The World Bank says the world could warm by 4 degrees over pre-industrial levels by the end of the century. This dire prediction means that global carbon dioxide emission cuts are nowhere near urgent enough to arrest runaway climate change. From an equity point of view, this also does not give the developing world much breathing room, given the fast-shrinking carbon budget. This has been a flashpoint as developing countries cannot afford to forego economic growth to undo the wrongs of the global North. 

The recently concluded climate conference — COP29 — in Baku, Azerbaijan, exposed the flaws. The takeaway from the last few COPs is that, despite the clamour for climate justice, the global North remains hesitant to commit to more financing. This year the mood was acrimonious towards the end and developing countries staged a walkout over the ‘new collective quantified goal’ (NCQG) on climate finance negotiations, saying the offer of $300 billion a year by 2035 was inadequate. Worse, there is little clarity on how this amount will be disbursed. 

The global South wants it as public money — grants — from developed countries (as bilaterals or multilaterals), while the latter have reimagined it as private investments from all sources — international and domestic. 

Finance destination

The argument is not without merit. While $300 billion a year is ambitious, the money needs to be spent on projects that are the most likely to succeed. This is why the agreement on carbon markets at Baku has been a small but positive outcome. It is not a replacement for climate finance but, in a world fraught with complex geopolitical contexts, it’s a good start that needs more clarity, such as around the stringent rules to develop baselines to estimate emission reductions from projects. Additionally, to avert fake and inflated credits there is need for international standards and rules. Private investors from the developed world could help companies, institutions and even governments undertake verifiable reductions in emissions, and entities in the West can buy the credits to offset emissions. 

The premise is elegant, and the stress is rightly on ‘verifiable’ reductions. It also means that the hard-to-abate industries, such as cement and steel manufacturing, and fast-growing sectors in developing countries, such as commercial complexes, can access foreign finance and work towards low-carbon or even net-zero operations. 

Engineering solutions

For instance, an 80,000 sq ft commercial building in New Delhi would consume massive power each year if designed poorly. 

With only grid-supplied electricity, its carbon emissions would depend on the emissions intensity of the grid, which is 0.71-0.82 kg of carbon dioxide per kWh, according to the Central Electricity Authority of India (CEA). 

This works out to 2.13-2.46 million kg for an annual consumption of, say, three million units.

However, by investing in energy audits and design-stage improvements alone, such as high-performance HVAC systems, wall insulation and double-glazed windows, energy consumption could be halved. If retrofitted with a captive solar system that feeds daytime power consumption, the complex would leap that much closer to net-zero operations. Based on the reduction, the breakeven period may be as low as five years while the savings would accrue for the life of the building. 

The verifiability is built-in as backend calculations can be independently verified by engineers and auditors from the global North. 

Equally, the complex’s energy savings could be cross-checked with its utility bills and by third-party protocols. Retrofits are also a practical solution for thousands of existing buildings in the global South. The tangible savings in carbon dioxide emissions work on two levels — long-term climate action for developing economies and a verifiable investment avenue for the developed world. 

This year, India was also approved to join the Global Energy Efficiency Hub, which is a timely shot-in-the-arm that will let it access the sector’s international best practices. 

Quality carbon credits

Crucially, this approach leads to quality carbon credits. One carbon credit is equivalent to one tonne of avoided carbon dioxide emissions, but it has proved difficult to quantify the savings from initiatives like afforestation, avoiding deforestation, or other nature-based solutions that renew local carbon sinks. Energy-efficiency retrofits offer a much easier route and, hence, credits from well-designed interventions at a steel plant or large residential complex are likely to fetch a higher market price. Again, this is a win-win as the credit seller receives a higher return on investment (which may be shared with the foreign investor) and the buyer is confident of paying for a measure that did lower emissions. 

All is not lost

That after 29 years, far from having found an equitable solution, the very need for the COP is being questioned is a sobering thought. The global South urgently needs consistent and much greater finance, but what little is available remains contingent on the countries proving that they deserve the funds at all. 

This has led to a trust deficit that can only be resolved if the money starts to flow. Thus, with time running out, market-based solutions like carbon credits could finally draw in elusive private investment and the logjam may finally be broken.

(The writer is Director, Climate Trends)