Carbon markets key to global energy transitions – IEF

Carbon markets are expected to play an important role in achieving climate, energy security, and sustainable development goals by boosting the efficiency of energy transitions and raising money for clean energy projects, according to Joseph McMonigle, Secretary General of the International Energy Forum.

McMonigle was speaking at the launch of a new report entitled “The Role of Carbon Markets in Transitions”, which focuses on the potential of carbon markets to accelerate the transition to net zero carbon emissions and universal access to affordable and reliable energy under the Paris Agreement and Sustainable Development Goals.

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“Carbon markets play an important role in aligning resources to achieve our global climate, energy security, and affordability goals,” said McMonigle.

“But they are at an inflexion point. With stronger international collaboration and smart regulation, they can raise billions of dollars for clean energy projects, especially in the developing world, that would otherwise not get off the ground,” he added.

The report reviews the state of play in mandatory compliance markets and the rapidly emerging voluntary carbon market (VCM), where companies often offset emissions by financing projects that remove or avoid producing CO2, often in other countries.

The report urges governments to shape carbon markets into a win-win for consumers and producers. Market fragmentation and carbon credit risk can be addressed by fostering cohesive policy approaches, standardisation and transparency, knowledge sharing across borders and digitisation, the report says.

It also highlights the significant potential for carbon markets to generate investment for carbon capture, utilisation, and storage (CCUS) technologies. Currently, CCUS projects mostly fall outside the scope of carbon market incentives, despite their capacity to significantly reduce CO2 emissions and generate a large supply of reliable carbon credits.

“The incentives provided by carbon markets for CCUS are expected to facilitate the broader deployment of this technology and a further reduction in associated costs,” the report said.

Carbon credits could also be used to improve the economics of clean hydrogen production and other technologies that rely on CCUS, the report adds. Moreover, finance raised from carbon markets could be applied to innovation in low-carbon intensity materials that might one day transform industries that rely on concrete, steel, plastic, ammonia, and steel.

For countries that are yet to introduce mandatory compliance carbon markets, “voluntary carbon markets represent an initial step in addressing both national and international climate challenges,” the report says.

“Countries and businesses may transition into compliance markets or use voluntary carbon markets for equivalent effect depending on performance and circumstances,” it adds.

McMonigle urged governments to finalise the agreement on Article 6 of the Paris Agreement, which provides a framework for countries to trade carbon credits internationally and is considered critical to meet national emissions targets.

“Agreement on Article 6 is key to unlocking the potential of international carbon markets and we hope to see more progress at COP29 in Azerbaijan,” he said.