Climate Week

1. Climate Week kickoff march
2. 🟡 Bigger carbon deals
3. 🟡 Fixing the carbon market
4. Brazil’s emissions progress
5. 🟡 ‘The window is closing’
6. More bad sea-ice news
7. 🟡 California sues oil giants
8. 🟡 Islands’ debt trap

New York climate protests

Tens of thousands of people took to the streets of New York on Sunday ahead of the U.N. General Assembly and Climate Week in a “march to end fossil fuels.” Protesters demanded that governments respond to U.N. chief António Guterres’ call for no new coal, oil, and gas. The anger of the crowd was directed at U.S. President Joe Biden, who despite passing the Inflation Reduction Act, a path-breaking law bolstering climate investments in the U.S., has continued to approve permits for oil and gas drilling. Today, campaigners are expected to take part in “mass civil disobedience to end fossil fuels” at New York’s Zuccotti Park, where 12 years ago the Occupy Wall Street movement began.

Carbon tech investments on the rise

Carbon capture, removal, and management startups are landing bigger investment deals. This year, the median fundraising round for companies in the sub-sector was $4.1 million, according to Pitchbook, more than double the level of the last several years. The pop reflects the rapidly growing demand by high-emitting companies for carbon removal credits, and the mounting pressure companies face from their shareholders and regulators to monitor and abate their emissions.

Meet the startups trying to fix the carbon market

THE NEWS

Few elements of the energy transition are as hotly contested as the voluntary carbon market. For its critics, the VCM vacillates between snake oil and greenwashing, a form of subterfuge used by heavy polluters to cover up for their emissions without actually decarbonizing. A string of high-profile controversies about the integrity of offsets, particularly those involving reforestation programs, have led many major companies to cease buying them entirely.

But a growing number of firms now argue that the fallout risks doing more harm than good, dissuading potential customers from developing what many policymakers regard as a necessary market, and stifling investments in technologies that could help the world curb temperature increases.

PRASHANT’S VIEW

Startups across the VCM space are dealing with a legacy of mistrust in varying ways. A few are touting changed business models: Isometric charges buyers, rather than sellers of carbon credits; BeZero users pay a fee to access its ratings platform, rather than the issuers of credits paying to be rated. Both, in theory, remove a potential conflict of interest incentivizing credulity over the integrity of credits being sold.

Some companies are upping transparency by more clearly showcasing how they reach their calculations. Others are debuting new technologies that, if successful, will more durably remove more-precise amounts of carbon from the atmosphere.

Yet the market is still hamstrung by several issues, some of which have to do with its relative youth, and others to do with this legacy of mistrust.

For one, companies disagree on what a fully formed carbon market should look like. One startup executive told me VCM assets should eventually resemble corporate bonds — policed by an overarching regulator, rated by third-party agencies that mimic Moody’s or Standard & Poor’s, and each acting as a slightly different financial instrument. Another argued that the very existence of ratings agencies was a sign of the market’s failure to police itself, insisting that VCM products should ultimately be viewed as commodities: In effect, a tonne of carbon removed or offset is equivalent to any other of a similar type, regardless of its provenance or process.

Investors are also hesitant to dive wholeheartedly into a market mired in past controversy, suffering either from what one executive labeled FOBCO — a fear of being called out — or from greenhushing, where companies make investments but do not publicize them. In many ways, the end result is the same, proponents argue: Fewer buyers in the market, leading to reduced demand for new supply of carbon credits, curtailing investment into the startups exploring frontier technologies that could cut emissions. The counter argument, of course, is that allowing companies to use offsets in particular reduces incentives for investment and innovation in ways for them to cut emissions from their operations and supply chain.

For differing reasons, both offsets and removals also require huge amounts of due diligence on the part of buyers — the former because of the reputational risk associated with investing in the wrong type of offset, potentially making headlines for the wrong reasons; the latter due to the fact that many of the underlying technologies that power removals are so new, meaning buyers have to hire their own scientists to verify their credibility. That means that, for now, many such assets are uncertain or unaffordable for smaller companies.

