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In the latest issue, negotiators have little time to sort out some of the hardest questions in globa͏‌  ͏‌  ͏‌  ͏‌  ͏‌  ͏‌ 
 
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March 22, 2023
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Net Zero

Climate
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Tim McDonnell
Tim McDonnell

Hi everyone, welcome back to Net Zero.

This week’s report from the Intergovernmental Panel on Climate Change makes one point clear: The economies of developing countries are already suffering severe impacts from climate change. At the COP27 summit in Egypt last year, countries agreed to address that problem by creating a special fund for “loss and damage.” That’s easier said than done. Right now, the fund is an “empty wallet,” and negotiators told me that getting it filled by COP28 in November won’t be easy.

Also, a text from the front lines of South Africa’s energy transition, and a peek at the most luxurious climate solution to flaunt at dinner parties.

If you like what you’re reading, spread the word.

Warmups

The world is running out of time to soften the blows of climate change. The Intergovernmental Panel on Climate Change issued its latest report Monday, a roundup of the best available science. The bottom line message is familiar. But the report emphasizes how little time is left — by the time the next scheduled IPCC report comes out, in five to seven years, the window to meet the Paris Agreement warming goals may have closed.

U.S. President Joe Biden used his first veto in office against a bill that would prevent investment managers from considering ESG factors in their decisions. The bill, Biden said, would block the managers of pensions and other long-term funds from taking steps to avoid the financial risks of climate change, to the detriment of investors.

European energy companies are peeved about U.S. and EU limits on solar panel imports from China, revealing the tension between politicians’ demands for onshoring and the realities of getting renewables built as cheaply and quickly as possible. This week the German utility RWE issued blunt criticism of U.S. solar import restrictions, which it warned could derail its plans to build solar farms in the U.S. And a European solar trade group complained that domestic content requirements in the EU’s latest climate strategy would unfairly exclude them from public contract bidding.

UESLEI MARCELINO/Reuters

Leading brokers of forest-based carbon offsets consistently over-value their projects, a University of California study found, leading to an artificially inflated supply of offsets that don’t provide a legitimate climate benefit. The problem boils down to flawed assumptions in the accounting process about how likely a designated forest is to be cut down. Forestry offsets, which have long been plagued by credibility issues, make up the majority of the carbon-offset market.

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Evidence
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Tim McDonnell

Climate reparations talks are off to a rough start

United Nations Photo/Flickr

THE SCOOP

International climate negotiators are divided over key elements of a United Nations fund they’re creating to distribute financial resources from richer nations to low-income countries impacted by climate change, negotiators and observers told me this week.

With eight months left before the COP28 climate summit in Dubai, two dozen delegates from a range of countries are scrambling to lay out rules for the “loss and damage” fund adopted at COP27 in Egypt last year, that summit’s biggest accomplishment.

They have just three scheduled meetings before COP28, the first of which is next week in Egypt, to agree on essential details of how the fund may be accessed and where the money will come from. As talks begin, negotiators say they face steep odds of getting cash flowing soon.

“As much as [the loss and damage fund] was a breakthrough, it felt like an empty wallet,” Sara Jane Ahmed, advisor to a group of finance ministers from 20 countries highly vulnerable to climate change, told me.

TIM’S VIEW

Some fault lines in these negotiations are familiar, while others are just emerging.

Low-income countries, especially island nations, have been pushing for a loss and damage fund for years, on the theory that the high-emissions countries that have driven the climate crisis should bear more financial responsibility for the unavoidable climate impacts that are already happening worldwide and which poorer states are particularly vulnerable to.

During COP27, delegates from the U.S. and EU were reluctant to agree to a loss and damage fund without a more detailed plan for how it would be capitalized, for fear of being stuck with the whole bill, and who would receive payouts. They eventually agreed once language was added mandating the fund seek “new and additional resources” beyond the traditional pool of climate finance.

But they may push again now to narrow the pool of possible recipients to only the poorest countries — which would exclude most island nations — and to set a strict definition of “loss and damage” that could entangle future claims in red tape. The overall effect would be to limit the fund so that it can be covered by existing aid budgets, said Alpha Kaloga, a leading negotiator for the Africa Group, when in fact much more financing is needed. Total global aid spending is about $180 billion per year, while climate-related loss and damage is projected to exceed $500 billion annually by 2030 in developing countries alone.

Instead, he said, negotiations should start from the other end of the funnel, with a wide-ranging assessment of unconventional funding streams that could be tapped straightaway. That could include sovereign debt cancellation, new taxes on fossil fuels, government-backed insurance networks, or reforming risk standards at multilateral development banks to encourage lending. If countries can agree to put all these on the table for loss and damage, he said, the fund itself can be more expansive and operationalized more quickly.

