New challenges create new markets – and net zero is no exception
There’s no silver bullet for reducing emissions, but, as a place that has always embraced innovation, the City has an important role to play, writes Michael Mainelli
Last year was the hottest on record globally. While progress has been made to reduce emissions across the world, they’re not coming down fast enough to meet the goal of limiting the rise in global temperature to 1.5°C. In the face of such a huge challenge, we have two options. We can despair, or we can decide to do something about it.
It’s positive to see businesses are starting to capitalise on the economic opportunities of sustainability. A recent report by the Energy and Climate Intelligence Unit and the Confederation of British Industry showed the UK’s net zero economy grew by nine per cent in 2023, contributing £74bn GVA to the economy and supporting 765,000 jobs.
The City of London Corporation has been playing its part to reduce emissions for years now too.
We were the first government body to introduce a clean air act in 1953 and we’re on track to reach net zero in our own operations by 2027, while supporting net zero for the whole Square Mile by 2040 and helping the City unlock its full potential as a one-stop-shop for sustainable finance.
New challenges produce new markets, and the issue of global emissions is no exception. COP3 in Kyoto in 1997 led to the creation of a new market-based solution for emissions: carbon emissions trading markets, which compel large, high-emitting companies to purchase permits or allowances before polluting.
Two years later, the City Corporation was a founder member of the UK Emissions Trading Group, which played an important role in laying the foundations upon which the UK, and then EU, Emission Trading Schemes (ETS) were built. And, today, 23 per cent of global carbon emissions are covered by a credible trading market like the UK ETS.
In addition to these regulatory or “mandated” markets, we’ve also seen the emergence of a voluntary carbon market (VCM) where businesses and individuals can invest in environmental projects to offset their emissions.
While the VCM complements regulatory markets and enables firms of all sizes to compensate for their environmental impact, the market has been troubled by challenges surrounding both the acceptable use and integrity of carbon credits.
Several initiatives have been established to address this, including the Integrity Council for Voluntary Carbon Markets and the Voluntary Carbon Integrity Initiative.
My mayoral theme, “Connect to Prosper”, highlights the City’s role as a global solutions hub, and so, today, I’m happy to highlight the work of another innovative organisation that’s tackling this thorny issue. Australian firm C2Zero’s new C4S scheme gives climate-conscious businesses and individuals the ability to purchase carbon emission allowances from systems that meet the high standards of the UK ETS – which the City’s 24,000 SMEs would usually face big hurdles to participate in.
Each emissions allowance purchased and retired by C2Zero means one less allowance available for polluting: effectively “tightening the cap” for emissions worldwide and raising the price of carbon, while enabling a participating business to show their customers and competitors they’re serious about tackling climate change.
Combining high standards with increased access for more firms, it could offer the best of both worlds.
C2Zero is one of several organisations pioneering innovative solutions to the challenge of reducing emissions. Other innovations include Sustainability-Linked Bonds and Sovereign Sustainability-Linked Bonds (SSLB). The Republic of Chile placed the first-ever SSLB in March 2022, and it’s expected other nations will follow suit.
There’s no silver bullet for reducing emissions, but, as a place that has always embraced innovation, the City has an important role to play in promoting groundbreaking solutions to the world’s greatest challenge.