A global initiative to use money from the voluntary carbon market to help developing countries decarbonize their energy sectors needs guardrails to avoid prolonging coal-fired generation, a new report says.
The Energy Transition Accelerator (ETA), which is aiming to recruit corporate and government carbon offset buyers to fund the replacement of fossil fuel-fired power plants in developing countries with new renewable energy, "has the potential to be a critical player in the race against climate change," the Universal Owner Initiatives, a UK climate finance think tank, says in the report.
But if the US State Department, the Rockefeller Foundation, and the Bezos Earth Fund — which are developing the ETA — do not get the details right, the initiative could increase CO2 emissions and overstate the climate benefits of individual projects, the report alleges.
A major risk is that the ETA could overpay to retire coal units, potentially inflating the market value of existing plants and de-risking investments in future coal-fired generation.
If host governments negotiate with individual plants, owners would have an incentive to inflate the funds required to decommission fossil fuel-fired units. And the expectation of some generous ETA-led "buyout" could encourage plant owners to keep units online longer or put planned coal-fired facilities, many of which never end up being built today because of economic constraints, on more solid financial footing.
Under worst case scenarios, overpaying for existing coal plants could lead to an additional 8bn metric tonnes (t) CO2 and de-risking new construction could increase CO2 emissions another 14bn t, the report argues.
The think tank recommends avoiding individual negotiations with plant owners and instead employing "reverse auctions," where plant owners submit prices they would be willing to sell for and the program moves forward with those requesting less money. Power plants proposed after the ETA launches could also be deemed ineligible for ETA financing, making new construction less attractive.
Another risk facing ETA leaders is the perceived credibility of the initiative, especially with some environmental groups and regulators skeptical that offset projects always reduce their promised emissions. The report tasks the ETA with developing a more rigorous standard for assessing avoided carbon emissions, including by factoring in the possibility that a plant absent offset financing might have still retired on an accelerated timeline because of economic or political constraints.
Leaders of the ETA did not immediately respond to a request for comment on the report. They previously signaled a goal of unveiling more program details at the UN Cop 28 summit in Dubai this December.
