Conversations about decarbonising the economy are accelerating. Increasingly, countries and companies are announcing net-zero goals. The newly formed Glasgow Financial Alliance for Net Zero, a network designed to unify climate ambitions across the sector, has seen over 160 financial institutions across the globe with assets totalling over $70tn committing their balance sheets to a net-zero world. Conversations on climate are front and centre as we look ahead to COP26.
However, unless there is a clear strategy and a robust roadmap with helpful instructions on how these commitments will be achieved, they will not translate to reality. This is why scaling solutions through sustainable finance is a critical component to addressing climate change.
We need policies and mechanisms that ensure countries at an earlier stage of economic development are not penalised
There are many financial solutions to consider, such as carbon emissions markets. A well-designed carbon market framework can form the centrepiece of decarbonising the economy, helping to create momentum to reduce emissions while raising the capital needed to fund clean-technology innovation. China’s recent launch of an emissions trading market joins other major compliance carbon markets, such as those in the EU and in several US states, including California.
Looking forward, emissions trading systems have the potential to offer a sound carbon pricing approach — given it is an economically efficient way to address the varying carbon abatement costs faced by companies in different sectors. Today, however, in so far as there are regions of the world with and without carbon pricing, this introduces competitive distortions that need to be addressed in partnership with governments, other decision-makers and market participants.
Collaboration is key. To make carbon markets sustainable and accessible, we need policies and mechanisms that ensure countries at an earlier stage of economic development are not penalised. Furthermore, emerging markets can benefit from compliance market carbon credit systems that encourage investments into carbon-mitigation activities. Market-based mechanisms that facilitate global trade in low-carbon investments are essential.
As we look for solutions, we recognise that a multi-faceted approach is needed. In addition to compliance carbon emission markets, voluntary carbon offsets, although still nascent, can complement countries’ and companies’ efforts in the transition to net zero. Development of a robust and transparent voluntary market will mobilise capital for nature-based projects and provide funding for the nascent technologies necessary to decarbonise our planet. Recently, the Taskforce on Scaling Voluntary Carbon Markets proposed measures including a set of core carbon principles that will help accelerate long-term scalable solutions through responsible investment in offsets. We support these principles.
Developing effective carbon emission trading systems, coupled with best-in-class standards and disciplines in utilising voluntary carbon offsets, can be a part of the solution: a useful and important building block to help us meet both the Paris Climate Accord’s commitments and the UN Sustainable Development Goals.
Bernard Mensah is president of Bank of America’s international strategy and operations.
