With Asia accountable for about half of worldwide carbon dioxide emissions right this moment, the area should decarbonise – and its carbon markets current a sexy alternative to attain this, says Karolien Casaer-Diez, regional director for local weather coverage, finance and carbon markets in Asia at South Pole.
For one, carbon markets are key to incentivising companies to put money into tasks and options that scale back emissions, and permit international locations to mobilise sources to assist finance inexperienced tasks. Carbon markets may assist international locations to succeed in their nationwide local weather objectives, or Nationally Decided Contributions (NDC).
Whereas the area’s carbon markets might not be as massive as Europe’s – the world’s largest compliance carbon market on account of its Emissions Buying and selling System (ETS) – Asia’s carbon markets have doubled in measurement during the last three years.
“On the voluntary market, Asian carbon tasks provided half of the credit bought in 2022. This makes it the world’s largest credit-producing area,” stated Casaer-Diez, citing information from a report from non-profit organisation Ecosystem Market.
Asia is now rising because the world’s major hub for cooperation underneath Article 6 – a clause within the Paris Settlement that encourages collaboration to scale back emissions – with the area dwelling to probably the most purchaser and vendor international locations.
Karolien Casaer-Diez is the regional director for local weather coverage, finance and carbon markets in Asia at South Pole.
“I’ve lived in Asia for over 10 years and the surge in local weather management we’re seeing of late is spectacular,” famous Casaer-Diez, who oversees South Pole’s advisory work for private and non-private sector purchasers referring to carbon coverage, local weather finance, Article 6 and compliance carbon markets within the area.
South Pole – a carbon finance and company decarbonisation consultancy based in Switzerland in 2006 with Asia places of work in Singapore, Thailand, India, Indonesia, Japan, China and Australia – goals to develop and implement emission discount tasks and methods for corporations, governments and organisations.
On this interview with Eco-Enterprise, Casaer-Diez, who has 18 years’ expertise in local weather and improvement finance, speaks concerning the ever-changing carbon market panorama and the impression of stepped-up rules in Asia.
Let’s begin with the fundamentals – what’s Article 6 and why is it so transformational for the worldwide carbon market?
We all know that carbon markets have a vital position to play in serving to the world scale back emissions and sort out local weather change. To assist and scale that impression, international frameworks are being established to set the foundations for the way international locations have interaction in carbon markets.
One clause within the Paris Settlement on Local weather Change, often known as Article 6, gives the rules for emission reductions that happen in a single nation to be counted in direction of a distinct nation’s nationwide local weather targets.
In some elements of the world, financing emission reductions is dearer than in others. Article 6 transactions supply a means for international locations to scale back extra carbon emissions overseas in comparison with what they may obtain domestically with the identical funding.
Buying international locations can rely these “Internationally Transferred Mitigation Outcomes” or ITMOs, in direction of their NDCs. For host international locations, new low-carbon options obtain financing they might in any other case not have been in a position to entry. This creates advantages nicely past carbon: jobs, cleaner air, well being advantages and extra.
Analysis by the Worldwide Emissions Buying and selling Affiliation reveals that utilizing carbon markets at scale can scale back the worldwide value of delivering emission reductions recognized in NDCs by about 30 per cent by 2030, and by greater than 50 per cent by 2050.
If we scale back the price of local weather motion, we are able to obtain extra.
What impression does Article 6 have on Asian international locations and firms partaking in carbon markets? What are the professionals and cons of nations utilizing carbon markets to satisfy their Nationally Decided Contributions (NDCs) to the Paris Settlement?
Article 6 transactions may also help some international locations in Asia meet their NDCs extra effectively, so subsequently buy-side international locations may be extra bold of their targets. Article 6 additionally presents alternatives for corporates, as they will use ITMOs to satisfy compliance necessities, for instance, the Carbon Offsetting and Discount Scheme for Worldwide Aviation (CORSIA). Some company consumers might even purchase ITMOs voluntarily.
For international locations internet hosting Article 6 tasks, an ITMO represents a trade-off. The sell-side nation can not rely these emission reductions in direction of their NDCs. It wants to verify it has different inexpensive abatement choices obtainable to satisfy its commitments.
By way of challenges, governance programs for Article 6 transactions are fairly demanding and may be advanced for a authorities to place in place – governments want a carbon registry and robust monitoring, reporting and verification capability, for instance. This implies the availability of ITMOs has been gradual to select up, however momentum is rising.
As somebody who has labored in improvement and local weather finance for many of my profession, I can solely be enthusiastic concerning the transformational potential of this new mechanism and the best way it creates new financing channels for local weather tasks. Article 6 additionally offers agency management to host international locations over the form of local weather motion they want to see funded by worldwide gamers.
How are governments throughout Asia stepping up rules on emissions and carbon market initiatives?
Consideration to Article 6 and strain to implement NDCs is resulting in elevated regulation, and we see international locations organising or strengthening carbon pricing schemes in Asia.
South Korea has a well-established ETS, whereas China is taking a look at increasing its ETS to new sectors. India, Indonesia, Malaysia, Vietnam and Thailand, for instance, are at numerous levels of making or revisiting home carbon schemes and rules for carbon markets. That is no simple feat, as a excessive bar should be set on environmental integrity, human rights and safeguards, and the technical complexities of carbon may be daunting. Altering rules might initially trigger some nervousness and confusion, however as soon as guidelines are set, they create new markets and alternatives.
