EXTRA CREDIT — The Biden administration is making a push to revive interest in the beleaguered voluntary carbon market with a plan that aims to boost Wall Street engagement with its climate agenda and raise funds to help vulnerable countries address global warming, your host reports. Top administration officials are planning to pitch at the U.N.'s annual climate summit next month the idea of companies buying carbon credits to help meet net-zero commitments they couldn't otherwise achieve as a way to mobilize private capital for a global fund meant to help developing nations deal with disasters and adapt to a warming world. The plan, if it works, could also help the administration make good on its promises to contribute to the global effort to combat climate change. But it’s also an indication of the challenges President Joe Biden and his regulators have faced in getting Wall Street to do more to decarbonize . "There's been a bit of a lack of leadership at the federal level on the climate finance agenda," said Graham Steele, who served as Treasury’s assistant secretary of financial institutions before stepping down earlier this year. "There's talk about how private capital has to fill a need within that framework at multiples of what Congress allocated through tax credits, loan guarantees and the like in the [Inflation Reduction Act]. The issue that has come up as part of the administration is that there has not been a lot in the way of binding action to actually ensure that that private capital gets there." The carbon credit proposal isn’t just directed at financial firms, but banks including Bank of America, Morgan Stanley and Santander are early supporters. And Citigroup recently announced a partnership with a top carbon credit verifier. The plan has potential upsides both for the U.S. and for financial institutions, as well as for developing nations, according to Curtis Ravenel, managing director and global head of transition planning and finance for the Glasgow Financial Alliance for Net Zero, a coalition of 700 global firms focused on the energy transition. “Getting money into emerging economies is very difficult,” Ravenel said. “But if done the right way, a high-integrity carbon credit could help catalyze further deployment.” But there’s a reputational risk that could keep firms from boosting their carbon market involvement given the allegations that some offsets aren’t delivering promised environmental benefits. Still, the White House is betting that boosting carbon credits can align its goals with Wall Street in a way that might prove more durable with electoral uncertainty hanging over Biden's climate agenda. “VCMs have the potential to create both economic and climate opportunities by channeling private capital to high-impact and cost-effective climate projects across technologies, ecosystems, and geographies,” Deputy Treasury Secretary Wally Adeyemo said at a Climate Week event. “But today’s markets face significant challenges that are holding back their growth.” Momentum for Wall Street and regulators to address climate-related risks in the financial system that peaked when Biden took office has been blunted by economic and political realities since COP26 in Glasgow, where industry recognition of the need for its involvement led many of the nation’s largest financial firms to join net-zero groups. Since then, soaring inflation, high interest rates and a concerted Republican backlash have softened expectations on what the industry can do and how far regulators should go, even as the business case to finance the energy transition has arguably only gotten stronger thanks to the IRA. The Institute of International Finance, sensing a gap between the expectations of some policymakers and the realities of the role financial institutions play in the energy transition, released a paper last month pushing back on the notion that the finance sector alone can drive the green transition and arguing that “capital will only move in support of net zero goals at scale when the economics make sense.” “We're not in Glasgow anymore,” said Sonja Gibbs, head of sustainable finance at IIF.
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