By Dr Bo Bai and Michael Sheren
June 13 - The fight against climate change is a collective one. However, as pressures mount on individual countries
to meet their nationally determined contributions (NDCs), flawed carbon registry infrastructure is making this goal
far more difficult to achieve.
Carbon markets have been an important element of the drive to reduce emissions, creating the economic impetus and
mechanics to enable the preservation of nature and a sustainable economic transition. Yet, while there is agreement
about the desired outcomes of a functional and high-integrity carbon market, there is less alignment on the path,
standards and infrastructure that will get us there. Even if the data and integrity of science-based removal credits
can be established, without a strong registry infrastructure, these carbon offsets are open to double counting. And
with the proliferation of competing public and private registries battling for pole position, the potential for
double counting is high because these registries aren’t interoperable, they simply don’t “talk” to one another.
Governments and international organisations must lead the policy charge on targets and standards, but more partners
are needed to develop the infrastructure on which a successful and high-integrity carbon credit system can run.
From our perspective, leading a Singapore-based digital green solutions and infrastructure company, we believe that
technology has the potential to bridge this gap between the national sovereignty of jurisdictional removal credits
and global demand in the carbon credit market for countries seeking NDC support and companies wanting to abate the
hardest 5% of their emissions.
Double counting is symptomatic of the inadequacies of the existing global carbon markets. Governments are under
pressure to keep carbon removal credits within their borders to ensure they do not exceed emissions thresholds, as
determined by their nationally determined contributions (NDCs). At the same time, the producers of the credits want
to sell these valuable assets on the global market. This tension results in situations where a carbon credit can be
contributing to country A’s NDCs, while simultaneously offsetting carbon emissions for a company in country B.
In a bid to solve this problem, a disparate network of third-party meta registries has emerged. In theory, these
registries should ensure a carbon credit can function as a trustworthy offset commodity. But what happens when
central registries lack a shared record of transactions and ownership? What happens when these registries fail to
accurately account for and reflect whether a credit has already been used toward one country’s NDCs? Double-counting
and distrust.
As a national resource, many countries argue that carbon is a “sovereign asset”. This has led to some countries,
such as India, proposing the banning of the export of its carbon credits, opens new tab to ensure credits generated
by domestic companies only benefit domestic players. Last July, the environmental minister of Gabon, the world’s
second most-forested country, expressed concerns , opens new tab over launching a private sector offsetting project
that “didn’t have the rights” to set up domestically. Simply put, existing meta registries violate countries’ rights
to manage their national resources. Today’s carbon registry infrastructure is not fit for purpose. Rather than
building around these disconnections, we need to advocate something better: a system that preserves national
sovereignty for countries while encouraging greater collaboration.
First, countries need the tools to control and manage their decarbonisation journeys. The trade of carbon credits
could reduce the costs of implementing NDCs, opens new tab by $250 billion – half the current costs – by 2030. It
comes as no surprise that many emerging markets, from Jordan to Vanuatu, are now in the process of developing their
own national registries. However, they lack the infrastructure and structural alignment, which will only lead to
further market fragmentation and inequality.
To mitigate this risk, we need structurally sound national carbon registries. These registries must retain the sovereignty of their national resources within the global market, allowing governments to oversee projects, integrate them into their jurisdictional baseline data, and ensure they can harness the opportunities generated by carbon removal credits. It is essential for sovereign registries to be the first port of call for all credits generated domestically so they can determine if the credits should remain within the home economy or be sold internationally.
Second, carbon credits within national registries must abide by stringent local and international carbon standards. If the country generating credits would like to raise funds in the international market, credits need to be certified by internationally recognised agencies to ensure the best pricing. The domestic and international incentives to oversee all credits on a national registry at the highest level will build confidence in the credits with investors across the wider system.
Finally, these national registries need to be able to communicate with one another. They need to be built with interoperability and transparency in mind to facilitate both cross-border trade and data linkages with the corresponding adjustment mechanism in line with the Paris Agreement. They must also be able to communicate and interoperate with existing global registries, such as those operated by Verra and Gold Standard, to manage and account for historically registered carbon credits.
In this hybrid system, countries retain authority within their registries, but function within a shared, democratic system of other registries governed by other nations. This system is underpinned by distributed ledger technology, where each country works alongside commercial companies to govern how offsets are traded, by whom, and for which projects. Borrowing from blockchain’s core tenets, this “decentralised” global system of national registries ensures that each country is treated equally and is afforded the same rights, no matter where it might be in its journey of meeting its climate commitments.
A hybrid registry system would enable countries in the Global South to work effectively towards their own climate goals on an equal footing with their counterparts in the north. It would allow for the mobilisation of much-needed financial resources into these countries to fund green projects and initiatives, without running the risk of displacing government bodies, all the while reducing underlying costs associated with the low-carbon transition.
Now is the time for new innovative systems using future-facing technology: systems that facilitate global cooperation and collaboration while maintaining sovereign dignity and power, systems that do not pit markets against each other or motivate the creation of sub-standard credits, and systems that encourage the highest integrity and transparency while also enabling countries to fully realise the economic potential of carbon markets.
The battle against climate change is a collective one – one that must ultimately begin with well-designed policies and even better-designed technological infrastructures to address systemic flaws in today’s existing systems.
Dr Bo Bai is the executive chairman and co-founder of MVGX, a Singapore-based digital green solutions and infrastructure provider . He previously founded the Asia Green Fund, an award-winning impact private equity firm with around $2 billion assets under management. Dr Bai is also the chairman of East Low Carbon, and a founding member of the China Impact Investing Network (CIIN). He is a member of the Aspen Institute's Global Leadership Network.
Michael Sheren is the president and chief strategy officer of MVGX, a Singapore-based digital green solutions and infrastructure provider. Prior to joining MVGX, he was a senior advisor at the Bank of England, leading the Bank's sustainable finance and environmental risk management work and co-founding its fintech accelerator programme. He was the co-chair of the G20 Sustainable Finance Study Group with China from 2016-2019. Michael is a senior advisor at the United Nations Development Program Finance Hub, an Emeritus Governor at the London School of Economics, and a Prince of Wales Fellow at Cambridge University’s Cambridge Institution for Sustainable Leadership.
Source: Reuters
