New global carbon market rules with an NFT cap-and-trade platform emerge from the UN’s COP26 conference.
In her monthly Expert Take column, Selva Ozelli, an international tax attorney and CPA, covers the intersection between emerging technologies and sustainability, and provides the latest developments around taxes, AML/CFT regulations and legal issues affecting crypto and blockchain.
The 2021 United Nations Climate Change Conference (COP26), where I exhibited my art, took place in Glasgow, Scotland and ended with the adoption of the Glasgow Climate Pact, bringing nearly 200 countries closer to keeping global temperature rise by 2100 under 1.5 degrees Celsius.
The conference remained more focused on emission reductions than on developed countries’ provisions of support to developing countries, as outlined in UN-Energy’s summary of the Ministerial Thematic Forums, which highlighted key recommendations and milestones toward the achievement of Sustainable Development Goal 7 and net-zero emissions. Key elements of the global roadmap include:
Close the energy access gap: Provide electricity access for the globe’s 760 million people who lack it. Ensure clean-energy cooking solutions for the 2.6 billion people who rely on harmful fuels.
Rapidly transition to clean energy: Abandon all coal plants in the pipeline, and reduce coal power capacity by 50% by 2030. Rapidly scale up energy transition solutions to reach 8,000 gigawatts of renewable energy by 2030 by increasing the annual rate of energy efficiency from 0.8% to 3.0%.
Leave no one behind: Integrate equity and equality in energy-sector policy by planning and financing, creating green energy jobs, and mainstreaming energy-sector policies and strategies into ones that ensure just energy transitions.
Mobilize adequate and well-directed finance: Triple clean-energy investment globally by 2030 to accelerate access to finance. Phase out inefficient subsidies for fossil fuels to support market-based transitions to clean energy. Create enabling policy and regulatory frameworks to leverage private-sector investment in clean energy.
Harness innovation, technology and data: Expand the supply of energy innovation that addresses key gaps and increases demand for clean, sustainable energy technologies and innovation through market-oriented policies, harmonized international standards and carbon pricing mechanisms.
The COP26 conference made history for being the first climate summit to explicitly include a “phasedown of coal” in its decision, and it laid out new rules for carbon market mechanisms, commonly referred to as Article 6. A recent research paper estimated that putting a global carbon market in place would save the world around $300 billion annually by 2030.
Article 6 of the Paris Agreement, which covers international cooperation — including carbon markets — established new rules for trading carbon credits representing a metric ton of carbon that has been reduced or removed from the atmosphere. The new rules create an accounting system that is intended to prevent the double-counting of emissions reductions and is made up of two parts: a centralized system open to the public and private sectors, and a separate bilateral system that will allow countries to trade credits that they can use to help meet their decarbonization targets.
Joseph Pallant, climate innovation director at Ecotrust Canada and founder and executive director of Blockchain for Climate Foundation, explained to me:
“Emissions reductions outcomes are the most important, and soon to be the most valuable, assets of the world.”
He continued: “The BITMO Platform, built on Ethereum, enables cross-border collaboration on emissions reductions, distributing the benefits of clean energy, natural climate solutions and better infrastructure to all corners of the globe.”
The BITMO Platform is a project of Blockchain for Climate Foundation, which created it to advance Article 6 of the Paris Agreement and use blockchain technology to bring forward a more effective, efficient global carbon market. It allows for the issuance and exchange of “blockchain internationally transferred mitigation outcomes” (BITMOs) on the Ethereum blockchain as ERC-1155 nonfungible tokens (NFTs). Each token represents one metric ton of CO2, and the relevant carbon credit data is embedded in the NFT.
Article 6 intends to connect worldwide opportunities for emissions reductions to the needed capital and demand. For a global carbon market to reflect real emissions reductions, the accounting infrastructure needs to ensure integrity, cooperation and avoid double-counting emissions reductions. The BITMO Platform acts as a secure record for issuance, transfer and retirement of each country’s internationally transferred mitigation outcomes that can be integrated or reconciled with national carbon registries and future UN Framework Convention on Climate Change requirements. BITMOs help achieve global climate goals by making any relevant data easily visible, available to the public and settled immediately when exchanged, avoiding the double-counting of emissions reductions.
Another one of the major points of discussion among world leaders at the COP26 conference in Glasgow included implementing a carbon tax, which shifts the liability for the consequences of climate change to the polluters responsible, according to the World Bank. Currently, there are 69 countries with carbon taxes, ranging from $1 to $139 per metric ton.
The administration of United States President Joe Biden has outlined $555 billion in spending to confront climate change as a part of the Build Back Better Act, which includes a proposed methane fee designed to incentivize oil and gas companies to reduce their methane emissions.
The views, thoughts and opinions expressed here are the author’s alone and do not necessarily reflect or represent the views and opinions of Cointelegraph.
Selva Ozelli, Esq., CPA, is an international tax attorney and certified public accountant who frequently writes about tax, legal and accounting issues for Tax Notes, Bloomberg BNA, other publications and the OECD.