The
following expands on notes from a presentation delivered at AlterCOP29 on 14th
November 2024. These remain my opinions,
as Executive Chairman of Red Sycamore.
The
Timeline of Failure and Compromise
November
2023, COP28, Dubai. The Loss and Damage Fund launched with pledges
of just over US$600 million. This sum
was smaller than the cost of building the Dubai Expo City venue hosting the
conference itself. Parties also agreed,
for the first time, to transition away from fossil fuels and triple renewable
capacity by 2030. We were there at the launch.
September
2024.
The Loss and Damage Fund’s pledge total reached US$702 million from twenty-three
contributors. France, Italy, Germany,
and the UAE each gave at least US$100 million.
Actual need, per UN estimates, was US$300 billion a year by 2030. The gap between pledge and requirement was
already running at 400 to 1.
November
2024, COP29, Baku. Parties set a new climate finance goal of
US$300 billion annually by 2035, against developing countries' own request for
US$1.3 trillion. The Loss and Damage
Fund reached full operational status.
COP28’s fossil fuel transition language simply vanished from the final
text, a documented reversal of the previous year's hard-won commitment.
5th
November 2024.
The Network for Greening the Financial System published its Phase V
climate scenarios, tripling its prior damage estimates. This detail matters more than any pledge
total. The central banks and regulators
who build the models governments and insurers rely on had, until this date,
been understating the economic risk by a factor of three.
February
2025.
The United States rescinded US$4 billion in pledges to the Green Climate
Fund, the first country ever to formally withdraw a commitment already
made. Germany and Sweden asked wealthier
developing nations to help cover the gap.
Saudi Arabia called the request “unacceptable.”
Early
2026.
The United Kingdom halved its own Green Climate Fund pledge, from £1.6
billion to £815 million.
June
2026.
The World Bank dropped its 45 per cent climate co-benefits target, the
same month it had already been exceeded at 48 per cent, under pressure from the
United States, Russia, and Saudi Arabia.
November
2025, COP30, Belém. Parties called for mobilising US$1.3 trillion
annually by 2035, and confirmed Loss and Damage Fund replenishment cycles. A planned pledging event for the Least
Developed Countries Fund and Special Climate Change Fund was cancelled
outright, because of lack of contributor interest. More than eighty countries backed an explicit
fossil fuel phase-out roadmap. It did
not survive the final hours of negotiation.
That
is the full arc, in eight steps, across two years: launch, undershoot,
reversal, quiet model correction admitting the risk was worse than stated,
formal withdrawal, halved commitment, target abandonment, and a cancelled
pledging event. Every step moved in the
same direction.
The
Cost of Doing Nothing
Planning
for the worst case means using the most severe published figures, not the most
comfortable ones. Swiss Re Institute’s
own stress test, covering forty-eight economies representing 90 per cent of
global output, found that under a 3.2°C warming scenario, the world economy
loses 18 per cent of GDP by 2050. China
loses 24 per cent. Asia’s hardest-hit
economies lose up to 26.5 per cent.
Against a 2024 global GDP of US$100 trillion, an 18 per cent loss alone
is US$18 trillion.
The
NGFS revision of November 2024 is worse.
It found climate damage could reach 15 per cent of global GDP by 2050
from just 2°C of warming, the temperature ceiling the Paris Agreement was built
around as a success scenario, not a failure one. Extended to 2100 under 3°C, the loss reaches
30 per cent, three times the NGFS’s own prior estimate. These are not fringe activist numbers. They come from the network of central banks
and financial regulators whose models set capital requirements for the global
banking system.
Academic
modelling goes further still. Research
compiled by CEPR, drawing on multiple published damage functions, finds a
plausible range running from 2 per cent to 45 per cent of global output lost by
the end of the century, depending entirely on which damage function is
used. Bilal and Känzig’s 2024 modelling
found the global economy could grow by only 125 per cent by 2100, after
accounting for climate losses, against a hypothetical three hundred per cent
growth path with no further warming.
That is not a loss confined to one bad year. It is a permanently smaller economic
trajectory, compounding every year between now and the end of the century.
Even
these figures may understate the true tail risk. The NGFS’s own scarier revision still gives a
false sense of accuracy, because standard economic models rely on historical
data patterns. Climate change is
invalidating those patterns as it unfolds.
Treating these models as reliable is like assuming the iceberg that sank
the Titanic was an ice cube dropped by a previous ship, a known, bounded
hazard, when the actual risk profile is less predictable and potentially worse.
