July 26, 2023 – Today, the UAE COP28 Presidency, the Glasgow Financial Alliance for Net Zero (GFANZ), and the Institute of International Finance (IIF) co-hosted a voluntary carbon markets (VCMs) roundtable. This virtual discussion was the second in a series of events on VCMs, bringing together global market participants committed to scaling climate finance. The first installment of the VCM series, a successful Thematic Event at the Summit for a New Global Financing Pact in Paris in June, built a strong foundation where participants confirmed the urgency of ensuring that high-integrity VCMs are scaled because of the critical role they can play in mobilizing significant financing to emerging markets and developing economies (EMDEs). At today’s second installment, speakers focused on the practical and technical challenges that need to be addressed in pursuit of this vision.
COP28 UAE Director General H.E Ambassador Majid Al Suwaidi, Bezos Earth Fund CEO Andrew Steer, and GFANZ Advisory Panel Chair Nili Gilbert addressed the roundtable, which featured perspectives across policy, standard setting, and business and finance leadership. They spoke to the critical role VCMs must play in scaling climate finance to EMDEs, the need to empower local project developers with tools to meet best practices and standards across both supply and demand, and the challenges facing EMDE governments seeking to build carbon markets. Speakers also noted the need for buyers to be adequately incentivised to invest in high-integrity projects, and for clearer and consistent regulation of VCMs alongside compliance markets. Speakers also emphasized that local communities must remain at the core of carbon projects, and highlighted the importance of ensuring robust community benefits and just transition safeguards in VCMs.
Specifically, the participants addressed:
- Integrity is key. Participants noted the important work to develop and cement best-practice standards on the supply and demand side of the VCM. Speakers noted that an end-to-end integrity framework for VCMs is critical for addressing market credibility concerns. Moreover, speakers noted that without robust demand, there will be no supply, and emphasized the need to incentivise investment in high-integrity carbon projects.
- International carbon markets are a critical source of cross-border climate finance. Participants noted the need for policy certainty, clear and consistent regulation of carbon markets, and fungibility between them – particularly as Article 6 rules are embedded into domestic law. Speakers also noted the potential boost to investor confidence that this policy certainty would offer to host countries. Participants highlighted the importance of international cooperation in catalyzing cross-border climate finance, and reiterated the importance of high-integrity standards underpinning these markets. Participants also noted the need for clear, consistent messaging from policymakers on this topic, and emphasized that engaging in international carbon markets does not conflict with domestic mitigation efforts to meet NDC targets, but can complement these efforts.
- Local contexts are crucial. Project developers from the global South noted the need for capacity building to empower local developers to meet these standards, a lower cost of capital to finance projects in EMDEs, and fair prices for credits from these regions.
- The just transition is paramount. Speakers noted the need for adequate consultation and benefit-sharing with local and indigenous communities, and reinforced the importance of this being a central consideration in emerging standards – not an afterthought.
COP28, GFANZ, and IIF will continue in the lead up to COP to convene key market players regularly, to ensure efforts to build high-integrity VCMs are harmonized and amplified. Collective success will help instill stakeholder confidence in VCMs and drive funding into carbon abatement solutions, particularly in the Global South.
Andrew Steer, President and CEO of the Bezos Earth Fund, said: “The Voluntary Carbon Market must provide high integrity, real social safeguards, and a genuine proposition for suppliers and buyers alike. But we also need speed and scale. If we are to have any hope of accelerating the energy transition at the pace needed, we need a great deal more grant and grant-equivalent funding. VCM has a vital role to play in accelerating the transition and making further progress irresistible and unstoppable.”
Nili Gilbert, Chair of the GFANZ Advisory Panel and Vice Chairwoman of Carbon Direct, said: “As key stakeholders come together to focus on voluntary carbon markets, the opportunity ahead of us is clear: to take immediate and urgently-needed action on climate goals by driving transparent, high-quality market standards. To face important challenges within the current system, we must work together to establish a firm floor for integrity in supply and demand and to clarify overarching system rules. By advancing credibility, providing appropriate incentives, and adopting broadly recognized, science-based requirements, we will attract private sector capital committed towards decarbonization targets for high-quality carbon removal and reductions, while critically scaling necessary action in all corners of the world.”
Sonja Gibbs, Managing Director and Head of Sustainable Finance at the IIF and Integrity Council for the Voluntary Carbon Market (ICVCM) Board Member, said: “The urgency to transition to a net-zero economy has never been more pronounced, and to get there, we need to use every tool available. Estimates suggest that an additional $3.5 trillion in annual investment will be required to effectively decarbonize the global economy by 2050, and that nearly half of emission reductions by 2050 will have to come from technologies that are currently under development. A high-integrity voluntary carbon market is a critical tool to unlock finance for these goals and provides a vital path for climate flows to emerging markets. It is encouraging to see so many stakeholders come together in dialogues like the one we had today to help build upon our shared goal of achieving high-integrity, scalable voluntary carbon markets.
H.E. Ambassador Majid Al Suwaidi, Director-General and Special Representative of the UAE COP28 Presidency, said: “I am delighted to see the leading associations for voluntary carbon markets come together today to tackle these issues. By uniting our expertise, resources, and influence, we can establish, implement and deploy a framework that ensures integrity, transparency, credibility, and accountability for voluntary carbon markets. It is only through such united action that we can help a relatively small market reach its potential of becoming a 100-billion-dollar market over the coming years, which represents a 50-fold increase from today.”