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In his engaging opening remarks, Dr. Gary Theseira, council member of Climate Governance Malaysia (CGM), exuded warmth and enthusiasm as he welcomed participants to the webinar on "Pricing a Negative Externality: Carbon Pricing in Malaysia." With genuine pleasure, he extended a special welcome to attendees from the entire ASEAN region, emphasizing the significance of their collective presence. Dr. Theseira expressed gratitude to the collaboration partners, including the EU Roundtable on Climate Change and Sustainable Transition (ERCST), the World Bank, and ISIS Malaysia, for their invaluable support in organizing the event. He highlighted the webinar as the third installment in a series of four, focusing on "Net Zero Targets and Voluntary Carbon Markets." Setting the stage for an insightful session, Dr. Theseira introduced the remarkable lineup of panellists, starting with Mr. Bjorn Fonden, the International Policy Advisor at the International Emissions Trading Association (IETA), and Mr. Andrew Howard, Senior Director of Climate Policy and Strategy at VERRA. Throughout his opening address, Dr. Theseira's passion for addressing environmental challenges and fostering regional cooperation shone through, inspiring attendees to actively participate in the discussions that followed.
Starting us off in this insightful talk, Björn Fonden emphasized the urgency of addressing climate change in light of recent extreme weather events worldwide. He highlighted the alarming reality that current emission reduction targets set by companies and countries are insufficient to achieve the crucial 1.5-degree target, leaving a significant emissions gap for 2030. Fonden stressed Asia's pivotal role in global decarbonization efforts and bridging this gap. To finance decarbonization, he advocated for the potential of voluntary carbon markets, especially for countries and companies with residual emissions. As a non-profit industry association, IETA's goal is to empower the private sector to engage in climate action and support robust market-based trading systems for greenhouse gas emissions. Despite facing challenges, Fonden believes that voluntary markets should not be stopped but rather improved in integrity and expanded in size, potentially transitioning into high-ambition compliance mechanisms with international linkages under Article 6 of the Paris Agreement. Additionally, he highlighted the critical role of removals, including nature-based solutions and negative emissions technologies, in addressing residual emissions and restoring the global climate. In conclusion, Fonden's comprehensive discussion shed light on the importance of voluntary carbon markets and their potential to drive climate action and finance critical decarbonization efforts.
Following our first speaker is Andrew Howard, as he explores VERRA’s crucial role in managing standards for various environmental and sustainable development programs, notably the Verified Carbon Standard (VCS) within the voluntary carbon market. Having been active in this market since 2007, VERRA has issued over a billion credits and currently oversees more than 1,800 projects. While the voluntary market is smaller compared to compliance markets, it is steadily growing, driven by corporate pledges from over 3,000 companies aiming for carbon neutrality and net-zero trajectories. VERRA's emphasis on quality and governance, ensured through independent third-party validation and verification, complements the effort to incorporate Sustainable Development Goals (SDGs) into crediting projects. As the market is expected to witness substantial growth in credit issuance and retirement, VERRA is continuously working to improve project certification processes to meet the increasing scale.
Q&A Session
Q: Beyond the importance of international cooperation, do you see a potential for an internationally agreed framework for the pricing of carbon credits in the future?
A: Björn Fonden (IETA) explains that reaching a uniform international price on carbon credits is possible through different ways, considering the principle that one ton of CO2 is equivalent wherever it is reduced. He highlights the importance of trade theory with comparative advantages, indicating differences in marginal abatement costs between countries, companies, or sectors that allow trade to happen. This enables both parties engaged in the trade to gain from it through sales, revenues, or cost savings. As global net-zero targets require considerable finance, crediting approaches like voluntary markets, domestic emissions trading schemes, or international mechanisms under Article 6 of the Paris Agreement can cost-effectively facilitate emissions reductions.
Q: Is there a possibility for the establishment of a global market for carbon pricing?
A: Both speakers agree that the dream of a global carbon market remains an aspiration, but there are significant political barriers to overcome. Establishing such a market requires countries to agree on the rules before creating their individual systems. However, given the complexities and divergent perspectives among regulators, it may be more realistic to expect consolidation at the national and regional levels first. Linking different regional markets could be an alternative to a truly global market. Moreover, credits can be a powerful tool to bridge the political barriers by being accepted into compliance programs globally, supporting countries in achieving their nationally determined contributions (NDCs) under the Paris Agreement.
Q: Can credits be generated from livestock programs to address emissions from cattle farming?
A: Andrew Howard (VERRA) explains that livestock programs can indeed generate credits by focusing on emissions reductions within the livestock supply chain. This can involve changing cattle feed and altering livestock management practices. While it's essential to consider the environmental impact of cattle farming, there are methodologies available for generating credits from reducing emissions in this area. The transition to more plant-based diets is acknowledged to have considerably lower emissions, regardless of where one stands on the debate.
Q: How does carbon insetting, which focuses on supply chains, fit within the narrative of credits, especially considering added verification complexity, jurisdiction mechanisms, and double counting concerns?
A: Andrew Howard (VERRA) acknowledges that carbon insetting, focused on reducing emissions within a company's supply chain, introduces complexity due to added verification requirements. The challenge is to apply MRV (Monitoring, Reporting, Verification) systems from offsetting to insetting to generate credits for reductions made within supply chains. Such credits can be used in both insetting and offsetting contexts, allowing flexibility for companies as their supply chains change over time. Implementing strong MRV tools will be essential to effectively address emissions reductions within supply chains and provide greater credibility and robustness to insetting projects.
Q: Can companies invest in projects under the Paris Agreement without prior approval?
A: No, under Article 6 of the Paris Agreement, projects need approval from the host country to be registered. Additionally, projects aiming to generate credits with corresponding adjustments require authorization from the host country.
Q: Are there any CDM projects from Malaysia that have successfully migrated to the Paris Agreement?
A: The process of transitioning CDM projects to the Paris Agreement's Article 6.4 mechanism has been opened recently. However, as of now, no projects have completed the transition.
Q: Can companies claim carbon neutrality by offsetting someone else's Scope 2 or Scope 3 emissions?
A: While there may be some overlap of emissions responsibility, companies should take responsibility for emissions attributable to their actions. If a company is offsetting its Scope 1 and Scope 2 emissions, they can still consider offsetting certain categories of Scope 3 emissions that they have more control over.
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