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Welcome back to another special edition of Moral Money, from the ground at COP28 in Dubai.

In the global debate over climate finance, no country is punching above its weight so conspicuously as Barbados.

The Caribbean island nation has a population of just 282,000. But its Prime Minister Mia Mottley and her finance envoy Avinash Persaud have made a huge impact with their Bridgetown Initiative, which calls for far-reaching reform in the global financial system to ensure better outcomes for developing nations.

For proof, just look to yesterday’s “finance day” here at the UN climate conference, where significant announcements were made in line with specific parts of Mottley’s and Persaud’s agenda.

The UK and France, as well as multilateral lenders including the World Bank and African Development Bank (AfDB), made commitments to enlarge their use of climate-resilient debt clauses, which allow borrowers to pause repayments if hit by extreme weather events.

Japan and France announced their maintain for the AfDB’s access to “special drawing rights” — a sort of reserve currency handled by the IMF — to maintain climate-related investment in Africa.

And several multilateral development banks declared their intention to make more aggressive use of their balance sheets to maintain climate-related investment.

Barbados’s role in these developments is a heartening sign that smaller developing nations can have a real impact on the outcome of these UN COP events. But as I explain below, there are signs of a serious divide at these talks between wealthy and developing nations. — Simon Mundy

COP28 in brief:

  • Several big banks and corporations publicly backed the Energy Transition Accelerator, a US-led scheme to fund developing nations’ advance away from polluting energy sources.

  • The three largest certification bodies for carbon credits announced a collaboration aimed at strengthening standards in the controversial market.

The COP28 flashpoints between global north and south

If this COP feels exceptionally consequential, that’s because it is. COP28 is tasked with holding the first “global stock take” since the Paris Agreement was signed in 2015. Nations need to accomplish a common position on the clearly inadequate progress towards the goal of restraining global warming to 1.5C — and on what to do about it.

What will that agreement look admire? The answer is starting to take shape. The latest draft agreement, published early this morning, runs to nearly 24 pages, touching on nearly every angle of the climate agenda.

The draft makes clear the key areas of contention between negotiators, by offering “options” for various clauses — between alternative wordings, or no text at all. In many cases, these sections point to the diverging priorities and interests of wealthy and developing economies — a divide that is at the centre of the negotiations here in Dubai.

In yesterday’s newsletter we highlighted the war of words between the world’s oil producers and their critics. This is a key dynamic to watch and as I note below, the fact that a “phaseout” of fossil fuels has made it into this draft text is highly significant.

But the tension between developed economies — disproportionately responsible for climate change — and developing ones — disproportionately vulnerable to its impacts — is no less real, and certainly no less important.

Here are some of the key undecided clauses in the global stock take agreement, which will be central to discussions here over the next eight days.

Historical responsibility

On a per capita basis, the world’s wealthy nations have made a far greater contribution to cumulative carbon emissions than developing ones — dwarfing even that of China.

One optional clause in the stock take would state that “equitable mitigation action is guided by historical responsibility”, and that “developed countries should take the direct on mitigation actions”.

The alternative wording here stresses that the Paris Agreement is “based on a forward-looking process”, and calls for “all parties” to do their best.

Or — as is the case for all the clauses discussed here — delegates are given the option of leaving this section blank.

Economic openness

One optional clause states that climate measures should not constitute “a means of arbitrary or unjustifiable discrimination or a disguised restriction on international trade”.

This reflects concerns about rich-world green policies that could have some adverse effects for developing nations. The EU’s newly unveiled carbon border adjustment mechanism could hurt exporters in countries with carbon-intensive energy systems. The US Inflation Reduction Act threatens to disadvantage green energy suppliers in countries that don’t have a trade deal with the country.

International climate finance

Rich countries repeatedly broke their promise to mobilise an annual $100bn in climate finance for developing ones by 2020. Last month, an analysis by the Organisation for Economic Cooperation and Development found that the target was “likely” at last reached in 2022, two years late.

The draft text offers two starkly contrasting options on this subject. Delegates can recognise “the gap that remains” for the rich countries to face their promise, and the need for additional maintain to address the shortfall in previous years. Or they can simply note the OECD’s “expectation” that the goal was reached last year and “encourage” developed nations to scale up climate finance in future.

Phasing out fossil fuels

As we wrote yesterday, this could verify the most explosive debate of all. The draft text includes three options, which are worth writing out here in full:

Option 1: An orderly and just phase out of fossil fuels;

Option 2: Accelerating efforts towards phasing out unabated fossil fuels and to rapidly reducing their use so as to accomplish net zero CO₂ in energy systems by or around mid-century;

Option 3: no text

A separate clause deals specifically with coal, mooting “an immediate cessation of the permitting of new unabated coal power generation” — a clause that will sound fine to many rich nations that have moved beyond coal; potentially less so to heavily coal-reliant nations such as India. (Simon Mundy)

Quote of the day

“Absolutely not.”

— Saudi energy minister Prince Abdulaziz bin Salman, on whether he would be happy to see a COP28 agreement on a “phase-down” of fossil fuels.

Beyond COP28: US proposes standards for voluntary carbon credits

Carbon credits have been characterised as a “wild west,” a market largely free from regulations.

But now, the US derivatives regulator is starting to crack down on potential greenwashing in the voluntary carbon credit market.

On Monday, the Commodity Futures Trading Commission proposed standards that call on exchanges to verify the quality of voluntary carbon credit derivatives, which base their prices on those of financial instruments bought by companies to offset emissions.

The value of the carbon trading market worldwide could enlarge to $100bn by 2030, up from $2bn in 2022, according to Morgan Stanley. The fledgling voluntary carbon derivatives sector, meanwhile, includes just three contracts with meaningful trading volume, while 15 more are listed but have limited trading, according to the CFTC.

Rostin Behnam, CFTC chair, told me the guidance was “the first of its kind from a US market regulator” that creates standards for derivatives exchanges in relation to voluntary carbon credits. The guidelines seek to clamp down on manipulation and to foster accurate pricing by pushing exchanges to ensure the terms of listed contracts are in accordance with US federal laws and CFTC regulations.

“Evidence suggests that environmental commodities markets and the underlying spot markets for carbon credits are rife with fraud,” CFTC commissioner Kristin Johnson said, adding: “It is difficult to overstate the significance of today’s announced proposed guidance.” (Patrick Temple-West)

Smart read

Alan Beattie argues the “blame game” around carbon emissions is undermining the fight against climate change.

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