TWN Info Service on Climate Change (Nov24/01)
6 November 2024
Third World Network

UN: UNCTAD seeks to advance carbon markets for development in LDCs
Published in SUNS #10111 dated 6 November 2024

Geneva, 5 Nov (D. Ravi Kanth) — UN Trade and Development (previously known as UNCTAD) on 4 November touted the benefits of developing carbon markets in the least-developed countries (LDCs) to avail of the benefits of carbon credits, even though “carbon markets are risky business for LDCs”, said people familiar with the development.

The Least Developed Countries Report 2024, under the theme “Leveraging carbon markets for development”, launched on 4 November by UNCTAD Secretary-General, Ms Rebeca Grynspan of Costa Rica, lays out what she claims is “a big picture” on the utility of developing carbon markets in LDCs.

Carbon markets, she told reporters during the launch of the report on 4 November, “can help close one of the great paradoxes of sustainable development in least-developed countries.”

Given the seemingly “growing practice of throwing money” at the existential problems being confronted by the poorest countries of the world that remain devastated due to climate change, in what the UN Secretary-General Antonio Guterres said the LDCs are “being at the front-line of climate disasters”, the LDC report on leveraging carbon markets seems “somewhat puzzling” on several fronts, said people familiar with the report.

At one level, the leveraging of carbon markets portends the risk of perpetuating “carbon colonialism” whereby wealthy countries or corporations could exploit carbon credits from the LDCs to offset their own emissions without making significant reductions, leading to minimal benefits for local communities, said a climate historian.

Moreover, as evidence suggests that carbon markets have failed to take off in industrialized countries with sophisticated institutions during the past four decades, it is somewhat disingenuous to tell the poorest countries to develop their carbon credit products, which require “rigorous monitoring, reporting, and verification, which can be costly and complex.”

The UNCTAD SG has proposed a price of US$100 for a tonne of carbon, even though “the price of carbon credits can fluctuate, which makes revenue unpredictable”.

Indeed, the LDC report supports the above assessment, stating: “A selection of case studies on the experience of LDCs as hosts of carbon projects under the Kyoto Protocol over the period 2005-2020 was prepared for the report. A review of the case studies suggests that LDCs that have hosted carbon projects are unlikely to have acquired meaningful know-how for the design, development and verification of carbon projects. This is due not only to the limited number of projects, but also to the way they have been implemented.”

The report suggests that “the design of the Clean Development Mechanism and voluntary carbon markets, by default, relegated LDC national and local authorities to an arm’s-length relationship with carbon projects and their developers.”

It argued that “Project design, checking and enforcement of agreements or carbon market rules were largely outsourced to the project developer, with little or no active participation of LDC institutions.”

More importantly, the case studies mentioned in the LDC report “indicate that carbon projects do not necessarily guarantee a net injection of foreign capital into host countries, either by way of initial funds invested in carbon projects or through equitable shares in the revenues generated through the sale of certified carbon credits.”

Interestingly, Ms Grynspan claimed that revenue from carbon credits could address the investment-deficit in these countries.

The UNCTAD report recommends that LDCs and their development partners focus on three key priorities to enhance the benefits of carbon markets for LDCs:

1. Strengthen domestic frameworks: Build regulatory capacity, implement effective monitoring and reporting systems, and ensure that local communities benefit from carbon projects.
2. Expand international partnerships: Create regional institutions to lower costs and improve market positioning, leverage South-South cooperation, and advocate for supportive frameworks in global climate agreements.
3. Prioritize capacity-building: Ensure development partners provide resources to help LDCs integrate carbon market policies with broader economic transformation goals. Additionally, distinguishing carbon finance from climate finance to enhance accountability.

The report concludes that carbon markets can contribute to LDC development.

“By addressing existing barriers and implementing targeted reforms, LDCs can unlock their significant climate potential, create financial opportunities and upgrade their economies, while contributing to global climate action.”

Significantly, the lack of a net gain in development finance is not necessarily compensated by project co-benefits, such as transfer of technological capabilities, building of institutional capabilities or contributions to meeting specific Sustainable Development Goals, said analysts familiar with the development of carbon markets.

Moreover, “inherent weaknesses in LDC oversight institutions engender the risk of poorly implemented carbon projects that could potentially lead to abusing the human rights of population segments affected by those projects,” analysts said.

Inexplicable “vested interests” in both developed countries and multilateral organizations could be one reason for promoting carbon markets which are yet to yield significant results in industrialized countries, said analysts who asked not to be quoted.

Therefore, it is somewhat puzzling as to why UNCTAD would come out with this report in which Ms Grynspan said somewhat unambiguously in the foreword that: “As the world seeks innovative solutions to address the climate and finance crisis simultaneously and achieve the Sustainable Development Goals, carbon markets have emerged as a beacon of hope”.

She went on to say that “this report delves into the potential of carbon markets as a catalyst for the economic development of the least developed countries. It explores how these countries can integrate carbon trading into their economic strategies, ensuring that environmental sustainability and economic growth go hand in hand.”

She noted that of the 20 countries that are most vulnerable to climate change, according to different studies, 17 are LDCs.

Continuing with her opening statement at the press conference on 4 November, Ms Grynspan also said that “financial gaps in LDCs are widening, and the investment deficits in LDCs keeps getting worse. So these are countries that are not closing the gap because we can say, okay, they are the most vulnerable, but gaps are shortening, or I don’t know how to say, are widening, yeah, but it would be good if we can say gaps persist, but they are decreasing.”

“But no,” she added, “the gaps are widening. So LDCs need around $462 million just in investments to get closer to the 7% growth rate that was established in the 2030 agenda. So, from the 45 LDCs … only one country, Rwanda, is going to meet the target of the SDGs of 7% growth rate, only one.”

“And this is where carbon markets come in,” she emphasized, arguing: “You know, carbon markets can bring much needed investment into the least developed countries, not only for climate action, but also for growth, for structural transformation, more generally.”

However, the UNCTAD SG’s statements on carbon markets do not seem to correspond with the daily struggles of the people in the poorest countries.

As the noted economic historian Adam Tooze wrote in his column in the Financial Times on 1 November, “scenarios of “slowbalisation”- or even partial de-globalisation – pale in comparison with the fact that a large part of the most rapidly growing population on the planet, in sub-Saharan Africa, has not yet partaken in the global growth story.”

In his latest column, titled, “Poor nations are choking on debt – we must grasp the solutions”, Tooze said that political instability and meagre investment hobbles large parts of the world.

He wrote that “hundreds of millions of people experience an exclusion of a more elementary and devastating kind than any protectionist tariff or tech sanction. They lack the means to join the world economy on anything other than abject terms.”

He acknowledged the importance of investment to escape from this poverty trap, “but investment is blocked by political instability and lack of funding.”

UNCTAD has a track record of addressing the most fundamental problems confronting the developing and poorest countries since its inception in 1964.

However, ever since it seemingly embraced an agenda that is somewhat beneficial to the climate policies proposed by the European Union, its policy prescriptions are allegedly incongruous and “unhelpful” to the developing and least-developed countries, said people familiar with the development. +