According to the International Energy Agency, in order to meet our zero-emission goals the world needs a galore of funding. How much exactly? $4 trillion worth of clean energy investment annually by 2030.
Half of this fund must go to emerging and developing countries, the agency says, because, without significant investment in a just energy transition, we’ll likely see the worst of the climate crisis.
That’s why at COP27, the U.S. State Department, Bezos Earth Fund, and the Rockefeller Foundation announced a process to design an Energy Transition Accelerator, or ETA, with the potential to catalyze private capital for the clean energy transition in emerging and developing economies using carbon credits.
"Humanity is already being battered by climate change—at 3 degrees of warming, life for too many people will be not only hot but harsher, poorer, and more fragile," Dr. Rajiv J. Shah, President of The Rockefeller Foundation, said in a statement.
"To avoid that fate, the world must come together in new ways and behind new innovations like the ETA, which could, for the first time, unlock the true potential of carbon markets to scale resources needed for clean energy transitions. Our teams will work in the year ahead to answer the hard questions required to reimagine what's possible."
The process aims to design a “high quality,” carbon credit in order to channel vital private sector investment to phase out fossil fuels and accelerate renewable energy. Most value will go toward climate mitigation renewable projects, with 5% toward adaptation.
While some champion the plan as potentially a way to neutralize emissions while financing sustainable, net-zero alternatives, others worry because carbon credits have yet to prove much of their merit, leaving a big “if” on whether or not they’re effective.
John Kerry, the Biden administration’s climate envoy, described the plan as potentially “catalytic,” with the system “up and running by no later than COP28,” which will take place this time next year in Dubai.
Carbon credits are controversial largely because, in most cases, it allows companies to compensate for emissions, rather than actively reducing them. This method allows for only a small reduction in CO2 emissions, and while they can have other environmental benefits, like incentivizing companies to take more sustainable measures, offsets are often used in greenwashing schemes because of an unregulated market.
However, as more companies make net-zero commitments, carbon credits are gaining popularity, especially in the tech industry. In a recent United Nations report, answering how Big Tech can deliver on its net zero plans, they recommended that in light of recent carbon credit market failures, companies should focus on two things: additionality (cutting emissions that otherwise wouldn’t have happened) and permanence (storing said emissions for a long period of time). According to an analysis in Bloomberg, lack of additionality leads to carbon credit fraud.
“We’ve seen offsets being used as greenwashing and to delay action,” Harjeet Singh, head of strategy for the Climate Action Network, told E&E News. “I think the big question is, how is this [the ETA] going to be different?”
According to The Financial Times, Kerry said fossil fuel companies would not be allowed to buy the carbon credit. Instead, “only companies with net zero goals and science-based interim targets will be allowed to participate” Protocol reports. According to Kerry, they must use the credits to "supplement, not substitute" emission reductions. How oil and gas companies would be prevented from buying them on a secondary market remains unclear.
The lack of specificity on its use of carbon credits is drawing skepticism. According to Rachel Kyte, co-chair of the Voluntary Carbon Markets Integrity Initiative, the proposal is a “massive distraction.” Despite efforts to build out regulation of the carbon credit market, the ETA is “not baked yet.”
Institutions like the Environmental Defense Fund, RMI, and Center for Climate and Energy Solutions, offered support for the initiative, citing its potential for a predictable finance stream, and to support developing countries' own implementation efforts and local workforce development. Nigeria and Chile expressed early interest, as well as Microsoft and PepsiCo.
On the other end of the spectrum, when briefed on the ETA, organizations like the Natural Resources Defense Council and the World Resources Institute weren’t supportive due to worry that it could undermine global net zero goals, according to The New York Times,
The plan comes as nations struggle to agree on a way to route funds to developing and emerging countries, which are, in real-time, left out of the clean energy transition.
As former vice-president and chair of The Climate Reality Al Gore said at the opening of COP27, when it comes to adaptation and mitigation in the Global South, we have a financing issue. Where developed economies like the U.S. can siphon private capital to renewable projects, less developed economies, reliant on modest government funds, cannot.
The problem becomes even more complicated when the main difference between developed and emerging/developing economies is fossil fuel money garnered since the Global North’s Industrial Revolution. Funding for a global just transition will determine if these progressing economies will become epicenters for a renewable revolution or economies ruled by oil and gas.
Over the next year, the U.S. State Department, Rockefeller Foundation, and Bezos Earth Fund plan to work together to develop additional rules and safeguards for participating companies in the ETA, as well as develop parameters for sufficient supply and demand, transparent end-to-end guidelines, and a methodology for monitoring, reporting, and verifying that the carbon credits are real, additional, and permanent.
They also plan to work with developing nations and consult with the Science Based Targets Initiative (SBTi), the Voluntary Carbon Markets Initiative (VCMI), the Integrity Council for the Voluntary Carbon Market (ICVCM), and WRI for the Greenhouse Gas Protocol to ensure “best practice standards.”
"If we're going to phase out fossil fuels in our energy systems, we believe voluntary carbon markets have a role to play," said Andrew Steer, President of the Bezos Earth Fund. “The need is urgent, and we must bring people together to move the needle forward."