Another fracture is within the G-77 developing countries grouping, which is usually unified in climate diplomacy. Expanding the loss and damage donor pool isn’t popular with some members of the bloc that are arguably next in line to pay up, including China, India, and several Gulf countries (which needless to say don’t support oil and gas taxes either).

These questions won’t be easily resolved. Ultimately, the U.N. can’t compel any country to pay. But the longer the distribution of loss and damage is delayed, the more economic damages will accumulate in developing countries.

QUOTABLE

“If we have to borrow money every time we get hit by a hurricane, we’ll be sinking under oceans of debt long before the seas rise up.” — Avinash Persaud, negotiator on the loss and damage committee and special advisor on finance to the Prime Minister of Barbados.

KNOW MORE

Loss and damage has always been among the most contentious fronts in climate diplomacy, because the concept of climate reparations forces thorny debates about how to assign historic responsibility for emissions and how to quantify damages and attribute them to climate change. But this week’s Intergovernmental Panel on Climate Change report emphasizes repeatedly that loss and damage is occurring today, and that it traps the poorest countries in a cycle of debt that, in turn, restricts their ability to invest in proactive climate adaptation.

ROOM FOR DISAGREEMENT

One problem with a loss and damage fund is that the U.N. doesn’t have a sterling track record of administering climate funds. The $12 billion Green Climate Fund, which was created in 2010 to provide grants and concessionary loans to climate adaptation and clean energy projects, is notoriously tedious for developing country government agencies to access, requiring mountains of paperwork and financial auditing handled from its central office in South Korea. In some cases, projects backed by the fund have been linked to land disputes and human rights abuses.

“Many agencies don’t even engage with the GCF because it’s so cumbersome,” said Michai Robertson, research associate at the global affairs think tank ODI and a senior advisor to the Alliance Of Small Island States negotiating bloc.

THE VIEW FROM DUBAI

The loss and damage negotiations are an early test for Ahmed Al Jaber, the Emirati energy executive who will preside over COP28, and his chief negotiator Hana AlHashimi, who will attend next week’s meeting in Luxor, Egypt. COP presidents are meant to remain neutral, but wield a lot of control of the agenda. And as a country with ambitions to increase its oil and gas production, the United Arab Emirates has an interest in limiting the scope of loss and damage liability.

NOTABLE

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Crispian Olver, executive director of South Africa’s Presidential Climate Commission. By COP28, South Africa is aiming to show the first fruits of $8.5 billion in grants and loans it received at COP26 from a coalition of wealthy countries, called the Just Energy Transition Partnership, to speed up the replacement of its coal-based energy system.

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Green Shoots
Courtesy Aether

Diamonds are forever — a useful attribute if they’re being used to draw CO2 from the atmosphere. That’s the idea behind Aether, a startup that uses captured carbon to manufacture artificial diamonds.

The IPCC report makes clear that meeting the world’s climate goals will require a massive scale-up of carbon capture. One obstacle in that process is what to do with all that carbon once captured. Some could be sold for industrial purposes, and a growing number of startups are developing new uses. Many focus on concrete, which is produced in such huge quantities that it could act as a major carbon sink if properly engineered.

Diamonds, by comparison, are tiny both in proportion and in market size, drawing a negligible amount of carbon. But they have an advantage: They’re really expensive. That allows Aether to justify spending top dollar for carbon captured by direct air capture facilities, a nascent technology that draws CO2 from the atmosphere. A ton of carbon from one of these facilities, which produce carbon credits with impeccable climate credentials, sells for more than $10,000, so buyers are few and far between. But that figure breaks down to a per-diamond cost of about $10, peanuts for stones that start at $2,000, co-founder Ryan Shearman said.

“I functionally don’t care how much [carbon] costs,” he said.

In addition to his juicy margin on the diamonds, Shearman wants to prop up an essential technology that needs to scale before it can become cheaper. That’s a story that appeals to a certain class of customer.

“These are high end buyers,” he said. “They can show it off at dinner. It’s a social signal.”

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Value of a debt-for-nature swap orchestrated by Credit Suisse for Belize in 2021, the largest such deal ever. These swaps allow developing countries to restructure their sovereign debt with a lower interest rate, in exchange for using the proceeds for conservation. Credit Suisse, which was forcibly sold to UBS over the weekend, was the world’s top middleman for this form of innovative climate finance.

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— Tim (with Prashant Rao and Jeronimo Gonzalez)

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