Energy Transition Accelerator: US climate envoy John Kerry’s new carbon offset market immediately met with backlash
US Special Presidential Envoy for Climate John Kerry marked Finance Day at COP27 by launching a new Energy Transition Accelerator (ETA) in a bid to finance the decommissioning of coal and accelerate clean energy deployment in developing countries.
The ETA will be set up in partnership with Rockefeller Foundation, and the Bezos Earth Fund, with the intent of unlocking new private capital to help developing nations invest in renewable and low-carbon technologies.
The ETA will aim to work with developing countries to enable deeper and quicker reductions in emissions by decommissioning and phasing out fossil fuel usage in favour of renewables.
It will work in a similar fashion to the carbon markets set up in the forestry sector, by aiming to avoid emissions leakage and align with the strategies set out across various jurisdictions.
At the launch event, John Kerry, US Special Presidential Envoy for Climate, stated: “Our intention is to put the carbon market to work to deploy capital to speed the transition from dirty to clean power, specifically for two purposes – to retire unabated coal-fired power and accelerate renewables.”
Dead on arrival?
The ETA will operate through to 2030, but could be extended to 2035. However, with the International Energy Agency stating that annual clean energy investments must triple to $4.2.trn by 2030, questions are already being raised as to whether the ETA is a suitable mechanism for driving holistic change.
Kerry and the US Government state that social safeguards, job creation and training will all be delivered through the ETA and that carbon credits through the scheme will only be open to companies that have committed to net-zero and have science-based targets matching that trajectory in place.
Already, Chile and Nigeria have expressed interest in testing the ETA, while Bank of America, Microsoft, PepsiCo, and Standard Chartered Bank have also expressed interest in informing the ETA’s development, with decisions on whether to formally participate pending the completion of its design.
Green groups are already asking for clarity on the scheme, especially around the issuance and pricing of credits.
The ETA states that credits can be used above and beyond interim targets” set by corporates, green groups have expressed concerns that this will enable companies to offset their emissions, especially across Scope 3. There is currently no definition on how much of a company’s carbon emissions these credits can be used for, despite the Science Based Targets initiative’s Net-Zero Standard stating that high-quality credits and removals can only be used to cover 10% of emissions.
Additionally, the plan offers a “fixed price” for any corporates wishing for advanced purchase agreements under the ETA. The price is neither confirmed or explained and concerns have already emerged that if prices are too low, it could reduce the quality of the credits and overexpose the market.
Ulka Kelkar, Director, Climate Change Programme, World Resources Institute (India) said: “What developing countries need is predictable finance – not offset markets. The proposed initiative cannot make up for the United States’ failure to provide its fair share of climate finance – an estimated $40bn of the unmet goal of $100bn a year.
“It also should not substitute for deep decarbonisation needed within the United States and other industrialised countries. For developing countries like India, who have been raising their climate ambition, the first priority would be to meet their own targets and not provide offsets for reductions in developed nations.”
Vaibhav Chaturvedi, Fellow, Council for Energy Environment and Water, added: “The US’s Energy Transition Accelerator is arguably the first large-scale structured programme that will demonstrate how Article 6.2 will look in practice. This is a very important announcement and I hope it is able to showcase successful case studies soon that the world can learn from. However, If US companies buy emissions from India, then India will not be able to account for these in its emission reduction. Even if both US and India get 50% each of the carbon mitigation credits generated, that means India has to let go of the 50% emissions mitigation implemented within its boundary.
“The extent of sharing is where negotiations will happen. Depending on a host country’s mitigation targets and national circumstances, countries will need to take a call on how many emissions reduction credits can be shared with the US in exchange for finance, without compromising their own reduction targets.”
The announcement comes at a good time for the US’s climate plans.
Midterm elections are currently ongoing in the US, with states voting to elect politicians into key Senate and House seats. As of 3.45pm here in the UK, where edie is based, a majority has not been declared in either the House or Senate in either Party.
