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Climake Newsletter #24: Climake's 2022 Year in Review
COP developments, policies, innovative climate finance mechanisms to the World Cup, here is Climake HQ's crash course of what we found useful in 2022, and what can influence what happens next year.
The Climake Newsletter offers quick digests and insights around what is happening in climate finance. While Climake’s current focus of work is India-centric, we will capture a global perspective of climate finance in this newsletter on a fortnightly basis.
2022 had the air of a mixed year for climate action. The post-COP26 positivity of the early part of the year did not carry forward to the latter half, with a COP27 that delivered way less than expectations. There were good stories of economies adopting JUST transitions away from fossil fuels, and of investors committing more towards climate action, but there was also a slackening of commitments. Overall, a lot of noise and some positive action was the story of climate change in 2022.
We wanted to do a different sort of review of 2022. Not a regular stocktaking of climate investments or funding for the year, policy developments, and the like.
This is a review of things that we found interesting, a reading list of useful and insightful content on how the world is undertaking climate action, how 2023 may shape up, or even what we got right in 2022.
So, here is Climake’s 2022 Year in Review.
All Things COP (the Climate Change one)
We start with the high-ticket event of the year, the UNFCCC’s Climate Change Conference. A lot was spoken, a lot was read, but a lot more needs to be summarised to really see what came out of it.
COP26’s progress, a year on, World Resources Institute: The real test of commitments is how they are followed through. The announcement of aims, coalitions, and targets of COP26 in Glasgow, in particular, was one which gave a lot of hope. But has action followed through from it? That is what the World Resources Institute looked to understand in the run up to COP27 in Sharm-al-Sheikh, and the answer is… well, mixed.
COP27: An Insider’s Perspective, Boston Consulting Group: The public narrative may define COP27’s outcomes as: loss-and-damage fund, promising but lacking details; carbon markets, promising but lacking details; fossil-fuel phase down, disappointing. But there was a lot more that came from it, not all as fully defined plans, but ones with strong intent to shift, and BCG has helpfully consolidated an exhaustive list.
Summary of Global Climate Action at COP27, UNFCCC: The Marrakech Partnership focuses on enabling and mobilising collaboration between governments and the cities, regions, businesses and investors to act on climate change. Under the aegis of COP27, there has been an extensive list of approaches and outcomes taken. All do not have the potential for world-changing stances (the summary has its fair share of more… miniscule steps) but it does give a good snapshot of multi-stakeholders involvement in climate action.
Climate Finance Mechanisms
Climate finance is about more than just making capital available. Often it is the mechanism through which financing / funding is deployed that helps to really make impact happen. Here are 4 interesting ways we came across this year that speak volumes about how we feel climate finance can adapt to be more impactful.
JUST Energy Transition Partnership, Global: The JUST Energy Transitions were arguably one of the best developments to come out of COP26. South Africa last year, Indonesia this year, and India, Vietnam, and Senegal, are in line to sign on to the JETP and to receive funding from developed countries to improve developing countries’ climate risks. While such DFI / MDB-based funding is not necessarily new and has a long way between commitment and result, the JETP is promising as a financing mechanism between developed and developing countries, in a similar vein to what we are looking the loss-and-damage fund to shape into.
Convective Capital, US: The focus areas of climate funds indicates areas where there is a business opportunity in tackling a climate issue. As climate innovations mature, funds may focus concretely on certain sectors over others, favouring depth over spread, for a variety of reasons. Convective Capital is the most hyper-focused climate VC fund we have seen so far: backing innovations exclusively around tackling wildfires, the incidence and intensity of which is only increasing with climate change. There is no novelty factor in highlighting them. We feel funds around climate adaptation, such as combating wildfires, will only increase. But the hyper-focused thesis of Convective Capital points to a trend that specialization of sectors is coming sooner than later. In this way provides funds may be more than just capital providers, but builders of sector-specific innovation ecosystems.
Climate Vault, Global: Carbon markets face a criticism that off-takers still get a license to pollute by purchasing carbon credits to offset their negative effects. Climate Vault is a non-profit that purchases carbon permits from government-based cap-and-trade schemes that have limits in the number of permits that are issued. Through this approach Climate Vault is looking to reduce the amount of permits that corporate off-takers have available to purchase, and force them to look for other ways, mainly reducing the impacts of their operations to have a lower carbon footprint. While it is funded through donations from individuals and institutions and functions as a non-profit, as an approach it is quite an interesting use of leveraging carbon markets to drive shifts in corporate behaviour in reducing GHG emissions.