It’s encouraging to see local weather and carbon climb up the political agenda and to see the dedication from international locations to satisfy their NDCs. I used to be concerned in writing NDCs previously and I’m impressed on the degree of willpower international locations in Asia are exhibiting to ship on these.
Which international locations are doing nicely?
Many international locations are doing nicely, however I need to cite just a few examples of nations I’ve labored with and located notably inspiring. In December 2023, Thailand grew to become the primary nation on the planet to switch emission reductions underneath Article 6, in a take care of Switzerland. The Bangkok E-Bus Programme, through which South Pole acted because the carbon finance guide, will see about 2,000 electrical buses launched to the Bangkok Metropolitan Space, serving to to keep away from emissions and considerably enhance air high quality in a congested megacity. These emission reductions are bought by our consumer, Thai-based electrical energy technology firm Power Absolute, to the Zürich-based KLiK Basis.
Singapore is a agency chief in carbon market innovation. For instance, the city-state will enable the usage of sure worldwide carbon credit underneath its carbon tax regime. This pushes Singaporean corporates to put money into local weather motion throughout the globe. Extra broadly, Singapore has established itself as a trusted carbon providers and buying and selling hub for the area and world.
Vietnam is creating an ETS, which South Pole is supporting underneath the Southeast Asia Power Transition Partnership programme. It is going to cowl the metal, cement, and energy sectors within the preliminary part. The nation can be creating a nationwide crediting mechanism and is negotiating bilateral cooperation underneath Article 6.
Once I first arrived in Asia in 2013, I labored in Bangladesh’s finance ministry. What I noticed then was an inclination to view sustainability as an extra value, or as a burden. The great thing about market mechanisms is that they permit creating international locations to method local weather motion as a possibility. They current creating nations with an opportunity to entry worldwide and personal sector financing when home public sector funding is scarce.
What incentivises non-public sector actors like South Pole to co-develop credit-generating tasks?
One needs to see governments elevating ambition with the purpose of limiting international temperature rise to 1.5°C. Clear and forceful insurance policies to that extent will drive inexperienced funding.
In creating carbon market rules, business-friendly regulation can channel extra local weather finance to the area. Readability and predictability – versus uncertainty – will appeal to traders and mission builders.
Host international locations can search worldwide financing and traders – by means of Article 6 and different channels – for the kind of tasks that might in any other case stay out of attain. India, for instance, plans to authorise Article 6 transactions with international locations reminiscent of Japan with the purpose of attracting funding for inexperienced hydrogen.
The following technology of NDCs will supply an opportunity for higher investments. By higher funding planning for NDCs, combining totally different sources of capital and interesting in a number of carbon markets, international locations can hedge their dangers, making their plans extra bold and efficient in preventing local weather change.
What sorts of carbon tasks have probably the most potential in Asia to assist decarbonisation? Ought to we be centered on nature-based options or technological options?
It’s not about either-or. Staving off the worst of local weather change is a race towards the clock. We don’t have time to let the right get in the best way of the nice, and we don’t have the posh of choosing our favorite applied sciences; we want every thing, all over the place, all of sudden.
Compliance markets underneath Article 6 and voluntary markets reply to totally different drivers and are subsequently geared in direction of several types of tasks. ITMOs will principally be bought for compliance causes and consumers will search for excessive volumes, so might probably resort to hard-to-abate sectors and rising applied sciences that haven’t been picked up by the voluntary carbon market.
What had been the principle outcomes from COP28 relating to the carbon market within the area?
COP general had numerous outcomes value celebrating – together with the pledges to the loss and harm fund, which is a crucial victory for probably the most climate-vulnerable international locations – a lot of that are in Asia. The decision to “transition away from fossil fuels” was an vital first for a UN local weather convention.
With regard to carbon markets, it was encouraging to see key carbon requirements come collectively and announce collaboration to reinforce transparency and consistency throughout the market. This may enable ambition and finance to scale throughout sectors and international locations.
That stated, the truth that Article 6 negotiations remained inconclusive was a setback.
Article 6.2, which governs the switch of emission reductions generated in a single nation to a different nation, is already operational, however we had hoped for some extra top-down steering from COP on sure subjects, for instance, authorities authorisations for transactions.
Article 6.4 pertains to the institution of a crediting mechanism – a physique that may recognise methodologies for carbon crediting, register carbon tasks and concern credit underneath the authority of the United Nations. Within the absence of selections at COP, we lose time in establishing this new UN crediting mechanism. That could be a disgrace, as many international locations in Asia and elsewhere want to Article 6.4 as their future crediting mechanism of selection.
The dearth of UN choices implies that we rely extra on nationwide authorities and on current voluntary mechanisms and initiatives to form operations available in the market. It places an elevated accountability on the shoulders of particular person governments, additionally in Asia.
On a constructive be aware, I used to be blown away at COP by how Asia is charting its future course. I spoke at a Vietnam authorities occasion the place officers outlined their ambitions to make polluters pay and value carbon with their ETS. South Korea is readying its industries for the European Union’s Carbon Border Adjustment Mechanism, turning decarbonisation right into a driver of competitiveness.
Cambodia introduced a goal to elevate its share of unpolluted technology capability to 70 per cent by 2030 and not too long ago issued its Article 6 operations handbook. Energy large ACEN Company, from the Philippines, introduced a collaboration with The Rockefeller Basis and the Financial Authority of Singapore to close down extra coal, changing it with renewable vitality, with the assistance of transition credit.
These are just some illustrations of the extent of ambition and innovation seen in Asian international locations right this moment, and that leaves me optimistic.
