Accounting for carbon credits6/23/2023 “If we make things too difficult, there will be no international carbon markets.SEC’s proposed rule on climate-related disclosures “The new frameworks and the degree of government interventions will determine how attractive individual countries are for investors,” said Ms Andrea Bonzanni, the director of international policy at the International Emissions Trading Association. The emissions trading industry welcomed the new regulatory frameworks that would bring more certainty for investors, but warned policymakers not to be overzealous. “By creating certainty around the cost, the market can determine whether it’s a price worth paying.” “Improved regulation – and the greater certainty that comes with it – represents progress,” said Ms Ana Haurie, chief executive of Respira International, a carbon finance firm. Investors say they welcome moves to create clarity, stability and predictability in the carbon market. The Paris Agreement was “revolutionary” in the way it empowered every country to set its own targets and manage its own market, Mr Fernandez said.īut that is a bumpy and inconsistent process, he added: “Today we are living with the problem of this.” Possibly one of the biggest impacts on the market, however, will be China – the largest supplier of offsets – which is readying a revamp of its domestic voluntary market. Ghana, often lauded for its regulatory clarity, recently struck a deal to sell credits to Switzerland. Meanwhile, Malaysia has said it will not limit sales of offsets abroad. Honduras put a moratorium on the sale of forest-based carbon credits, and Indonesia imposed conditions on the export of carbon credits. In October, Tanzania introduced new rules governing the revenue split, but developers say they are still waiting for specifics.Įlsewhere, Papua New Guinea suspended new deals while it worked on regulation. Kenya is debating legislation that would provide local communities a 25 per cent cut. In May, Zimbabwe announced its intention to retain 50 per cent of carbon revenues generated there, effective almost immediately. One of those implications will be regulatory change and, at least at the beginning, inconsistency from one country to the next. “Adjusting the amount of supply going to NDCs, rather than offset markets, has big implications,” according to BloombergNEF, which predicts the voluntary offset market could reach US$1 trillion by 2037. More than three quarters of countries say they plan to or are considering using the UN carbon market to meet their targets, known as nationally determined contributions, or NDCs. Though the details are still being fine-tuned, some countries have already begun to strike deals to ensure supply. That means countries will have to decide if and when credits produced within their borders will be made available for use by others and when they will be used for national goals. The new sovereign trading market is being set up by the United Nations, with an accounting framework that prevents the same credit from being applied to more than one country’s climate goal. “Countries are now recognising they also have sovereign assets, which are their ability to reduce carbon or sequester carbon.” “The Paris Agreement acknowledges emissions as sovereign liabilities,” said Mr Finn O’Muircheartaigh, director of policy and markets at BeZero Carbon, a research and ratings firm. This means governments now view the units not just of a source of revenue, but as a tool to meet their international obligations. The 2015 Paris Agreement introduced targets for all, developing countries included, effective from 2020. Under the 1997 Kyoto Protocol, wealthy countries had emissions targets and could buy credits from projects in developing countries to meet them.
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