Greater Climate Action Needed in 2025
Former UNEP FI head of risk David Carlin calls for a refocus on reducing carbon emissions at COP30 and doubles down on the concept of carbon markets.
Despite international efforts to combat climate change, the EU’s Copernicus Climate Change Service (C3S) has confirmed 2024 as the hottest year on record. It is the first calendar year that the average global surface temperature passed the 1.5°C warming limit set by the Paris Agreement, reaching 1.6°C above pre-industrial levels.
International climate negotiations are also heating up in response. Well before the next UN Climate Change Conference, or COP30, in Belém, Brazil, countries will have submitted updated nationally determined contributions (NDCs), which outline commitments to reduce greenhouse gas emissions.
“Not only will we see an increase in ambition [in NDCs], but much more detail on how countries intend to achieve their targets and where finance plays a role,” David Carlin, founder of D.A. Carlin and Company, which advises governments, corporates and financial institutions on climate and sustainability, told ESG Investor. “It is not just about having emission reduction plans, but defining how to bring these plans to life.”
Despite many nations’ escalating NDC commitments, Carlin believes that the COP process is beginning to fray at the edges. “Even world-renowned climate change leaders like Christiana Figueres and former UN Secretary General Ban Ki-moon have talked about COP being unfit for purpose when it comes to achieving the required rapid reductions in emissions,” he said. “It’s a critical time, but the world also needs to reevaluate some of the underpinnings of international climate negotiations.”
Carlin, formerly head of risk at the UN Environment Programme Finance Initiative (UNEP FI), outlined two ways for the global community to move faster on addressing climate change. His first suggestion is to refocus on cutting carbon emissions. “While climate may connect to many issues, we need to return to the key aim of emission reductions,” he said. “We need to decide how far we’re willing to go to decrease emissions, rather than to include other things that are worthy but not central to the objective.”
Second, Carlin proposed bringing together smaller groups of influential countries, such as India, China and the US, to help advance negotiations before or even during a climate COP. “The UN process brings a consensus approach, which can lead to a tyranny of the unwilling,” he said. “For example, often a text is watered down because 185 countries may agree but 10 don’t. That approach is structurally limiting the pace of progress.”
Trump 2.0
At the global level, a looming concern is what US president-elect Donald Trump will do once he takes office for the second time on 20 January, coined ‘Trump 2.0’. His decision to withdraw from the Paris Agreement during his first administration bodes ill for international cooperation.
“The 2.0 tag seems bitterly apt because this election result has effectively guaranteed the likelihood of the world reaching and perhaps breaching the 2.0ºC global warming benchmark,” said Carlin.
However, the world’s understanding of climate change’s impact, as well as the maturity of green technologies, has evolved since Trump first took office eight years ago. In 2023, for example, 21% of the US’s energy supply came from renewable sources versus about 8% in 2017.
“Renewable technology has gone mainstream, even in conservative districts of the US. For example, Texas has surpassed California as the leading producer of wind and solar power,” Carlin said.
While Trump is seen as a cheerleader for the oil and gas industry, Carlin also highlighted that fossil fuel production has shown “remarkable” continuity since Barack Obama’s administration ended in 2017, calling into question how much a president can do to boost production.
“Since the second Obama administration, when the US became the world leader in oil and gas due to the fracking boom, we’ve seen consistency in US output that is almost entirely governed by global market prices, rather than by policy,” he said.
However, the president-elect’s stance could embolden other oil-producing nations – such as Saudi Arabia, Russia and China – and large oil companies and consumers to be less ambitious in their decarbonisation targets. “There could be more excess emissions from other big emitting nations as a result of the US’s pullback, which is the real risk to climate progress from the incoming administration,” said Carlin.
On the home front, Trump’s appointment of Chris Wright, CEO of Liberty Energy, which serves companies extracting oil and gas from shale fields, to lead the US Energy Department has reopened debates around fracking.
“The science on fracking indicates that it may be safer than many fear. Yet there’s much we don’t know around the potential induced seismic activity, or small earthquakes, and the risk of potentially improper disposal of waste, which could end up in the drinking water,” said Carlin.
