Climate reset: unlocking carbon markets for the UK's green future

They say a change is as good as a reset. In Europe and beyond, climate change has been treated as a political football. But the recent election outcome we saw in the UK shows signs of a reset that we hope calls time to any further dither and delay. 

The UK’s new Secretary of State for Energy Security and Net Zero, Ed Miliband, is tipped as one of the most influential members of the new Labour government. 

He has described climate as being on the ‘front line’ in the battle against the populist right wing across the world. 

Yet action is not possible without ambition – which is why many were surprised by Labour’s radical slash to its own climate investment plans in February, cutting its £28bn investment pledge in half. 

But I think Labour’s decision simply speaks to the reality of where we are now: the money we have to tackle the climate emergency is finite. 

That’s why we need market-based solutions to make our money work harder and faster - ultimately delivering more action to match the levels of ambition we need from governments. 

Today the private sector manages more than $120trn in assets – compared with the $2-4 trn that developing countries now require annually to avoid a climate catastrophe.

Carbon markets play an important role in this regard – helping to chase the most efficient ways for financing decarbonisation and adaptation solutions. In short, the biggest carbon reduction, removal or avoidance bang for buck. 

And there are many zero-cost ways we can unlock their potential in the UK, to help us meet our climate goals faster while putting less pressure on the Treasury. 

First, we can standardise carbon credits as a financial asset, making credits subject to the financial market regulations and requirements of any other asset trading in their relative jurisdiction. 

The UK Government has already agreed to help establish an international carbon trading mechanism under the Paris Agreement, which requires a standardised asset class to work within it. 

Applying the same regulatory ‘wrapper’ to all credits will establish objectivity about their value, helping to deliver on this commitment and dramatically scale international carbon trading so the UK and others can more efficiently meet their national climate plans (or NDCs). 

With this level of regulatory rigour, we can open up exciting opportunities like the ability to include high integrity carbon credits into our emissions trading scheme, giving businesses more choice over how to meet their carbon allowances. 

Already the government is looking into expanding the scheme to include durable carbon removals (CDRs), which would give UK companies access to a supply of high-quality CDRs and incentivise companies to invest in carbon removal alongside their own decarbonisation. 

Zero-cost innovations like this are welcome, and we look forward to the outcome of the consultation. 

Labour has also endorsed the introduction of a carbon border adjustment mechanism (CBAM) and market-watchers are already discussing ways that high integrity voluntary carbon credits could be integrated into such a scheme to maximise corporate investment in climate action. 

While the EU’s scheme does not allow such integrations, for now, the UK could look for opportunities like these to potentially outpace our European neighbours when developing our own.

That’s bang for buck.   

The UK’s independent Climate Change Committee has endorsed the use of carbon credits provided they follow a credible emission reduction and removal pathway. In light of this, the government should respond with its own guidance to provide UK businesses with additional clarity and confidence to invest in carbon markets. 

Challenges like transparency and standardisation have persisted in carbon markets. But change is afoot in helping this market reset.

You can read more about why we need high integrity carbon markets and the ways the market is resetting itself here.

During periods of change like these, I think of the wise words of Peter Drucker, who said, “the greatest danger in times of turbulence is to act with yesterday's logic." 

Today, our trajectory falls short of Paris Agreement targets, with global emissions rising. We must unlock the power of carbon markets to increase our capacity to remove and reduce emissions in tandem. 

I welcome the change new governance brings in helping the UK reset its climate agenda and look forward to seeing and supporting the most cost-efficient, effective ways to move from ambition to action as fast we can.