Carbon markets need to get their groove back

Mar 24, 2023 View in browser   By Debra Kahn THE WEEK THAT WAS Voluntary carbon markets are still navigating through a thicket of reputational issues. | Debra Kahn/POLITICO OFFSETS ON DEFENSE — The world's failure to get climate change under control and a call from the UN to do "everything, everywhere, all at once" would seem to be good news for those who are in the business of selling emissions reductions. We're in an "and world," as Barbara Harrison, vice president for offsets and emerging at Chevron New Energies, put it at this week's North American Carbon World conference in Los Angeles. So why do voluntary carbon markets — in which companies can purchase emissions reductions to augment their own efforts — feel so gloomy? They're cowering under a drumbeat of negative coverage and attacks from the left. A shattering Guardian article from January finding that Verra, the main third-party verifier of offset projects, might be overstating forestry projects' benefits by a huge amount cast a long shadow over the conference. Wednesday alone brought a new investigation from Die Zeit and a letter from environmental justice groups to EU regulators calling for them to eschew offsets. Carbon marketers say they're just fighting the good fight. "We can't let these Chicken Little critics impede action on climate change," said Craig Ebert, president of the Climate Action Reserve, the offset project registry that put on the conference. "They are letting perfect be the enemy of the good." The slings and arrows (along with macroeconomic trends like inflation and reduced energy consumption) are having an impact. The voluntary market was nearly flat last year, in part due to "fears of reputational risk from purchasing low-quality credits," BloombergNEF finds. Still, it projects the market could reach $1 trillion by 2037, driven by corporate net-zero goals. Offsets' perceived weaknesses are a business opportunity in themselves. Startups like Pachama, which uses satellites to continuously update estimates of forests' carbon content, and BeZero Carbon, which gives offset projects bond ratings, are capitalizing on the murkiness. And tech companies are muscling in with attempts to position carbon removals as an alternative to conventional offsets. "We know how sort of broken the legacy carbon markets are, and we know that we don't really just want to add higher-quality removals to this kind of broken structure," Steve Davis, head of climate science at Watershed, a corporate carbon accounting platform that also sells carbon removal, said earlier this week. Ouch. Market participants are trying to figure out how to take back the narrative. Upcoming standards from the Integrity Council for the Voluntary Carbon Market, another third-party group, might help, or might cause more controversy. "We need to feel more confident. We are a very defensive-posture marketplace," said Keegan Eisenstadt, director for global nature-based solutions at South Pole, an offset project financier (which got its own damning investigation on Thursday from Bloomberg). "We need to say, 'No, no, no, we are doing good work here, we're trying to save the planet," he said to applause. "We need to be a little more bold and self-assured."   DOWNLOAD THE POLITICO MOBILE APP: Stay up to speed with the newly updated POLITICO mobile app, featuring timely political news, insights and analysis from the best journalists in the business. The sleek and navigable design offers a convenient way to access POLITICO's scoops and groundbreaking reporting. Don’t miss out on the app you can rely on for the news you need, reimagined. DOWNLOAD FOR iOS– DOWNLOAD FOR ANDROID.     WASHINGTON WATCH POWER OF THE PURSE — An upcoming procurement rule from the Biden administration could send a low-carbon market signal that reverberates globally, Jean Chemnick reports for POLITICO's E&E News. In May, the administration plans to release a proposal to ensure agencies’ major purchases “minimize the risk of climate change” and require agencies to consider the social cost of greenhouse gas emissions in major procurement decisions, according to the administration’s regulatory agenda. That's on top of an existing proposal to require contractors that receive at least $7.5 million from the federal government to inventory and disclose greenhouse gas emissions from their own operations and from the energy they use — known as Scope 1 and 2 emissions. Republicans are pushing back, but implementation is already underway. The General Services Administration, which is the nation’s largest real estate entity and a clearinghouse for federal contracts, is already giving information technology contractors a leg up on contracts when they voluntarily disclose their carbon emissions and those of their suppliers on their own or a third-party website. “When you consider the purchasing power of the federal government, it has the potential to radically shape supply chains globally,” said Nicole Darnall, a professor at Arizona State University and the director of the Sustainable Purchasing Research Initiative. “While the primary source of those contracts is going to be a U.S. company, they’re sourcing their product inputs from all over the world.” SUPPLY CHAINS BEEP BEEP — Get ready for a lot of stories about electric vehicle incentives. The Biden administration is planning to release proposed guidance for electric-vehicle domestic sourcing requirements to qualify for the Inflation Reduction Act‘s clean energy incentives next week, Kelsey Tamborrino reports. The automotive sector and U.S. allies have been hotly awaiting the battery-sourcing requirements for months, as Hannah Northey and Timothy Cama report for E&E News. We'll see if the guidance defuses any tension that's been building: either between the U.S. and the European Union, which wants to ensure critical minerals mined or processed in the EU are eligible for IRA incentives, or between Biden and Sen. Joe Manchin (D-W.Va.), who's been upset by the delay. Analysts will be watching how the guidance deals with "foreign entities of concern," which could hurt, for example, Ford Motor Co.'s plans to build a $3.5 billion battery factory in Michigan while licensing technology from China-based Contemporary Amperex Technology Co. Ltd. E&E News' David Iaconangelo details more potential issues here. YOU TELL US GAME ON — Happy Friday! Welcome to the Long Game, where we tell you about the latest on efforts to shape our future. We deliver data-driven storytelling, compelling interviews with industry and political leaders, and news Tuesday through Friday to keep you in the loop on sustainability. Team Sustainability is editor Greg Mott, deputy editor Debra Kahn, and reporters Jordan Wolman and Allison Prang. Reach us at gmott@politico.com, dkahn@politico.com, jwolman@politico.com and aprang@politico.com. Want more? You can have it. Sign up for the Long Game. Four days a week and still free. That’s sustainability! WHAT WE'RE CLICKING — The financial fragility underlying recent bank collapses reflects serious lapses in corporate governance, a Financial Times columnist suggests. — The Washington Post has a look at what it calls the dark side of the push for a zero-emissions economy: the abandonment of communities that relied on old-school manufacturing. — Not all teens are spending all of their time on TikTok. A group of young Montanans is suing their state over its support for fossil fuels, the New York Times reports.   LISTEN TO POLITICO'S ENERGY PODCAST: Check out our daily five-minute brief on the latest energy and environmental politics and policy news. Don't miss out on the must-know stories, candid insights, and analysis from POLITICO's energy team. Listen today.       Follow us on Twitter Debra Kahn @debra_kahn Greg Mott @gwmott Jordan Wolman @jordanwolman Allison Prang @AllisonPrang   Follow us

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