Climate Week in New York City kicks off this week, with part of the discussions centering on the December 2023 climate conference in Dubai and the so-called Global Stocktake. That requires countries to lay out their progress related to their carbon-reduction goals.
Nearly every country has some catching up to do. But as previously discussed, 17 rainforest nations are either carbon neutral or close to it. Some are even net carbon removers — the highest achievement under the Paris Climate Agreement.
Countries can choose their paths to get to net zero. However, they have learned critical lessons over the last several months — that their attention and resources must lean into decarbonization. They need to deploy more green energy sources before buying carbon credits. Some companies are getting sued for pursuing carbon offsets instead of spending more resources on renewables or energy efficiency.
Shareholders also hit Delta Air Lines with a class action suit alleging its carbon-neutral claims were bogus. So were Nivea skin care products, French energy company TotalEnergies, and Dutch airline KLM. Even FIFA, the international soccer federation, was dragged into the imbroglio.
“We think there is a reputational risk attached to voluntary carbon credits,” said Charles Boakye, an equity analyst at Jefferies, focused on sustainable finance, in an interview. Now, the environment is too controversial to make significant moves and we are waiting for the temperature to die down. However, we can’t hit these net zero and must purchase viable credits.
The “viable credits” he refers to are Internationally Transferred Mitigation Outcomes or ITMOs. An ITMO is a financial vehicle that counts as an emission reduction, allowed under Article 6 of the Paris Agreement. The Central African Republic, Gabon, and Namibia could issue those credits eventually.
This writer is also the editor-at-large for the Coalition for Rainforest Nations, comprised of 65 countries with the potential to sell Paris-approved sovereign credits — those issued by governments. They are independently assessed and easily tracked.
Will Carbon Credit Prices Pass the Smell Test?
Suriname will offer those ITMOs, and they will be part of the global accounting system. It will issue soon about 4.8 million credits. And several governments, including Holland, the United Arab Emirates, and Qatar, have expressed an interest in buying them, albeit at cut-rate prices.
Here’s the thing: If countries are decarbonizing their electricity and transportation sectors and still fall short of their net-zero goals, then buying carbon credits is appropriate. Moreover, they will purchase them from rainforest countries that go above and beyond the call of duty — keeping their trees standing, which are natural CO2 vacuums. They could allow loggers or farmers access to their rainforests and make money.
But the carbon-neutral or negative countries must get paid a high price for the ITMOs they will potentially sell — at prices that are better than what the loggers and farmers offer. Nevertheless, analysts told this reporter that the current demand is low; greenwashing fears are pervasive.
“The focus should be on the technology changes that can radically reduce greenhouse emissions,” said Tim Lenton, director of the Global Systems Institute at Exeter, in an interview.
However, “Once people start doing ITMO deals, everyone will want to get involved — whether it is country to country or private sector,” added Adam Hedley, partner at the Clifford Chance law firm in London, in an interview. “If they have done their due diligence, it will snowball.” Because the ITMOs have undergone intense scrutiny, he said they “pass the smell test.”
Climate finance has been the primary impediment to success at previous climate conferences. Indeed, 138 countries with less than 1% of annual CO2 emissions are at the mercy of 20 nations that make up 80% of those releases. The ITMOs are part of the solution — the most immediate financial vehicle available that carbon-neutral countries can sell to carbon-positive nations or companies.