Author: Jessica Zhao

This blog is informed by my conversation with Annie Petsonk, International Counsel for the Environmental Defense Fund and expert on aviation and international climate policy. She further introduced me to her colleague Aoife O’Leary’s work on the environmental impacts of international shipping and aviation. 

In November 2016, the International Civil Aviation Organization (ICAO) adopted the first global market-based mechanism to apply to a sector. The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) aims to limit net CO2 emissions of international flights to 2020 levels with its goal of “carbon neutral growth from 2020”  — now 2019 levels because of the COVID-19 interruptions to aviation trends. This scheme is a critical step forward for climate action and could prevent nearly 2.5 billion tonnes of CO2 from entering the atmosphere over the next 15 years. CORSIA also offers a framework for which we can evaluate and apply to another sector: shipping. 

Ships transport roughly 90% of world trade and accounts for 3% of global greenhouse gas emissions, which is more CO2 than all but five countries. Aviation and shipping are two major economic sectors with growing emissions outside the purview of most countries’ NDCs, so adopting an offset program for the International Maritime Organization (IMO) would have great potential for reducing sectoral emissions and consequently, future warming. In fact, one study showed that stringent mitigation measures could avoid over 85% of projected future warming from the shipping sector’s CO2 emissions if the IMO reaches its target of a 50% reduction in CO2 emissions below 2008 levels by 2050, with full decarbonization of the industry by 2100. 

This strict mitigation effort would require the IMO to not only apply ICAO’s current framework for Sustainable Aviation Fuels (SAF) to its own low and zero-emission fuels, but actually exceed the ambition of CORSIA targets. When considering sustainable fuel options, the IMO should include non-CO2 greenhouse gases, take a full lifecycle perspective of emissions, develop guidelines for alternative fuels, and ensure robust, transparent accounting rules to fully achieve climate benefits. That means adopting measures to prevent double counting, regulating zero-emission status of biofuels, and accurately calculating both direct and indirect impacts for the whole supply chain. 

O’Leary also co-authored a paper exploring the legal pathway for enacting a CORSIA-like measure and found that there is already clear legal authority to implement and enforce global climate policy. And unlike the aviation industry, which took a huge hit due to the pandemic, the rate of cargo shipping has actually increased this year. Given its growth and commitment to adopt a climate strategy, IMO should allocate resources and draw lessons from CORSIA as a blueprint to lower its own sectoral emissions. 

Last month, I had the pleasure of speaking with Annie Petsonk, who is International Counsel at the Environmental Defense Fund (EDF) and focuses on economic incentives in international climate policy. We discussed EDF’s role in helping to establish the Climate Action Network (CAN), the IPCC, and article 2 on the objectives of the UNFCCC. Looking forward, Annie and her colleagues have proposed creating a “club of carbon markets” if Parties fail to design the rules of an international carbon market in Article 6. Our conversation helped me understand the history of EDF’s involvement in the UNFCCC processes and their issues of priority going into COP26. 

EDF has worked on climate advocacy within the multilateral climate forum since the late 1980s, when it was still considered a subnational NGO and did not have a clear path to participate in the dialogues. To address the lack of civil society in negotiations, Michael Oppenheimer, former Chief Scientist at EDF, proposed the Climate Action Network, a structure for NGOs to build capacity and coordinate with other organizations. During the COPs, governments may have difficulty coordinating with each other but NGOs can facilitate discussions and connect important information. The CAN operated on a regional node structure and allowed EDF, along with other organizations, to strategize, share news, and coordinate efforts. 

Within the COPs, Petsonk further described EDF’s role as “bringing science, economics, policy, and law together to develop sensible economics and science that guides countries and communities in the search for and implementation of climate solutions.” 

EDF will continue its focus on mitigation efforts as they look forward to COP26, hoping to ensure that the rules for Article 6 are robust and of high integrity. Article 6 established a cooperative framework for two international market-based mechanisms. However, the parties failed to define a robust accounting protocol for emissions between countries, such as avoiding double-counting emissions reductions or carrying-over of pre-2020 surplus credits under the prior weakened Kyoto Protocol’s offset program (CDM). EDF demonstrated that it is possible to use smart market-based policies. An economic analysis they conducted showed that “carbon markets could achieve nearly double emissions reductions relative to current PA commitments, at no extra cost.” 

Petsonk called Article 6 their “crucial challenge” going into COP26. “How can we get the giant engine of economic growth around the world oriented to producing economic growth that protects the climate?” she asked, “not just for climate neutral growth but actually breaking the link between economic growth and emissions?”