Emissions progress

Brazil reinstated stricter climate goals that could reduce the country’s CO2 emissions by as much as 73 million metric tons by 2030. Former far-right President Jair Bolsonaro weakened environmental restrictions throughout his administration, with the latest cut occurring in 2021. His successor Luiz Inácio Lula da Silva has managed to cut deforestation — which produces almost half of the country’s greenhouse gas emissions — by as much as 40% since his inauguration in January. However Bolsonaro’s weakening of restrictions, which led deforestation to soar to a 15-year high, made Brazil the world’s fifth-largest emitter last year.

One Good Text

Lucy Almond is the chair of Nature4Climate, which today published analysis indicating more than half of all public commitments related to nature-based climate action so far showed little or no evidence of progress.

Worsening ice melting

Antarctic sea-ice levels are far below any previous recorded winter, new satellite data showed, marking a troubling benchmark for a region that seemed resistant to extreme weather changes. The Antarctic Ocean’s ice float surface now measures less than 17 million square kilometers (6.56 million square miles), almost 1.5 million less than the September median. “It’s so far outside anything we’ve seen, it’s almost mind-blowing,” the National Snow and Ice Data Center said. Scientists worry that further ice melting could cause an unstoppable downward spiral: As ice disappears, it exposes dark areas of the ocean which absorb, rather than reflect, sunlight, meaning ocean temperatures rise, in turn melting more ice. This could be “an absolute disaster for the world,” a glaciologist at the University of Exeter told the BBC.

California climate court case

THE NEWS

California is suing five oil and gas giants — ExxonMobil, Shell, BP, Chevron, and ConocoPhillips — accusing them of causing tens of billions of dollars in damage and misleading the public by downplaying the risks posed by fossil fuels. The case also names industry trade group the American Petroleum Institute as a defendant. California is seeking the creation of a special fund to help pay for the recovery to future climate-related disasters as well as mitigation and adaptation efforts across the state.

INSIGHTS

• The case is the latest in a string of climate litigation actions in the U.S. targeting fossil fuel companies, bolstered by “attribution studies” which are able to more precisely allocate responsibility for climate damage. In June, Oregon filed a lawsuit against oil companies seeking $1.5 billion in damages for a deadly 2021 heat wave. But the suit in California “is the most significant, decisive, and powerful climate action directed against the oil and gas industry in U.S. history,” Richard Wiles, president of the Center for Climate Integrity, told The New York Times.
• Oil and gas companies are under the firing line in a different way in California. On Sunday, Governor Gavin Newsom said he would sign into law a landmark climate bill which will require more than 5,000 companies that make more than $1 billion annually and operate in California to publicly disclose the full extent of their greenhouse gas emissions, including those of their customers.
• Attribution science is one of the fastest developing areas of climate study since it began 20 years ago. Scientists use methods which not only assess extreme weather events but also the economic damages these events cause and how they are compounded by existing vulnerabilities. One of the key challenges is to increase the availability of high-quality observational data in developing countries — the lack of which has previously limited analysis. Another challenge is to quantify slow onset events such as sea level rise.

Watchdogs

Vulnerable island states are turning towards private creditors to borrow the money they need to respond to shocks and cope with worsening climate impacts. Analysis by London-based development institute IIED found that the share of private debt held by 18 small island developing states has soared in the past 20 years, rising from 6.5% on average in the 2000s to 36% in the 2020s.

The Seychelles had the highest private external debt, a staggering 89% on average between 2020 and 2022.

Private debt often comes with less transparency and higher interest rates that can push countries into “a vicious cycle” of climate shocks and increasing debt burden, said the IIED report’s lead author Ritu Bharadwaj: 70% of vulnerable island states have debt levels which exceed their sustainability thresholds, constraining their ability to respond to more intense and frequent storms.

But creditors have the ability to make things better. Layering debt relief measures on vulnerable island states’ debt stock could achieve a three-percentage-point increase in GDP growth, IIED said. That means unlocking funds for much-needed social protection measures that can help better prepare nations.

Urgent calls for debt relief have risen through the political agenda. Momentum is building around “pause clauses” which give breathing room on debt repayments when climate disasters hit. But that’s only dealing with the immediate crisis. “What we need is short term, medium term, and long term relief,” said Bharadwaj.

She argued insurance which paid out when one or more pre-agreed events took place, as well as debt reprofiling, resilience bonds, and debt swaps should all be used concurrently. None are silver bullets, but together, they could make a difference.