On February 27th, 2023, Abatable hosted a webinar focused on navigating policy uncertainty in the voluntary carbon market (VCM). The event marked the launch of Abatable's report and guide on how to assess and mitigate policy risks within the VCM, which can be downloaded here.
The webinar featured experts across the carbon policy and insurance markets:
- John Minor, Political Risk Practice Leader, AON
- Deepti Jerath, U.K. Head and Carbon Markets Lead, MIGA (World Bank Group)
- Pedro Carvalho, Head of Portfolio, Ecosecurities
- Pauline Blanc, Policy and Strategy Lead, Abatable
Watch the recording of the event
Key insights from the webinar
The discussion focused on the risks and uncertainties surrounding the VCM as governments seek to regulate its activities to align with their national efforts to reach their Paris Agreement goals. Here are some of the key insights:
- Governments are uncertain about how they want to leverage the VCM in their own countries, and the extent to which they need to regulate projects or permit the export of credits. Most countries are still defining how they will reach their Nationally Determined Contributions (NDCs) and whether they can afford to export credits.
- On top of traditional political risks, policy and regulatory risks are emerging for investors and companies seeking to support projects through the VCM. Most VCM projects monetise investment through the sale of carbon credits and this can be compromised if governments contest investors’ or companies’ rights to carbon credits generated under their jurisdiction.
- While policy and regulatory changes are leading to real risks for developers and the investor community, it is also crucially important that host countries define how they will manage and organise their own greenhouse gas abatement opportunities. They must also consider how different mechanisms, including Article 6 and the VCM, will interact with their NDCs. In the long term, this will set the stage for more robust carbon markets overall.
- Not all governments are taking the same approach, with three main categories:
- Countries afraid of overselling carbon credits: these are countries taking a cautious approach towards carbon trading mechanisms such as Article 6 and the VCM as they are worried that they may be exporting the “low-hanging fruit” credits, leaving them to abate the harder sources of emissions.
- Countries making future promises: some countries are being supportive of project developers, providing letters guaranteeing that the project will either be included under Article 6 or excluded for example. Yet, the speakers advised caution as the ability to deliver may still very be unknown, especially if the host country is in early stages of policy development.
- One Ministry says yes, the other one says no: we are seeing countries in very early stages of climate strategy development where different ministries are not aligned on their approach to the VCM and Article 6.
- There are a lot of insurance companies such as AON and MIGA that want to support carbon projects. Work is currently ongoing to develop bespoke insurance products that can address some of the risks discussed in the webinar with require tailored products.
Advice from the speakers
- Before starting a project, it is important to conduct basic homework, including political and legal assessments. Assess the risks and explore how to mitigate them.
- Although insurance products may not be available off the shelf, reach out to insurance companies and brokers such as MIGA and AON to explore bespoke products.
- Engage host governments when seeking interim approvals for new projects. Going under the radar is not advisable, and it is important to emphasise developmental benefits to local communities. Incorporating these benefits will make the case for the approval of projects stronger.
- Investors must be willing to take on certain policy and regulatory risks, but projects should be structured to align interests with local communities to minimise detrimental outcomes. Open and transparent dialogue between stakeholders is crucial to achieving this alignment.
Leverage Abatable’s policy guide
We have published our first report analysing policy and regulatory risks in the voluntary carbon market. It outlines the different policy and political risks we see in the market, but most importantly, it report provides a practical guide to assess those risks in different countries, and how to mitigate them. Click here to download the report.