If the Paris Agreement is unable to accomplish this feat through a global emissions trading program, Petsonk believes nations must break into smaller groupings called “clubs”. This “club of carbon markets” (CCM) connects fractured regional and national agreements to “support the development, harmonization, and increased ambition of domestic carbon markets.” [1] The CCM would first broaden participation to include subnational actors and among jurisdictions through voluntary association rather than a formal treaty. Members must agree to a framework of recognized carbon emission units; monitoring, reporting, and verification of their emissions; and rules that would govern the use of offset credits”. In return, the CCM offers jurisdictions technical support, lowering transaction and overall carbon abatement costs, reputational benefits, and may create an incentive that pressures participants into greater ambition for future commitments. 

Petsonk and her colleagues, Nathaniel Keohane and Alex Hanafi, have envisioned the CCM forming either within or outside of the Framework Convention. But whether Parties are able to decide on Article 6 or should move into a CCM model, rule designs for linking and accounting emissions reductions will determine the ultimate success of a market-based mechanism. 

During this year’s NYC Climate Week, I attended three webinars focused on the themes of sustainable finance and building back greener in a COVID-19 Impacted world: “Principles for Kickstarting the Sustainable Transition through Partnerships”, a discussion between Danish and U.S. climate ministers, state lieutenant governors, industry directors, and CEOs; “Global Climate Action: Unpacking the finance sector’s investment commitments”, hosted by the NewClimate Institute; and “Community Investment to Advance U.N. SDGs”, featuring the Local Initiatives Support Corporation (LISC). 

Together, these webinars highlighted the importance of governmental partnerships, encouraging business and financial investments to set ambitious targets, and committing to action through transparency and accountability. Together, non-state actors such as cities, companies, and the financial sector can lead a just, green transition during our COVID-19 recovery period. 

Sustainable Targets 

In compliance with the Paris Agreement, Copenhagen pledged to decrease their carbon emissions 70% below 1990 levels by 2030, which requires as much reduction now to 2030 as they’ve already completed from 1990 to 2020. Not only is this one of the most ambitious national targets, it has been written into law by the Danish parliament. Twelve cities including London, Berlin, and New York City, also recently signed the “Divest/Invest Declaration”, which pledges to deliver an “equitable & resilient recovery from COVID-19 by divesting from fossil fuels and investing in #TheFutureWeWant”. Mayors will now divest city assets from fossil fuel companies while calling on city pension funds to follow and increase financial investments in climate solutions.

Many industries and businesses are also committing to net-zero targets, due to public interest trends increasing and peaking during global climate action summits and annual Conference of the Parties (COPs). In 2020, finance companies communicating net-zero targets accounted for a turnover of about $2 trillion, with 29 asset owners worth nearly $5 trillion committing to “net-zero by 2050”. However, these targets can be difficult to track, monitor, and report. 

Partnerships 

Partnerships between cities and countries such as Denmark and New York State, as well as between the public and private sectors, will be an essential element to reaching these ambitious targets. In order to encourage action and hold corporations accountable, we will need governmental support and public accountability. The role of governments is to establish and codify goals into law, while the private sector can implement actions through innovations, competition, and capacity building. Partnership could also emerge from clear opportunities for private and public investments in infrastructure, for example expanding off-shore wind or electric vehicle charging stations. Some solutions will present challenges for private industries, but incorporating sustainability will more often help companies compete long-term. Building together allows reinforcement of ambition and support for businesses to take risks. 

Intention to action: How can the financial sector help us move and scale up? 

Although the momentum of net-zero target setting by the financial sector is growing, targets can have different meanings with varying implications on global decarbonization. The majority of targets account for a business’s own operations only, rarely including downstream emissions from their investments. The devil will be in the details of company sustainability plans; constructive transparency is a key indicator for ambition. Consumer-facing industries are affected most and consumers’ individual actions can drive businesses to actually commit and keep up with shifting demand. 

Community Investments & SDGs 

An example of the private sector helping to implement global goals can be seen in Community development financial institutions (CDFIs). CDFIs lend non-predatory, affordable loans to low-income communities and people who are typically shut out of mainstream banks. Through these efforts, LISC has created over 1.56 million jobs, over 2 million housing units, and supported 11,500 community facilities. They use global targets, such as the Sustainable Development Goals set by the U.N. general assembly, to inform and communicate their work. By incorporating goals such as “no poverty”, “sustainable development”, “reduced inequalities”, “sustainable cities and communities” etc. into their mission, CDFIs and LISC blend environmental justice and financial investments. 

Build Back Greener 

While COVID-19 and climate change both present extraordinary local and global challenges, COVID-19 is a temporary issue – climate change is not. We as a global community must address both through intergovernmental cooperation, public and private partnerships, and community engagement. These webinars made me hopeful that countries like Denmark, cities like New York, and financial institutions like LISC will continue expanding their targets and implementing real solutions to reach net-zero 2050 goals.