As fracking is a higher cost extraction method, he believes that it will likely have a shorter lifespan and be one of the first activities to turn off as the world moves to renewable energy sources.
A new dawn for carbon markets
Although a new climate finance goal of at least US$300 billion per year from the developed world by 2035 was eventually agreed at COP29, many left Baku feeling disappointed – especially around the lack of a clear message to cut fossil fuel emissions. However, the summit laid the groundwork for operational carbon markets, which was one of its seminal successes, according to Carlin.
“In some ways, the updated New Collective Quantified Goal was more smoke than fire. Incorporating inflation from when the US$100 billion per year was agreed at Copenhagen in 2009 will bring us to about US$250 billion in 2035. This is more of an incremental increase when what’s needed is a massive leap,” he explained. “While it was good to come out of COP29 with a tangible deal on financing, one of the biggest areas of progress was on carbon markets.”
The summit took decisions relating to the Paris Agreement’s Article 6, including a centralised market under Article 6.4 for trading emissions reduction credits among countries, as well as internationally transferred mitigation outcomes under Article 6.2, which enable countries to meet their climate targets through bilateral or multilateral cooperation agreements.
Carlin believes that carbon markets have the potential to avoid further indebtedness among climate-vulnerable nations, as well as creating an economic system that encourages conservation activities that promote carbon storage and nature restoration.
“The carbon market concept has been battered in recent years and not unjustifiably, in the sense that the science has shifted on what is considered good. However, in many cases the accounting has been shoddy, or outright fraudulent in certain instances,” he said. “Therefore, if carbon markets are going to play a meaningful role, having UN-backed criteria will only increase confidence.”
As part of the Voluntary Carbon Markets Integrity Initiative’s expert group, Carlin thinks that success will be predicated on instilling confidence that emissions are being taken out of circulation on a durable and sustained basis – rather than claiming credit for a forest that already exists, or trapping emissions in a building that will be released into the atmosphere when the building is knocked down in a few decades. “We need that credibility, but the answer isn’t to attack the concept of carbon markets,” he argued.
However, he doesn’t believe that carbon markets are a route to achieving global carbon reductions. “Carbon credits shouldn’t be used an excuse [to get out of taking action], but can be highly additional for a company in the Global North with a lot of cash on hand and also hard-to-abate activities,” he said.
Carbon credit demand is expected to rise, in part due to rising demand from airlines that must either increase their use of sustainable aviation fuels (SAFs) or offset emissions via carbon credit purchases, under incoming rules.
Even if an airline company wanted to buy all available SAFs, perhaps the best thing it could do for the planet today is to improve and restore forests in specific regions or accelerate the development and scaling of carbon capture technologies, Carlin explained.
“Perhaps we should be asking companies less about how they account for their emissions and more about what is the best thing they could be doing right now to reduce global carbon emissions,” he continued. “The planet is agnostic as to whether emissions come from the US or China, American Airlines or Microsoft. Anything that will help [reduce emissions] in the near term should be encouraged.”
Year of implementation
Carlin frames climate change as the greatest change management problem a company has ever had to face. “Many leaders have got into their board position because they successfully dealt with digitalisation, globalisation or some other big change. This transformation is going to need policy, technology and markets all shifting together. Therefore, rather than thinking about this as an environmental issue, it’s more about giving people the opportunity to put their skills to use,” he said.
While there has been an onslaught of climate regulations in the past few years, Carlin believes 2025 is the year of implementation, when disclosure begins to happen. But he also expects some pushback, whether that is calls to exclude smaller businesses, or creating safe harbours and relief from certain disclosure requirements.
With implementation also comes rationalisation. Carlin expects there will be a greater merging of climate-related and financial disclosures.
“We’re in an intermediate stage where there’s a high reporting burden for climate disclosures but also a disconnect from the main financial pieces. Until that is harmonised, through market practice or regulatory threats, we are in a strange state of feeling like there is too much regulation but it’s not having the effect that we want,” he explained.
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