SHARM EL-SHEIKH, Egypt — U.S. climate envoy John Kerry unveiled a proposal on Wednesday for companies to supply developing countries with billions of dollars to lessen their reliance on fossil fuels — a plan that would let the White House bypass opposition from a possible Republican-led Congress.
But other nations at the U.N. climate summit in Egypt said the plan appears to be an attempt by the world’s richest country – and largest historic producer of greenhouse gases – to avoid providing its fair share of direct aid to countries struggling with climate change.
“It’s just not enough,” said one senior Latin American negotiator attending the global climate summit on the Sinai Peninsula, referring to the United States. “And they come with like these grand schemes, grand intentions, and they’re like, ‘Now we are saving the world.’”
The person spoke on condition of anonymity to avoid antagonizing U.S. officials.
The framework that Kerry announced Wednesday morning in Sharm el-Sheikh – two days before President Joe Biden’s own scheduled visit to the COP27 conference – seeks to address two competing pressures: Developing countries are ramping up demands that wealthy countries such as the U.S. provide trillions of dollars to help them cope with the intensifying disasters of a warming planet. But getting that kind of aid past GOP opposition in Congress is not “in the zone of reality,” as Kerry said at an appearance in September.
The likelihood of Congress approving climate aid is set to become even bleaker in January, after Tuesday’s midterm elections pushed Republicans closer to taking control of the House.
Instead, Kerry proposed a voluntary market in which companies would purchase carbon credits to offset their greenhouse gas emissions and meet corporate climate targets. Those credits would be generated when developing countries or their subnational governments transition their power grids away from fossil fuels.
“We have to accelerate the clean energy transition and, my friends, it takes money to do that,” Kerry said, adding that not enough public funding exists to keep global warming from surpassing the 1.5 degrees Celsius — the goal set by the 2015 Paris climate agreement.
“No government in the world has enough money to get the job done,” he said.
Kerry spoke as the Biden administration struck a cooperative tone in Sharm El-Sheikh. It accepted the inclusion of climate compensation as a discussion item on the conference’s formal agenda. Biden, who will visit the talks on Friday, will use his appearance to discuss finance for developing countries, including the investment of taxpayer dollars, a senior administration official said on a call Tuesday with reporters.
“We have a strong interest in doing whatever we can to help address the problems in solidarity with vulnerable countries and with those communities,” said the official, who spoke on condition of anonymity to discuss Biden’s plans in advance.
Kerry’s proposal would tap private dollars to help fill the gap in climate finance. Kerry formulated the framework with heavy consultation from U.S. banks, and the State Department and the Rockefeller Foundation have held meetings with experts in New York and Washington, D.C., over the past several months.
Experts who participated in those meetings said finance could be made available in advance of power sector upgrades, like the early retirement of coal plants, new wind or solar capacity, or improvements to the power grid.
The proposed carbon offset initiative would be separate from the cross-border emissions trading program that countries can use to meet their greenhouse gas reduction targets under the Paris agreement. Those markets are governed by so-called Article 6 rules, which delegates finalized at last year’s climate talks in Glasgow, Scotland.
A government’s right to sell credits in Kerry’s proposed market would depend on its ability to show carbon reductions that go beyond its baseline emissions trajectory — a trajectory that would be confirmed by an independent body.
The credits would be based on national or statewide plans to transition to clean power grids, not individual projects, to ensure durability and take advantage of the full sweep of emissions-reduction opportunities. That’s a lesson learned from past U.N. forays into emissions trading — like the 1997 Kyoto Protocol’s clean development mechanism, where the environmental benefits of a project’s generated offsets were often canceled out by developments elsewhere in the same country.
The proposal shares some characteristics with a coalition the U.S. launched at last year’s COP with the United Kingdom and Norway to mobilize private sector finance to combat deforestation. Companies have now committed $1.5 billion to purchase forestry-related carbon credits under the so-called LEAF Coalition.
Like the LEAF program, the power sector proposal seems destined to focus mostly on a subset of developing countries. In this case, the biggest bang would occur in countries that have sizable fossil-fuel-based power grids and thus are prime candidates for a green transition.
But it’s unclear how much appetite companies will have for such offsets.
Climate experts and developing country representatives who have spoken to Kerry about the proposal say he stresses the need to maintain environmental integrity in the offsetting program. Such high-quality offsets tend to be more costly than most of the lower-quality options currently available in voluntary carbon markets.
In other words, companies have cheaper ways of showing progress toward their climate goals.