The Fund for Nature, Africa: This is a nascent but ambitious and intriguing instrument to provide debt for nature-based carbon projects. The Fund for Nature aims to increase the supply of high-quality nature based solutions that generate carbon finance that private off-takers can purchase, while creating economic benefits for local communities to adopt or scale nature-focused initiatives. The carbon rights of projects, and expected potential value, is in effect the security against which the debt is provided. Securitizing carbon credits does come with risks given the volatility of carbon pricing, but making debt accessible for nature-based solutions against no other security, is a very novel approach, and one that, ideally, we would like to see greater adoption of.
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Category-Defining Publications for Climate Finance
There are a lot of publications around the climate action and climate finance, and not much time to read them all. For a good perspective on key areas around climate finance, we enjoyed the following reports (capped to 5, it could have been more) in providing effective insights and knowledge on the direction of where things may go.
Global Landscape of Climate Finance: A Decade of Data, Climate Policy Initiative: Climate finance has come a long way and the Climate Policy Initiative’s snapshot gives an outline on of how it has evolved over the last decade, taking a look at private and public finance, adaptation finance, and other key focuses to give an idea of how much capital the sector has been attracting.
Finance for Climate Action | Report of the Independent High-Level Expert Group on Climate Finance: The report by the Independent High-Level Expert Group on Climate Finance might be one of quite a few to outline a framework for finance and investment for climate action, but it is perhaps one of the most in-depth ones to consolidate and detail approaches across the wide-world of climate finance. From looking at private finance, debt, the role of multi-development banks, and the ability to deliver on concessional finance, the report lays out ways to rethink, shift, and align frameworks and structures across climate finance.
Adaptation Gap Report 2022, UNEP: Following on from the Gap theme is the Adaptation Gap Report which tracks the progress in planning, financing and implementing adaptation actions globally. While 84% of countries have established adaptation plans, strategies, laws and policies, financing for rolling out these approaches have been lacking. Spending is required to increase by five to ten times the current spend on adaptation, which highlights the gap and urgency to finance climate adaptation.
The State and Trends of Carbon Pricing 2022, World Bank: Carbon markets are expected to grow and strengthen as more countries, such as India, adopt compliance-based mechanisms for it and as a post-CDM global mechanism through Article 6.2 of the Paris Agreement shapes up. The World Bank’s report breaks down what constitutes carbon markets globally, from compliance approaches, by looking at trends in issuances, pricing, and impacts, and the future of carbon markets through challenges, opportunities, technologies and governance frameworks.
Decarbonizing India: Charting a pathway for sustainable growth, McKinsey & Co.: How India decarbonizes is a topic that has picked up pace ever since the announcement of India’s net-zero target in COP 26 at Glasgow. McKinsey’s extensive report takes a look at how this might be, by focusing on 100 emission-reduction levers, and identifying necessary infrastructure and resource targets, through a sectoral lens, to make this happen. We highlight this report specifically for the depth it takes in the current contexts and the transitions needed for India to decarbonize until that 2070 duration, along with incremental milestones in the intervening years.
Key Climate Finance Policies
Policy helps to drive direction for more action, resources, and involvement in climate finance. Effective policy is not about making government funding available, but in incentivizing other forms of capital, mainly private capital to enter into the space. The 3 mentioned here are ones that are big ticket items for their focus, with the capacity to catalyse and direct larger pools of capital.
EU’s Carbon Border Adjustment Mechanism (CBAM): The EU’s CBAM policy will have far-flung impacts by effectively instituting a carbon tax on higher GHG emission products (compared to European benchmarks) that are imported from countries outside the EU. It has been introduced to bring parity to products that made in more high-emission conditions, and which are ostensibly cheaper compared to similar manufacturers in the EU, who are subject to more stringent carbon targets and carbon market schemes such as the EU Emission Trading Scheme. There has been discussions on whether this is protectionism or an incentive, but it is clear that from 2023 (transitionally) and 2030 (completely), this is likely to influence diverse supply chains, globally, to further look at mitigating their GHG impacts.
India’s Energy Conservation (Amendment) Bill: The Amendment includes highlights around energy consumption standards for industries, buildings, but the part we want to focus on is the direction that empowers the set up of a compliance-based carbon credit trading scheme in India. There are finer details that need to be worked on- from the identity of the regulator, harmonization with existing Renewable Energy Certificates (RECs) and Energy Savings Certificate schemes - but it is clear that India is getting a compliance-based carbon credit instrument. A key point of focus will be on the role and adoption of voluntary carbon credits in this whole system. Article 6.2 of the Paris Agreement gives allowances for a “letter of authorization” where governments have a mechanism for voluntary credits to be adopted towards a country’s emission targets, and we will be keeping a close eye on this.
