During the Asia-Pacific Climate Week 2023 in Johor Bahru, Malaysia, we spoke with Karolien Casaer-Diez, South Pole's Regional Director of Climate Policy, Finance, and Carbon Markets.
The Asia-Pacific (APAC) region is trailblazing the implementation and execution of various carbon market mechanisms. In 2021, credits from Asian-based projects made up more than half of all credits sold on the voluntary carbon market. The region continues to inspire confidence in carbon markets, consistently improving and demonstrating the potential of market-based mechanisms to tackle the climate emergency.
An increasing number of corporations in APAC are looking to diversify their decarbonization strategies - a marker of this continuous focus on climate impact. They rely on carbon markets only to enhance their existing decarbonisation strategy. The Asia-Pacific Climate Week in Johor is clearly showing that this region is leading on implementation and innovation - APAC actors are shaping global carbon markets of the future, especially when it comes to Article 6 of the Paris Agreement.
A handful of countries are already active on Article 6 of the Paris Agreement. Article 6 governs the rules for international cooperation between countries working towards achieving their climate goals, commonly referred to as their Nationally Determined Contributions (NDCs).
By trading a carbon asset known as an ITMO - an "Internationally Transferred Mitigation Outcome" - a country hosting a climate project is able to transfer the climate impact to another country's NDC in return for financing climate projects. The ITMOs can be bought or sold by both the public and private sectors. On the buyer side, ITMOs can help governments meet NDCs or corporates meet their climate targets or comply with regulations set by governments.
The potential in APAC for climate action under Article 6 is immense. Earlier this year, Thailand and Switzerland provided a blueprint by authorising the first Article 6 programme in Asia. This agreement will introduce over 2,000 electric vehicles to Bangkok's public bus fleet, avoid around 500,000 tonnes of CO2 by 2030, and significantly improve air quality in the congested megacity.
Finance to make this possible is generated through Article 6, where the KliK Foundation in Switzerland purchases the carbon reductions, or ITMOs. These avoided emissions are then transferred to Switzerland's NDC under the corresponding adjustments mechanism ensuring no double counting takes place. It's a win-win: Thailand is able to quickly reduce emissions from transport and Switzerland can finance emissions reductions more cost-effectively alongside investment in domestic emission reductions.
We have seen significant interest in the Bangkok E-Bus Programme at APAC Climate Week 2023 and hope to see more Article 6 deals across the region.
There are significant opportunities for the private sector, specifically in co-developing projects and filling the gaps left by government financing. By funding projects that reduce global emissions, protect or restore nature, and support those most vulnerable to climate change, the private sector can drive forward climate action. The benefits of doing so are evident: various studies have shown that companies actively engaging in carbon markets decarbonise faster overall.
Acting in the carbon space has wider benefits for companies. By building knowledge and skills, corporate climate leaders will be able to manage the demands of current or future regulation and compliance markets.
For Article 6 to fulfil and exceed its potential, it has to be fully functional and operational. Practically, it will be included within the global system of regulatory tools. But what I would like to see is progress around both Articles 6.4 and 6.2.
We expect to see the new rules around the UN crediting scheme in Article 6.4 agreed. Progress has been made, but many of the intricacies are in flux. How carbon removals are included in Article 6 is one of the areas we hope to see agreed. I also expect the negotiations to cover the clarification of technical aspects, such as methodologies, the underlying principles, and how to address environmental integrity.
Article 6.2, which regulates the trading of ITMOs themselves is already operational, but some practicalities still need to be worked out. We hope to see greater detail on how the authorization of ITMOs will function. This may sound administrative, or bureaucratic, but has a considerable impact on attracting green investments globally.
Agreed last year at COP27 in Egypt, the Loss and Damage Fund will be a hot topic at this year's COP, and particularly relevant to the APAC region. The Fund aims to channel finance to communities and countries most vulnerable to extreme weather driven by climate change. Many of these countries and communities are in APAC. So negotiations around the Fund's implementation will directly influence how quickly countries across Asia and the Pacific are able to adapt to a changing climate.
As part of the larger movement of the global energy transition, we expect the Global Goal on Renewable Energy, (SDG 7) to be high on the agenda. We are seeing a shift towards innovative financial solutions for the phasing out of various fossil fuels. One exciting example is an initiative by the Rockefeller Foundation, which aims to use carbon finance to incentivize a just transition away from coal-fired power plants to renewable energy in emerging economies.
Climate action across Asia-Pacific continues to move at an unprecedented pace. With many cities, communities, and governments in the region at the forefront of climate action, it is a region of untapped potential for corporate climate action. The sense of Asian leadership and momentum is palpable at Asia-Pacific Climate Week 2023.
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