Climate Advisers, a climate research and consulting firm, said in a report released Wednesday that Kerry’s offset program, called the Energy Transition Accelerator, could mobilize between $77 million and $139 billion through 2030. That assumes enough companies participate and developing countries come forward with enough eligible proposals for reducing power-sector emissions. The initiative could also generate a special carve-out of between $3.8 billion and $6.9 billion for adapting to climate change, the report said.
Kerry said in his remarks from Sharm El-Sheikh that the Wednesday announcement is the start of a consultative process that will inform the design of the ETA, which will launch at next year’s climate talks in Dubai.
“I think the State Department wants to put it out there to get the ball rolling to get feedback and get engagement,” said Nathaniel Keohane, president of the Center for Climate and Energy Solutions. “But I think they will be the first to acknowledge that it’s not fully baked yet.”
The State Department has discussed the idea with other developed countries, but at least one — Germany — has declined to join, sources say. Jennifer Morgan, Germany’s special envoy for international climate action,told POLITICO earlier this week that Germany remained focused on bilateral support to poor countries and “absolute” emissions reductions rather than carbon offsets.
‘Not the cake itself’
But some experts familiar with the proposal say the U.S. priority has been outreach to poor countries that could benefit from an infusion of private capital to modernize their electricity sector.
The U.S. proposal, they said, also will likely include a carve-out that allows some of the finance to flow to efforts to adapt to — not prevent — warming temperatures. That could benefit less developed countries that lack extensive fossil-fuel-based infrastructure.
Angela Churie Kallhauge, executive vice president of impact for the Environmental Defense Fund, called the adaptation funding the “silver lining” for developing countries.
Its inclusion, she said, shows that U.S. officials were “listening to what developing countries want, what especially the least developed countries have wanted, and factoring it into that mechanism.”
“We know [the program] will of course start with where emissions are largest, but it is basically signaling that we are looking for inclusive solutions and solutions that deal with more than one problem at a time,” she said.
Keohane said the initiative’s success would hinge on the quality of the offsets it produced, and whether the program was in line with the Paris agreement goal of keeping warming to 1.5 degrees Celsius. The third-party body tasked with administering it would need to use a baseline that is rigorously constructed to ensure that the offsets developing countries generate result in measurable emissions reductions beyond what would have happened absent that funding.
“There’s no final thing to endorse or support,” he said. “So our position is, this is worth pursuing. We could get this right, and it has huge potential.”
But the U.N. has a fraught history with carbon offsets.
The Kyoto Protocol’s clean development mechanism was criticized for allowing the sale of shoddy carbon credits that didn’t result in additional emissions reductions or the long-term removal of carbon from the atmosphere. Some credits were also generated by infringing on the land rights of Indigenous people in regions like the Amazon.
If not carefully constructed, carbon markets also create an avenue for polluters to claim credit for reducing emissions, while actually doing less to directly lessen the carbon pollution from their own operations.
“We’ve seen offsets being used as greenwashing and to delay action,” said Harjeet Singh, head of strategy for the Climate Action Network. “I think the big question is, how is this going to be different?”
A new U.N. report issued the same warning: that safeguards to preserve environmental integrity must be carefully considered before carbon offsets can be deemed a viable way to deliver on net zero climate pledges.
“The absence of standards, regulations and rigor in voluntary carbon market credits is deeply concerning,” U.N. Secretary-General António Guterres said Tuesday at the conference.
“Shadow markets for carbon credits cannot undermine genuine emission reduction efforts, including in the short term. Targets must be reached through real emissions cuts.”
Kerry said at the Wednesday rollout that he had met with the secretary-general, who told him that if such safeguards are in place, he should “go for it.”
Developed countries are under intense pressure at COP27 to make good on their promise to mobilize $100 billion a year in climate finance for poorer nations. Developing countries want that commitment to be even higher starting in 2025, and are also asking for a new funding mechanism specifically to compensate poorer countries for the unavoidable impacts of climate change.
Barbados Prime Minister Mia Mottley advanced a proposal last month that she said could unlock trillions for climate-related projects in poor countries. One of her advisers, Avinash Persaud, said Kerry was right to look for ways to maximize participation by the private sector. Doing so could play some role in bringing down the cost of capital for projects in the developing world, he said.
But he said such schemes could only deliver so much until carbon markets expand and the price of carbon credits increases substantially.
“I think the reality is that the carbon credits market isn’t there yet,” Persaud said.
For now, carbon markets are “possibly the icing on the cake, but not the cake itself” when it comes to delivering the financial support needed by developing countries to respond to climate change.
“And we still need the cake,” Persaud said.
POLITICO Europe’s Karl Mathiesen and E&E News’ Sara Schonhardt contributed to this story.