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Referred to as ‘the finance COP’ to highlight the critical nature of negotiations to advance various financial tools and mechanisms designed to aid in climate change mitigation efforts, Nasdaq was proud to be present for a fourth consecutive year at the UN Climate Change Conference COP29 which was held from November 11th to 22nd in Baku, Azerbaijan.
Despite efforts to cut carbon dioxide (CO₂) emissions via renewable energy and efficiency, residual emissions persist. With excessive amounts of CO₂ accumulating in the atmosphere, achieving the Paris Agreement’s goals rests heavily on increasing the pace of reductions while also investing in durable Carbon Dioxide Removals (CDRs) to manage the residual emissions that are proving impossible to reduce. While permanent carbon dioxide removal is essential to neutralize emissions, it remains scarce and is primarily supported by voluntary corporate initiatives.
Achieving net-zero emissions necessitates a multifaceted approach that includes reduction activities combined with the development of a mature carbon removal market. The carbon removal market needs to expand to gigaton capacity, requiring swift action and cooperation between public and private sectors.
Clear guidelines for using carbon credits in corporate net-zero strategies are necessary to ensure high-quality carbon removal projects are effectively utilized. Consensus on handling durable CDRs and clear definitions for compensation, contribution, and neutralization claims utilizing carbon credits are essential for effective implementation and to ensure that private capital is mobilized.
An important example is the utilization of durable CDRs for corporate claims in the era of Article 6 of the Paris Agreement. It is of utmost importance to clarify that durable CDRs would not require a so-called Corresponding Adjustment to be eligible for neutralization claims. A Corresponding Adjustment is a technical term in the Paris Agreement and means an adjustment to ensure that an emission reduction or removal is only counted once—either by the country where the reduction or removal takes place or by the country purchasing the reduction or removal to fulfill its Nationally Determined Contributions (NDCs). Requiring Corresponding Adjustments for durable CDRs would result in inconsistency where residual emissions would need to be neutralized twice to allow for a net-zero claim. This would also significantly raise costs and hinder scaling. Clarity on this issue would be highly beneficial to minimize uncertainty for buyers of carbon removals. And since the growth of the CDR market is highly dependent on long-term offtake agreements, such uncertainty creates unnecessary barriers for the scaling of the CDR market.
Beyond clear policies and industry guidelines, scaling the carbon removal market will also require the creation of efficient pricing mechanisms, verified and trusted carbon standards, and transparent and interconnected marketplaces and registries. Competition fosters innovation and a well-organized carbon market can use financial market insights to improve carbon removal efficiency.
This is where Nasdaq’s expertise in managing effective capital market infrastructures comes in. Nasdaq’s new registry technology, as described in Tech Tuesday’s recent article, brings registry solutions in line with modern capital markets standards by meeting resiliency, security, performance and interoperability expectation. Robust technological infrastructure will be essential also for managing the complexities of Internationally Transferred Mitigation Outcomes (ITMOs) transactions established under Article 6 of the Paris Agreement and facilitating successful cross-border transfers. Efficient and transparent asset creation, and issuance and transfer of sovereign carbon credits with full auditability ensures accurate ownership and facilitation of transfer from issuing countries to acquiring countries and corporates.
To further advance the carbon markets, it is crucial to create more standardized carbon spot and futures contracts, as well as to develop a vibrant secondary market for better price discovery and demand signaling. The European Union’s Emissions Trading System has already set a global standard for carbon pricing. To expand these initiatives and integrate high-integrity durable carbon removals into emission trading systems in a controlled way would create an important foundation for the development of a more liquid market. This would also drive demand for additional carbon removal projects, encourage climate-positive corporate behavior, and ultimately support the objectives set forth in the Paris Agreement.
The availability and allocation of capital is a critical enabler, underpinning all other innovations, solutions, and initiatives that will accelerate progress – from investments in new and emerging technologies, to funding of large-scale, capital-intensive energy and carbon removal projects, to investments that help decarbonize traditional industries and infrastructures. Capital markets will play a critical role at the epicenter of capital formation and allocation. Experience and solutions from the financial market should be leveraged on when developing the structure of carbon markets. Simultaneously, building a robust and transparent carbon removal market is crucial to encouraging corporate involvement in climate solutions and achieving significant climate results.
Achieving net-zero emissions will require various approaches. Implementing a diverse array of tactics, including the policy measures outlined here, can drive the significant climate impact that is needed.
Tomas Thyblad is VP, Carbon & ESG Solutions, European Markets at Nasdaq.
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