COP 15 Convention on Biological Diversity Agreement:The other COP has just concluded with a landmark deal (but not a legally binding one) that has seen almost 200 countries sign up to the Global Biodiversity Framework (GBF) and its flagship 30x30 target: 30% of the world’s land and oceans to become conservation areas by 2030. The other 30x30 target in this deal is a commitment from developed countries to mobilize USD 30 billion annually, by 2030, in funding for the biodiversity conservation targets of developing countries. Aside from the obvious question of whether this will face similar funding troubles as the USD 100 billion fund for climate action, this USD 30 billion fund is a big step up for financing biodiversity conservation; it can function as a form of starter capital for new financing in a space that, of course, offers low or negligible interest for most current forms of financing.
Climate Impact Tools and Platforms
Looking at climate solutions through different perspectives helps to open up or even reorient how we see our role and what we need to do towards climate action. The tools and platforms mentioned here are ones that we found enlightening and made us look at things a bit differently, sometimes, even literally.
The Climate Game, The Financial Times: You likely have had that feeling that you can do things better than others. Here is your chance to be a quasi world-climate policy enforcer to try and enact necessary actions to get the world to net-zero and keep the world below 1.5°C degrees. From electricity to transport decisions to scenarios where Antarctic glaciers breaking, the Climate Game is a good microcosm of the macro-picture of what it can take to get to net-zero, and make you feel pretty good when you manage to.
Global Climate Change: Vital Signs of the Planet, NASA: Sometimes things come about due to rocket science. To get a visual and arguably more high impact view of what climate change is doing to our world, NASA has come out with a collated and extensive set of interactives to see how the climate has changed our world: sea level, ice, to global temperature increases.
Natural Climate Solutions World Atlas, Nature4Climate: Supported by The Nature Conservancy, the World Atlas gives an opportunity for how countries can adopt nature-based solutions to reduce emissions. The Atlas was set up as a way to understand the role of nature’s role in mitigating climate change, which is useful no doubt, but it does highlight more need to connect nature-based solutions, and more solutions in general, with adaptation.
Nature-based Solutions Policy Platform, University of Oxford: The Nature-based Solutions Policy Platform looks to make information about climate change adaptation planning more accessible and easy to explore, highlighting the role of NBS to climate change impact and their adoption across the world.
Climate-related things that might make you scratch your head, and then make you think
Odd events and curious approaches often help to explain and highlight what we are dealing with around climate change better. Here are a few that certainly caught our eye and helped us understand things better.
Carbon Market Watch vs. FIFA: Of course we have to include this so soon after Argentina became World Champions and Leo Messi arguably proved that he was the GOAT. FIFA have publicised significant soundbites about doing the most sustainable World Cup, and carbon neutrality, among air-conditioned stadiums in the Middle East where temperatures were at a balmy 30 degrees, and unsurprisingly it appears questioned. A false advertising claim by Carbon Market Watch states that the carbon neutral claim has not been validated independently. Beyond just catching on to an ongoing zeitgeist (ok there is a bit of that), it does put a spotlight on the ease at which claims to be carbon-neutral or carbon-negative are easy to showcase and advertise, and consequently how little action is needed to do so.
Interspecies Money, Jonathan Ledgard: This is technically a 2021 development, but we only came across it in 2022, so we are including it. It is different from the other 2 here, as it is quite a forward concept that we would love to see brought to reality. Interspecies Money is a concept for a bank that looks to assign value to nature biodiversity, and species, during their continued existence and being. As brutally as Jonathan Ledgrad puts it, animals are only valued economically today against the price of processing them for meat - a quite destructive act. Interspecies Money is a fascinating thesis of how we can think about valuing nature and importantly, its preservation and continuation.
The Earth is Dimmer: If aliens exist, and if they have been viewing the Earth, they would see a planet that is significantly dimmer than what it was 20 years ago. “Earthshine” is the light reflected from the planet that casts a faint light on the surface of the Moon. Land, ice, clouds, and open ocean all have different levels of reflectivity that contribute to earthshine. The culprit for reducing earthshine is pointed towards the disappearance of clouds over the Pacific Ocean; an event that has occurred (or has not in this case) due to climate change and its associated temperature changes that has led to this reduction of cloud cover. The dimming earthshine has a serious effect, beyond being less visible to aliens. Reduced reflective intensity means that less solar energy we receive from the Sun is reflected back, and more heat is trapped in earth, which, you guessed it, perpetuates climate change further.
That’s it for Edition #24 of our newsletter. From the Climake team we wish you a very happy new year and all the best for 2023!
As always, send all feedback, compliments and brickbats our way. And of course, we do appreciate you spreading the word about this newsletter.
We’re growing to build something collaborative with you and the more the merrier!
Simmi Sareen and Shravan Shankar