By Sandeep Roy Choudhury
Integrity and practicality. Will accounting technicalities of voluntary carbon claims get in the way of deploying carbon finance in voluntary carbon markets that supports developing countries and communities battle poverty and invest in clean energy and transport, sustainable land use, and healthy ecosystems?
The increasing commoditization of carbon markets makes us forget that behind these board room discussions, there is a real-world problem out there with the plight of real people at stake. While being an invention of the global north, carbon markets came with a great promise for us here in the South. The idea of backing voluntary claims with corresponding adjustments puts this promise at grave risk.
10 June 2021 | The fight for our future has to be fought, to a large extent, in developing countries as they move to enhance their human development indices and gross domestic product alike. The international principle of common-but-differentiated responsibilities carries the duty to support communities that battle increasing poverty and hardship on their journey towards clean energy and transport, sustainable land use, and healthy ecosystems. Carbon finance can play a big role in such a dispersed need-based compact. However, I see such an opportunity fade away in discussions around accounting technicalities of claims.
Demanding corresponding adjustments for voluntary carbon market transactions risks restricting voluntary investments within the boundaries of the developed world, (as these countries are the ones most likely to have an operational mechanism for adjustments in the near future) a concept which heavily undermines climate justice for the vulnerable. And we should all be very worried about that.
We need to reframe the discussion on corresponding adjustments and give it a human dimension
Just to be sure. I am all for integrity. However, corresponding adjustments for the voluntary carbon market are a lofty idea without much practicality. It has been a point of extensive discussions in the global north, where it apparently seems like a good idea to pile on more demands on developing countries and communities. This view may be the result of an appalling underrepresentation of countries that need voluntary finance in the plethora of task forces, consultations, and working groups mushrooming across the developed world, for a problem that largely affects the developing world. The ground realities seem very, very far removed from the conference room conversations, and just to be clear, the global south comprises roughly 150 countries, so a sweeping homogenous view is a problem. The result is as it always has been: The developed world sets the rules, and the rest of the world is forced to accept the bent logic supporting them. Let me make some points that should be considered when discussing corresponding adjustments for the voluntary carbon market.
The demand for corresponding adjustments is outright patronizing and fails to recognize the real needs of developing countries
The argument that developing countries would cut corners with their Nationally Determined Contributions (NDCs) if voluntary action is permitted without adjustments does not only sound extremely patronizing but also ignores the fact that governments generally welcome added private sector engagement to show them the way in setting their own action plans towards enhancing their NDCs via added knowhow of varied low carbon technologies and associated mitigation cost discoveries.
Additionally, a lot of NDCs in the least developed nations are conditional on finance. If the finance is indeed provided through voluntary action, the country is then asked to deduct those mitigation outcomes from their own NDC accounting systems. This seems a bit odd to most host country policymakers. A bureaucrat in one of the Least Developed Countries (LDCs) in Asia asked me the other day if they should have explicitly added private sector finance to the conditionality, as it appears that only donor finance from countries or multilateral bodies can count as conditional finance, even if it is a loan.
None of the developed countries seem to have a model for how to effect corresponding adjustments. How can we expect countries several notches below in bureaucratic system efficiency ratings to sort this out in five years or even ten years?
Setting deadlines for the requirement of corresponding adjustments seems a bit like putting the cart in front of the horse. Also, transition times do not solve the problem. The pundits seem to assume that carbon ‘markets’ are based on spot credits that are sold from projects that are on the ground already. This is not the case, and fewer and fewer projects will have credits ‘on the shelf’ ready to be sold. Most projects, in particular the much in focus nature-based solutions, require up-front investments for projects that remove or abate carbon over the next decades. Investment requirements that demand corresponding adjustments after a transition period as a condition for their finance, make such investments impossible, as no actor on the ground can commit to such adjustments being made.
Corresponding adjustments cement existing power structures and frustrate emerging calls for climate justice
Provisional commitments from countries to make corresponding adjustments in the future will not solve the problem. Obtaining such commitments may be possible for international organizations and highly funded international NGOs. It is impossible for smaller, local organizations to even start such a conversation. The risk is that power structures will further be solidified by limiting local actors to be part of “benefit-sharing” plans of larger organizations, throwing communities back into a never-ending quest for indigenous, inclusive, and rights-based climate action.
