Reflections from COP27: Our Top Takeaways for the Carbon Markets

Reflections from COP27: Our Top Takeaways for the Carbon Markets

Last year in Glasgow at COP26, countries finally reached a deal on Article 6 of the Paris Agreement, a framework for international cooperation on emissions reductions, and intended to accelerate global efforts in the fight against climate change. This year negotiations regarding Article 6 of the Paris Agreement, which sets out international rules on carbon markets, were inconclusive, with many concrete decisions deferred to COP28.

But progress was still made in other areas. COP27 saw the launch of the African Carbon Markets Initiative (ACMI). The ACMI aims “to drive a dramatic increase in the production of African carbon credits while ensuring that carbon credit revenues are transparent, equitable, and create good jobs.” Unlocking finance on this scale would be a major step in realizing the energy transition in Africa.

Meanwhile, John Kerry, US Special Presidential Envoy for Climate, announced the launch of a new Energy Transition Accelerator, a public-private initiative to fund renewable energy projects through carbon credits, with the aim of accelerating the energy transition in developing countries.

Carbonplace representatives from our founder banks were on the ground in Sharm El-Sheikh, Egypt. Here are some of the key takeaways concluded within the two-week summit.


1. Collaboration is key


The message from COP27 in Egypt is clear: collaboration at all levels between governments, financial institutions, and businesses is critical to achieving the world’s climate goals.

COP27 is an excellent demonstration of the power of collaboration, with over 200 nations coming together for collective action for the world’s climate goals. Alongside the negotiations, there was an evident openness amongst the private sector to work together and innovate in new ways across the value chain to solve sustainability challenges, ranging from water stewardship to regenerative agriculture.

Collaboration is at the core of Carbonplace, which was founded by nine banks from different parts of the world– CIBC, Itaú Unibanco, National Australia Bank, NatWest, UBS, Standard Chartered, Sumitomo Mitsui Banking Corporation, BNP Paribas, and BBVA– who came together to address historic issues with carbon markets, particularly around transactions, so that they can scale with integrity.

Competition is far more common than collaboration in the banking sector. But Carbonplace is built around a recognition that working together will deliver the reach, innovation, and expertise required to drive climate action at scale.


2. Nature-based solutions remain promising in the climate solutions toolkit but are still undervalued and underfunded.


For the first time, COP’s final deal included the term “nature-based solutions” and a section on forests, recognizing the importance of investing in nature to achieve climate, biodiversity, and restoration targets.

Recent analysis by the World Economic Forum and McKinsey suggests that natural climate solutions could provide up to one-third of the emissions reduction needed to achieve a 1.5-degree pathway, however, UNEP says more than $536 billion will be needed each year by 2050 to finance nature-based solutions – more than four times the current level of investment.

From boosting forest preservation to incentivizing climate-smart farming practices, there is enormous potential in nature-based solutions. Carbon markets can play a major role in financing them so that they can support the Paris Agreement climate goals, foster the protection and restoration of natural ecosystems, and secure the rights and livelihoods of Indigenous Peoples and local communities.


3. Carbon markets remain a critical tool for climate action, but they need more robust infrastructure


There is no climate action, without climate finance. COP27 highlighted that we must use every tool we have to deliver the $5 trillion a year needed to meet the goals of the Paris Agreement by 2030.

The talks saw the emergence of multiple new carbon markets, supporting the prediction that demand for carbon credits will grow by 100-fold by 2050. Announcements included the launch of the Africa Carbon Markets Initiative (ACMI) and Egypt’s first-ever carbon market.

The global expansion of carbon markets in Africa and beyond shows a growing opportunity to help us implement climate finance. To do so, it is more important than ever that modern, robust digital infrastructure is put in place to ensure carbon credits deliver impactful climate action.


4. Climate finance needs to reach the Global South


Finance remained a central topic of discussion at COP27, with Global South countries reiterating their expectations throughout COP to receive urgently needed and equitable finance to adapt to the effects of the climate crisis, decarbonize their economies, and secure sustainable economic development.

The Global South needs $2 trillion a year to fight the climate crisis. Much of this finance will need to come from investors, rich countries, and development banks in the Global North. Scaled-up carbon markets will facilitate this mobilization of capital to the Global South and give countries the space to smooth the low-carbon transition.

Carbonplace’s panel discussion, “Bridging access to climate action with stronger carbon markets” hosted on the ground at COP27 with Microsoft and Downforce Technologies, demonstrated the importance of modern digital infrastructure to deliver access and transparency required for carbon markets to maximize their climate impact.


5. Businesses need to continue driving innovation for climate action


Discussions at COP27 highlighted the momentum behind collaborations to scale new technologies for the climate transition.

New innovations, for example, Web3 technologies like blockchain, can help unlock the potential of the carbon markets, by enabling secure and efficient transactions, instilling the confidence needed for the market to scale, and enabling direct access between buyers and sellers without the need for counterparty due diligence.

On Finance Day of COP27, CIBC representative to Carbonplace, Dominique Barker, joined Dr. Sassan Saatchi, co-founder of interactive digital platform CTrees, for an engaging conversation on how we can digitize the carbon markets to deliver accessibility, security, and transparency needed to grow the carbon markets so they can unlock climate action at scale.


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