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Tech Times: The Planet Needs Effective Carbon Markets

Nick Maughan is the founder of Maughan Capital, an impact investment vehicle

Sir Edward Milbank is the Director and Co-Founder of Climate Solutions Exchange

Carbon markets have been an important topic of COP26, with participants returning to completing the rules for Article 6 of the Paris Agreement, which provides for international cooperation through carbon markets.

Article 6 calls for countries to cooperate in implementing their nationally determined contributions (NDCs) by creating a global carbon market, a system in which countries that are struggling to meet their emissions reductions targets would be able to buy emissions reductions from other nations that have already cut emissions by more than the amount pledged. This way, if a country cannot cut its own carbon emissions in one area, it can help finance projects in other countries which can, but which need the money.

Carbon markets are the right way to go about tackling climate change, as putting a price on carbon will drive important innovation of the technology the planet needs. Yet agreeing their rules on the international stage has proved difficult, as this week has shown us yet again amidst disagreement over how big a share of revenues from trading should be sent to countries which need the money to adapt to climate change.

The ground rules for carbon markets were first established in the Kyoto Protocol of 1997. Known as the Kyoto mechanisms, these were three market-based principles to help countries work together to fight climate change: 1) Stimulate sustainable development through technology transfer and investment 2) Help countries with Kyoto commitments to meet their targets by reducing emissions or removing carbon from the atmosphere in other countries in a cost-effective way and 3) encourage the private sector and developing countries to contribute to emission reduction efforts.

Since that time, a new international climate regime has been proposed in the form of the Paris Agreement. Yet one article has proven impossible to solidify thus far - Article 6. Article 6 contains two market based approaches towards climate goals: 1) Allowing a country that has beaten its Paris climate pledge to sell its overachievement to nations which have so far fallen short and 2) Creating an international UN-governed carbon market for the trading of emissions reductions in the form of "carbon credits". Yet COP26 leaders are stalling over the first point, and is fast becoming one of the key issues at Glasgow this year.

We must not forget the enormous potential of private sector carbon markets as a system to fight climate change. Although COP26 has highlighted the challenges of implementing the system at the international level, leaders would do well to remind us of the necessity to implement it at a local and national level.

At Climate Solutions Exchange (CSX), we are actively seeking to do just that: using a combination of drones, satellites, ground truthing (gathering quality objective data), detailed carbon analysis and modelling, we are developing technology which allows land-owners to accurately calculate the amount of carbon sequestered by trees.

At present, current satellite technology provides inaccurate carbon calculations, due to a lack of ground truthing and its' inability to capture imagery below cloud-level. And satellites cannot accurately measure the height of individual trees - a critical piece of information when calculating carbon. What CSX aims to do is help develop a carbon market backed by improved technology, which is both trusted and accurate.

Through making our technology affordable and accessible, we are hoping to democratise the voluntary carbon market, which allows land managers to be incentivised towards environmental land management and carbon emitting businesses to offset their unavoidable emissions through the purchase of quality carbon credits.

By enabling land managers to sell the carbon sequestered from their land the supply side of the carbon market will grow. And CSX's Earth Observation (EO) technology will provide the demand side with what it craves - an audit trail to remove any hint of greenwash.

By accurately measuring and calculating their carbon footprint, businesses will be able to demonstrate accurate and verifiable credentials to the market, gaining access to those trading in carbon credits as well as other sources of ESG investment.

Some commentators have come out against big businesses setting the carbon trading agenda at COP26, fearing that there will be loopholes which threaten the overall purpose of the Paris Agreement. But this fear should not discourage small and medium-sized businesses in the UK from trying to set the agenda, and ensuring that the voluntary carbon market is democratised, simplified and rendered more accurate.

Like any form of market, optimal efficiency is only obtained when prices accurately reflect all available information, and when this information is available to all market participants.

Through the development of such technologies as LIDAR software, as well as the many other technological innovations which are underway around the world, governments can help accelerate the democratisation of the voluntary carbon market. The continued expansion of this market is the surest way to affect change at the national level, which will drive the international objectives forward in the future.

As we continue to hear from COP26, we should remain optimistic that world leaders can agree on a robust framework for global carbon markets, and the initial reports of talks stumbling do not derail the process entirely. The message of how difficult it is to agree Article 6 should not drown out the message of why we need carbon markets in the private sector. The potential for real change must be instilled at the grassroots level, with businesses afforded the opportunity to take matters into their own hands when it comes to their carbon footprint and how they want to participate in the carbon trading market.

Unlike the time of Kyoto in 1997, we are now able to access powerful and sophisticated technology which gives us every reason to be optimistic about the future democratisation of the carbon market, as well as the knock-on effect this could have on a national and international level in time.


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