Carbon Trading Opens Loophole in Paris Climate Accord
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Carbon Trading Opens Loophole in Paris Climate Accord

Credits issued under the landmark Paris accord come with limited oversight as international trading ramps up

By MATTHEW DALTON
Tue, Dec 5, 2023 8:52amGrey Clock 4 min

When the South American nation of Guyana wanted to sell millions of carbon-offset credits to preserve its rainforests, government officials knew they had a problem: The country’s lush Amazonian forests were actually in good shape.

Guyana’s rate of deforestation was already low, meaning its forests wouldn’t yield much under standard methodologies for calculating carbon credits. So its government chose a new method that allows a large adjustment for countries with healthy forests. The change raised the credits that Guyana could issue sixfold. Guyana sold 37.5 million of them last year to U.S. oil giant Hess for at least $750 million, and is now shopping the remaining two thirds to countries facing pressure to comply with the landmark Paris climate accord, officials say.

That agreement calls for governments to adopt national plans to limit greenhouse-gas emissions and allows them to pay for emission-reduction projects elsewhere in the world to offset their own pollution. Credits for each ton of emissions cut can then be traded between countries. It is as if the emission reduction happened in the country buying the credit, not the one selling it.

Guyana is among the first in a long line of developing-world countries expected to cash in on credits compliant with United Nations agreements. Some officials worry the U.N. risks giving its seal of approval to credits for forests that aren’t under threat. At the COP28 climate summit under way in Dubai, negotiators are debating how much scrutiny carbon trading should face from U.N. experts and the public to prevent the mechanism from becoming a loophole in the Paris accord.

“If we play that game—every country gets to come in and pull an arbitrary methodology out of the ether, apply it to their forest areas and say give me credits—we’re never going to get anywhere,” said Kevin Conrad, the climate envoy of Papua New Guinea.

For now, the Paris accord imposes relatively little oversight on the market. Credits are required to undergo review by a panel of experts. But at last year’s COP in Egypt, governments decided that the experts wouldn’t be allowed to review the “appropriateness” or “adequacy” of projects.

That is fuelling fears the accord opens the door for polluting countries to buy lower-quality credits from poorer nations to meet their own emissions targets, undermining the Paris accord ambition of limiting global warming to 1.5 degrees Celsius above preindustrial era temperatures. Some developing countries are pushing for the right to keep much of the information around offset projects confidential. Companies would end up buying the credits, critics say, that would support spurious greenhouse-gas reduction claims. Hess said it would apply Guyana’s credits to its goal of completely offsetting its emissions by 2050.

“There is very little oversight of the process,” said Jonathan Crook of Carbon Market Watch, a Brussels-based nonprofit. “Some countries could set a higher bar, but there’s a risk that others do not.”

Guyana is in talks to sell credits to Singapore, which is evaluating whether it will accept the adjustment for low deforestation countries, an official involved in the talks said. The U.N.’s civil aviation agency last year said it would accept Guyana’s methodology under new regulations it set to limit emissions from international flights, making Guyana’s offsets the first eligible under the rules.

Switzerland is moving to purchase the first credits under the Paris accord, for non-forest projects in Ghana, Thailand and Vanuatu. The credits will then be used by Swiss companies to comply with the country’s greenhouse-gas limits under the Paris accord.

The Swiss government is refusing to invest in forestry projects because of uncertainties around the baseline against which the lack of deforestation is measured. Switzerland also has concerns around whether protections for forests are long term—a tree cut down or destroyed in the future would release the planet-warming carbon dioxide it has absorbed over its lifetime.

Corporations over the past decade have invested billions of dollars in greenhouse-gas offset projects in the developing world. Those projects yield so-called voluntary carbon credits: The companies are under no legal obligation to buy them but do so because of public commitments they have made to offset their carbon emissions.

Academic research and media reports have cast doubt on the impact of many of the projects underlying these credits. The problems were particularly acute in projects to prevent deforestation. Because such programs typically cover relatively small areas within a larger forest, they risk pushing logging and clear-cutting for agriculture into other sections that aren’t protected by a project.

Guyana’s project is designed to address some of these problems. It is one of the first to cover an entire nation, eliminating the possibility that deforestation could be displaced within the country. Covering around 45 million acres, it is one of the world’s largest forest-protection projects, according to Trove Research.

Guyana has some of the most pristine forests on the planet. They have been mostly spared the rampant logging and clear-cutting seen in neighbouring Brazil. Guyana lacks rich soil suitable for large-scale agriculture, a major driver of deforestation, scientists say.

“These are among the poorest soils on the planet,” said Janette Bulkan, a Guyanese forestry expert at the University of British Columbia.

Critics say issuing credits for protecting such forests violates a core principle of carbon crediting: They should only be issued for emissions that would have happened without the project.

Guyanese officials say its forests are nevertheless at risk in the near future without intervention. The country’s economy is growing quickly, as is global demand for the commodities that could be extracted from its rainforests. Guyana is also reaping a windfall from oil discoveries off its coast that are now being pumped by Exxon Mobil and Hess.

“Guyana’s forests offer opportunities for a wide range of goods and services, and development opportunities for opening up areas for industry and manufacturing,” said Pradeepa Bholanath, who oversees climate policy at Guyana’s Ministry of Natural Resources.

Guyana’s credits have been calculated by Architecture for REDD+ Transactions, a program run by the U.S. nonprofit Winrock International. The program’s methodology allows countries like Guyana that have had little deforestation in the past to issue credits against a predicted future level of deforestation under a formula devised by Winrock.

Winrock and other advocates of the methodology say the money allows much-needed climate finance to flow to rain-forested countries, even if they haven’t experienced past deforestation. Guyana has already received more than $100 million in its deal with Hess. Officials say that money is reaching tribes that live in the rainforests and being used nationally for forest preservation and renewable energy projects.



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After Pandemic Slowdown, Global Wealth Is Growing Once Again, Led by the U.S.
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UBS analyzed income and wealth data from 56 markets, representing “92% of the world’s wealth,” in its Global Wealth Report 2024, released Wednesday. The report’s overarching theme found that global wealth grew by 4.2% in 2023, offsetting a loss of 3% in 2022. Even in the face of continued inflation, adjusted global wealth grew by 8.4%.

However, overall global wealth growth is down, from an annual average of 7% between 2000 and 2010 to just over 4.5% between 2010 and 2023, the report said. This equates to a reduction in global wealth of almost one-third.

The remaining growth seems to be continuing on pace in the world’s most developed and already prosperous nations. In the U.S., average wealth per adult grew by nearly 2.5% and the country accounts for 38%, roughly 22 million, of all millionaires worldwide.

Mainland China came in second with just over 6 million millionaires, followed by 3 million  in the U.K.

The report also took a look at the growing issue of wealth transfer. Over the next 25 years, US$83.5 trillion of global wealth will be transferred to spouses and the next generation. UBS estimates 10% of that will be transferred by women and US$9 trillion will shift between spouses.

Wealth in the Asia-Pacific region grew the most—nearly 177%—since the report began tracking data 15 years ago. The Americas come in second, at nearly 146% growth. Surprisingly, Turkey has enjoyed the most wealth growth per adult of any individual nation in the last 15 years—more than 1,700% in local currency.

The world’s wealthiest class continues to be a small, tightly concentrated group. According to the report, only 12 people hold between US$50 billion and US$100 billion and just 14 people hold US$2 trillion of the world’s wealth. The U.S. and Canada are home to individuals holding 44% of this wealth, while another 25% is held by people in Western Europe.

UBS data suggests that global wealth will continue to grow most in emerging markets, with some countries experiencing millionaire growth of up to 50% over the next five years.

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