Two stories about the current failure of carbon trading as a way of raising money to address climate change: First, the Adaptation Fund, which has seen its income from a tax on carbon credits dry up; Second, an exchange between Conservation International and the World Bank, which are both pro-carbon trading, but only one seems to realise that the markets have collapsed.
Over the past three years, the Adaptation Fund has given US$190 million to projects in 28 countries that are aimed at increasing climate resilience. It was created in Cancun in 2010 and was supposed to provide “long-term, scaled-up, predictable, new and additional finance”. But last week, the Fund announced that it could no longer fund projects to be implemented by agencies such as UNDP, because of a lack of money as a result of the collapse in the price of carbon.
The Adaptation Fund’s money comes largely from a 2% tax on carbon credits issued under the Clean Development Mechanism. But with the price of CERs (certified emissions reductions) at around €0.54, the Adaptation Fund’s tax income has been reduced to a trickle.
The money that the Adaptation Fund has left will be spent on climate resilience projects that are implemented by national and regional agencies, such as government ministries and research institutes.
Marcia Levaggi, manager of the Adaptation Fund Board secretariat, told Thomson Reuters Foundation,
“It’s not the 12 euros per tonne we used to have in 2011 – now it’s really bad, and we cannot count on a recovery of the carbon markets in the near future. The CDM doesn’t seem to be on a good track to continue, at least in the way it was.”
At the end of last month, Conservation International put out a desperate “SOS call” for a bail out of the REDD carbon market. Conservation International is worried about a huge oversupply of REDD credits. The supply of credits from REDD projects is far larger than the current demand. Last year the price of REDD credits fell to US$6-7, down from US$12 in 2011. Meanwhile demand is also falling.
Lawrence Connell, the Director Multilateral Funding at Conservation International, asked a question during last week’s panel discussion on climate change featuring representatives of the World Bank and the International Monetary Fund. His question is in itself revealing, in that he didn’t ask about how the Bank and the IMF are addressing climate change, instead focussing on the role of the two institutions in the carbon markets:
How can the World Bank and IMF use their policy influence to serve as market makers to increase demand for greenhouse gas and carbon credits?
Michael Keen, Deputy Director of the Fiscal Affairs Department of the IMF, seemed reluctant to answer the question. “Perhaps that’s more for you,” he said, handing over to Rachel Kyte, the World Bank’s Vice President for Sustainable Development.
Kyte took a while to get going. And when she did, she didn’t answer the question. This is perhaps surprising, considering the fact that the World Bank has been (and still is) one of the main promoters of carbon trading. The Bank’s Forest Carbon Partnership Facility, for example, was created to “jump start a forest carbon market”. Surely Kyte must be as concerned as Conservation International about the collapse of the carbon markets? Apparently not.
Erm, well, I actually, I think that er we, we both have a responsibility to er demonstrate, to show, and reveal that countries can make er, sometimes trade-offs, sometimes positive choices for how their economies are going to grow and compete and reduce the amount of emissions in the economy and improve the robustness of the economy. So every country has a sweet spot, erm, there are difficult trade-offs, there are, erm, upfront capital costs as well associated with some choices but I think we’ve er, that’s what we want to do this week with the ministers of finance and then beyond, is to talk to every country about where we think those sweet spots are. And if you start to make those choices you start to show that, as Jim [Yong Kim, president of the World Bank] said, you know, the future is not sackcloth and ashes, the future is not a future of sacrifice, that there are jobs that there are competitive economies that are going to succeed in a low carbon world, because we’re all, I mean we’re, I mean this is not a question of choice any more, we’ve got to figure this out, then I think it’s easier for ministers of finance to advise their heads of state about what their ambition levels should be over the next few years, and I think we feel that that’s actually the responsibility of the Bretton Woods Institutions.