Traditionally, the party in power in the US typically loses seats during the mid-terms. However, projections suggest that even through the Democrats are on course to lose control of the House of Representatives – and with the Senate in the balance – President Biden is actually performing better than Barack Obama and Donald Trump in terms of seat retention.
This is welcome news. At a time when world leaders gathered in Egypt to discuss global climate negotiations at COP27, the fact that Biden’s climate ambitions are unlikely to get blocked or derailed by a strong Republican Senate or House means the low-carbon transition can accelerate.
Biden’s flagship climate policy is the Inflation Reduction Act. The act was approved by the Senate in August but was weakened compared to earlier proposals. Indeed, the Bill has faced more than 18 months of wrangling in the Senate, with the Democrats facing fierce opposition from the Republicans and with some of its own members, notably Senator Joe Manchin, seeking to water down the bill.
A draft of implementation was released the following month, with consultation having only just ended. In December, the Treasury Department will release the guidelines on implementation.
It acts as a package of measures to help vulnerable people pay for health care and to reduce emissions, with a focus on energy and transport.
The final version of the Act allocates a total of $369bn to climate action. It is hoped that the changes resulting from the Act will enable the US to reduce its annual domestic emissions by at least 40% by 2030, against a 2005 baseline.
For the energy sector, the Act sets the ball rolling for $27bn of government investment in emerging technology R&D, like floating wind, next-gen solar and hydrogen. It also includes a new tax credit scheme for those creating renewable arrays using existing technologies, to help with upfront costs. There is enhanced support for building wind and solar in or connected to low-income communities. Altogether, $64bn is set aside for renewable energy production and investment.
There is also a $60bn package for communities most affected by fossil fuel production, to be spent on upskilling and reskilling workers for greener jobs and to remedy the costs borne by these communities through trends like air pollution. On climate adaptation, the Act includes Biden’s promised $2.2bn for new infrastructure in communities frequently affected by extreme weather events.
Commenting on the midterm election developments, Gabriela Herculano, manager of the iClima Decarbonisation Enablers UCITS ETF (CLMA), said: “On the US Midterm elections for the next two years the risk of the clean energy revolution being derailed is somewhat low. Biden will still have the veto power. In other words, Republicans would not have a chance to derail the Inflation Reduction Act (IRA) until the Democrats leave the White House.
“Energy economists are all trying to predict what happens to natural gas, crude and coal. The energy crisis will persist for a couple of years, and while that persists, Republicans would not be able to oppose the solutions that provide an alternative to energy – for transportation, electricity, or heat – expensive and volatile. IRA execution under Biden will mean acceleration of the energy transition, even with a red lower and upper house. The demand destruction that fossil fuel at current prices creates is a very big economic reason for consumers to accelerate adoption, no matter how they vote!”
Ani Dasgupta, President & CEO, World Resources Institute summarised: “Rapidly decarbonising the power system around the world is fundamental to tackling the climate crisis. We appreciate that the US State Department is pursuing an innovative approach to scaling up investments and private capital to accelerate developing countries’ transition to cleaner energy. Done right, leveraging voluntary carbon markets can help unlock billions of dollars from the private sector to accelerate the energy transition.
“There is a reason that carbon offsets have been associated with greenwashing, which must absolutely be avoided. I agree wholeheartedly with UNSG António Guterres that the only credible pathway to reaching net-zero starts with companies making deep emissions reductions within their own operations and value chains. At the same time, we very much welcome companies investing in high-quality carbon credits that promote climate action beyond their value chain while generating much-needed funding to hasten the energy transition in developing countries.”
The GSCC network is celebrating the appointment of several policymakers who have a strong track record on climate policy and who were running against opponents who had pledged to block green progress. They include:
- Wes Moore, Maryland (Governor)
- Josh Shapiro, Pennsylvania (Governor)
- Kathy Hocul, New York (Governor)
- Janet Mills, Maine (Governor)
- Mark Kelly, Arizona (Senator)
- John Fetterman, Pennsylvania (Senator)