Try explaining to a struggling mountain community in Asia or a marginalized group of migrants in sub–Saharan Africa in a post-covid world, that their access to much needed and deserved finance is being held up by some form of accounting and claim issue. A lot of carbon programs are centered around communities which are at loggerheads with their governments, the very administration we are asking them to take adjustment approvals from.
Endemic corruption is another problem. Carbon markets are meant to put power into the hands of the vulnerable and for the private sector to show leadership in climate action, just to see the enlightened in the global north throwing these actors back to the feeding lions. Anybody who remembers the ordeals and challenges of obtaining a simple thing such as a Letter of Approval for the Clean Development Mechanism can testify to the challenges. That was just an acknowledgement of sorts with nothing to lose for the governments, here we are potentially asking for sovereigns to relinquish emission reductions that would otherwise contribute to their NDCs . Well, Good luck with that.
Carbon finance is fast, nimble, and desperately needed
In my experience, ambition was never the problem really, finance always was and is. The voluntary carbon market has mobilized almost a billion dollars last year alone and is expected to deploy another two to three billion in the next years. This is not insignificant. And we are talking about deployments and not pledges, an important distinction from public climate finance and associated rhetoric. This means that voluntary carbon finance is an essential piece of the puzzle towards achieving many countries’ NDCs. In my experience, developing countries welcome carbon finance as an alternate form of finance without red tape. This frees up public resources for them to support prioritized issues such as health and education. The enterprising nature of voluntary project developers to explore diverse project types, methodologies, and technologies make for an interesting perspective for most host countries. Official climate finance flows to the governments and takes years to reach the communities that need it most.
For example, the Green Climate Fund supports a project In India, one of four GCF projects for a country of 1.3 billion people. It took the project three years to be approved, and today, three years after the approval, only four percent of the approved budget has been disbursed. In contrast, we have conceptualized a project north of this project area with the same coastal communities in December 2020, it achieved financial closure by March 2021, investment agreements were in place in May 2021 and it will make first disbursements by July of this year. With a requirement for approvals on corresponding adjustments, these lead times could just go to ‘indefinite’ or for the project to not happen at all.
Government pledges cannot save us
Maybe, I can set one more point straight. The premise that only sovereign commitments can solve the climate crisis is fundamentally flawed. If governments were on track to solve this crisis, we wouldn’t really need voluntary action. It is because those pledges are often hollow and without accountability, is the reason why we are still experiencing the climate crisis. While we worry about corresponding adjustments for developing countries, we seem to be without any technocratic response for the situation where developed countries such as the US decide to exit the Paris Agreement or when countries slip back in their NDC commitments. There are multiple salient issues around the integrity of the Paris Agreement but the absence of corresponding adjustments for voluntary private investments is definitely not one of them.
Do not get me wrong. I am sure the calls for corresponding adjustments are all well-meaning, but the actors in this piece making these calls seem to be oblivious to the ruckus they are unraveling with increasing indecision and confusion in the markets. Recently though it must be said, it does seem like the integrity of private sector involvement has become more important than the issue of climate action itself with an overzealous investigation on claims and methodologies at the cost of risking losing private sector involvement altogether, as even well-meaning companies start fearing PR blowbacks
I repeat myself when I say I am all for integrity, of the voluntary markets, and of the Paris agreement, but we cannot have discussions around who can or who can’t receive much-needed financial support based on their federal mechanisms. That is just not fair. Governments will do what they have to do, and we must push them, but clearly, they do not have the capacity to deliver on all fronts. It is never an “and/or” battle, it should be everything that we have at our disposal, and that includes businesses, civil organizations and communities. We should make things as easy as it can get to have finance flow down to the needy and remove every possible roadblock. Time is running out! There is a real-world out there that needs all the support we can muster.
Sandeep Roy Choudhury is Co-Founder of VNV Advisory Services, Co-Chair of the International Carbon Reduction and Offset Alliance (ICROA), and Director at the Carbon Initiative Forum.
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