This
Justifies the Secondary Market Argument
Article
6’s rulebook, finalised at COP29, and the Paris Agreement Crediting Mechanism,
operational following COP30, remain the only mechanism in this entire timeline
that grew stronger rather than weaker across these two years. The EU Emissions Trading System has already
proven the model at scale, cutting covered emissions 51 per cent since 2005
while raising over €265 billion in revenue, funded by market pricing rather
than pledge conferences. Sustainability
finance needs to be democratised specifically because every government-pledge
mechanism examined in this timeline has moved backwards, while the one
market-based mechanism built on private capital and enforceable pricing has
moved forward.
Compliance
Carbon Credits as a Financial Instrument
A
secondary market needs more than good intentions and a UN logo. It needs standardised units, verified supply,
a registry preventing duplication, and price discovery liquid enough for
institutional capital to enter without fear of buying nothing. Article 6 has spent two years building parts
of this. The weakest part sits at the
very first step: verification.
Verification
Fails before a Credit Ever Reaches the Market
Verra,
the world’s largest voluntary carbon credit registry, does not employ its own
auditors. Project developers hire and
pay their own validation and verification bodies directly, the same firms
responsible for confirming the developer’s own claimed emission
reductions. A Science magazine editorial,
“Auditors Can’t Save Carbon Offsets,” said, “Auditors are unlikely to stay in
business if they disapprove credits at the high rates that research suggests
would be appropriate today.” A
researcher reviewing 95 Verra-certified projects later found to have overstated
their climate benefit found that twenty-one of the thirty-three accredited
auditors active in 2024 had signed off on one or more of those projects. This is not a handful of bad actors. It is a structural feature of a system where
the auditor’s own revenue depends on the developer’s continued business.
Transparency
International US described the resulting arrangement: “Some of the project
developers, seeking maximum value for their work, also sit on the Boards of
Directors of the standard setters. It is
as if the students are designing their own assignments and grading their own
papers.” Verra itself was founded in
2007 by the International Emissions Trading Association, the World Economic
Forum, the World Business Council for Sustainable Development, and the Climate
Group, organisations Transparency International notes carried strong ties to
high-emitting industries from the outset.
In 2024, Brazilian police arrested five people linked to Verra-certified
Amazon projects following a raid, one of several enforcement actions exposing how
far this conflict can run in practice.
The
Myanmar cookstove case fits this pattern.
Verification could not conduct site visits due to security concerns; the
project operated through institutions controlled by the military junta, and
Carbon Market Watch found it was approved for seven times more credits than its
actual emission reductions warranted.
PACM’s own Article 6.4 Supervisory Body is closer to Verra’s model than
to an independent auditor, since it inherited both the CDM’s institutional
legacy and a similar reliance on accredited third-party validators chosen and
engaged by the project itself. Building
a secondary market on top of this verification layer, without an independent
check on the check, means institutional capital would be pricing a UN registry
entry rather than a verified tonne.
The
Mechanism Gaps
Four
gaps remain before compliance carbon credits function as a genuine financial
instrument.
First,
standardised secondary trading venues, exchanges, or clearing platforms where
credits trade with published, continuous pricing rather than bilateral, opaque
deals negotiated project by project.
Second,
and most urgently given the verification problem above, independent credit
rating infrastructure, genuinely separate from both the registry and the
project developer, scoring permanence and additionality risk the way a bond
rating agency scores default risk, without being paid by the entity it is
rating.
Third,
derivative instruments, futures and forwards referencing credit prices, giving
buyers and developers a way to hedge exposure the way any mature commodity
market allows.
Fourth,
custody infrastructure letting credits sit inside a regulated financial
account, transferable and reportable, rather than existing only inside a
registry interface built for compliance reporting rather than portfolio
management.
Every
credit traded under Article 6.2 must carry a corresponding adjustment, a formal
acknowledgement from the host country that the transfer has been recorded in
its own national emissions inventory, preventing the same reduction from being
claimed twice. A host country must also
issue a Letter of Authorisation naming the specific project before a credit can
be sold and retired internationally.
Both steps function as legal title clearance. Neither one checks whether the underlying
tonne was ever avoided in the first place.
We are far from a verified secondary market to address the gap in the
Loss and Damage Fund.
Terence Nunis | Executive Chairman, Equinox Zenith
& Red Sycamore | Author, The 1% Playbook: The Billionaire Cheat Code
