The price signal will range from below $1 and up to $127 per tonne of CO2 equivalent (tCO2e). These measures have delivered favorable mitigation outcomes and the progress achieved should be welcomed. However, through the use of international carbon trading, there is scope to achieve more emission reductions within the existing resource envelope. Charging companies and consumers $127 in Sweden or $96 in Switzerland per tCO2e is much more costly compared to supporting mitigation actions in developing countries.

Much higher global environmental benefits could be delivered within the current resource envelope if abatement potential in developing countries is more actively incentivized and supported. For example, through crediting of carbon emission reductions, international emission trading and using revenues raised through carbon taxes to support further actions in developing countries. The biggest opportunity is in developing Asia. McKinsey estimates that about half of all global cost-effective abatement by 2030 is in this region, put differently, 70% of all cost-effective abatement opportunities in developing countries are in developing Asia. This is also broadly consistent with the experience under the Clean Development Mechanism of the Kyoto Protocol, where about 85% of the emission reductions were generated from projects located in Asia.

GHGs are global pollutants. Their concentration in the atmosphere contributes to climate change. Where they are emitted has no bearing on where the impacts of global warming are felt. This means that from a climate change perspective it does not matter in which jurisdiction GHG emissions are reduced. This is very different from most other forms of pollution where impacts are more localized.

One key metric for defining success will be if the UN Climate Action Summit achieves greater political acceptance of using mechanisms such as carbon crediting, offsetting and other forms of international collaboration.

About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economicsand infrastructure. 

#climatechange #ParisAgreement #climatesummit #carbon #carbontrading #economics

Paris Agreement: the inconvenient gap between ambition and reality

Policy Pulse - 17 April 2019 - George Anjaparidze

Key policy messages:

• Nationally Determined Contributions (NDCs) represent an improvement in the emission trajectory but fall short of achieving the temperature goals of the Paris Agreement

• There is an immediate need to scale-up support, particularly by OECD countries, to fast track NDC implementation in developing economies

• This will enable countries to implement their NDCs sooner and create a conducive environment to raise their ambitions as part of the global stocktake

The IMF/World Bank Spring meetings, a gathering of Finance Ministers and Central Bank Governors, concluded on 14 April 2019. Climate change did not feature prominently on the agenda, despite an immediate need to further scale-up efforts to meet the Paris Agreement temperature goals.  This places even more pressure on the UN Climate Action Summit in September to accelerate support for climate action.

The Paris Agreement is a major milestone in international efforts to address climate change. It strengthened the political ambition to hold the increase in global average temperature to well below 2°C and pursue efforts to limit the increase to 1.5°C above pre-industrial levels. Crucially, it also broadened the climate mitigation efforts in developing countries.

The Paris Agreement is a bottom-up policy framework where each country independently determines the appropriate level of mitigation effort. Through Nationally Determined Contributions (NDCs) countries have communicated their planned actions, which taken together represent an improvement in the global GHG emission trajectory. However, it falls short of the trajectories that would be consistent with achieving the Paris Agreement temperature goals.

The UNFCCC estimates that compared with the emission levels under the least-cost 2°C scenarios, aggregate emission levels resulting from the implementation of NDCs are expected to be higher by 15.2 Gt of CO2 equivalent in 2030 (See Chart). Our assessment indicates that the NDC emission trajectory is most consistent with about a 3°C warming. This means governments need to further scale-up efforts to achieve the Paris Agreement temperature goals. 

The global stocktake, scheduled for 2023, aims to assess the collective progress towards achieving the long-term goals of the Paris Agreement. The outcome of the global stocketake is aimed to inform governments in updating and enhancing their actions for addressing climate change. In the absence of progress in implementation of NDCs, it will be unlikely that governments scale up actions. However, fast tracking NDC implementation can build confidence in the ability of countries to achieve their NDCs and create a more conducive environment to raise their ambitions.

Therefore, OECD countries need to immediately scale-up their support for NDC implementation in developing countries. In particular, they should increase their support for initiatives that target NDC implementation, such as the Asian Development Bank`s NDC Advance platform. To further build confidence, they need to ensure a successful replenishment of the Green Climate Fund and scale-up support through bilateral agencies, as has been done by Agence Française de Dévelopment.

In the absence of an immediate scale-up in support for NDC implementation, the global stocktake will likely be a frustrating affair and the Paris Agreement goals are unlikely to be met.

About Veritas Global: Our vision is to have a positive impact on the world through truthful advice informed by robust analysis. We are a premier provider of tailored solutions on climate change, international conflict economics and infrastructure. 

#climatechange #economics #finance #springmeetings2019