Canada, UK plan the 1st carbon trades

Also contributing to World Bank’s facility are Germany, Norway, Sweden and Switzerland

By BLOOMBERG

LONDON • Canada and the UK are among six countries preparing the first carbon trades under the landmark Paris Agreement on climate change, part of an effort to unlock as much as US$4 billion (RM16.4 billion) for the fight against global warming.

The nations are assessing projects to cut greenhouse- gases in exchange for emission credits that can be used to comply with goals they set under the United Nations (UN) pact sealed in 2015, according to the World Bank Group, which is overseeing the programme.

“We are now in the selection process of programmes to be endorsed,” the World Bank said in a response to questions.

The other countries contributing money to the bank’s US$200 million Transformative Carbon Asset Facility are Germany, Norway, Sweden and Switzerland.

With a target to raise US$500 million, the World Bank programme would help encourage private companies and development banks to contribute many times more for projects aimed at reducing emissions.

The work is a rare sign of new demand in UN carbon markets and would revive a programme choked off because the European Union limited its use of imported credits as it fixed its carbon market.

The bank’s programme will demonstrate how international collaboration can help spur private investment to meet the target set out in the Paris deal, which is to limit temperature rises to less than 2°C above pre-industrial levels, according to the UK government, which is paying £60 million (RM311.6 million) into it.

The fund wi ll help “strengthen the international carbon market, develop innovative ways to cut carbon emissions and encourage private investment”, according to an emailed reply to questions from the British Department for Business, Energy and Industrial Strategy.

The programme would build on the Certified Emission Reductions (CERs) established by the UN in the 1990s, which have been trading near zero for six years.

Carbon markets are one of the tools economists say can help give companies and nations an incentive for cutting the pollution that causes global warming. The first market to create CERs — the Clean Development Mechanism — spurred spending in emerging nations on wind farms and efficiency measures to rein in greenhouse gases.

Swedish View
The new fund will work better than the older market because it’ll allow for scaled-up emission cuts in industries rather than only through projects, said Kenneth Mollersten, an official in the Swedish Energy Agency, which is participating.

“There’s no limitation”, so the credits could even come from a country installing new policies to boost energy efficiency, Mollersten said in a phone interview. Programmes might include cutting emissions in a country’s power or cement industry, or even lowering methane emissions in rice growing, he said.

It’s not yet clear what Sweden and the other nations will do with the credits they end up with. “That’s a future political decision,” he said. Options might include using them for compliance with the nation’s Paris pledge, trading them or cancelling them.

The average size of each project or transaction under the new system would be US$30 million to US$50 million, according to the World Bank. That would leverage US$2 billion to US$4 billion in addit ional financing for reducing emissions, with institutions such as development banks and private companies contributing.

The facility is meant to create the “carbon assets” under Article 6 of the Paris Agreement.

It’ll “seek out high quality programmes with the intention that they would generate carbon assets which would be compliant” and be used for to meet emission targets, the bank said.

Minimum Contribution
A minimum contribution of US$25 million is required for organisations to participate in selecting programmes to be used under the system. Canada and Germany may not initially be part of that process because they are listed as giving only a few million dollars each.

In May, the six nations endorsed key rules for choosing the first projects and programmes under the new UN system. The next step is to choose specific projects, the bank said.

The bank declined to give details about which projects might be allowed to tap its funds.

The payments from the contributors could be used to support developing-country governments to improve industrial planning and policy and strengthen low-carbon policy.

That will help pave the way for the investment by the private sector.

“If successful, the facility could provide far better bang for the buck than previous project- based UN markets, because it’ll help countries start to self-govern large-scale emissions reductions,” said Jahn Olsen, an analyst in London with Bloomberg New Energy Finance.