Publications

This week, for the International Day of Forests, I4CE offers you an overview of the forestry issues that are being debated in France and in Brussels. In our newsletter, you will discover a new blog post by Julia Grimault on European carbon certification and our latest analyses on the adaptation of French forests to climate change, the French carbon sink and the wood industry. 

The European Union still has a lot of work to do. Yesterday the European Commission published its Net Zero Industry Act, a piece of its response to the American Inflation Reduction Act, a necessary but still insufficient building block to keep the European Union in global cleantech race. It will also have to complete a number of directives and regulations to deliver its Green Deal. The EU election in 2024 is fast approaching, time is of the essence. 

The adoption by the US of the Inflation Reduction Act gave new life to the global cleantech race. The EU must now learn three lessons from it, writes Thomas Pellerin-Carlin, the EU Programme director at the Institute for Climate Economics – I4CE. As anyone who has marvelled at professional cyclists vying for position knows, the decisions competitors take challenges the strategy of those following close behind. Since August 2022, when the US Congress adopted a public climate investment plan of $400-800 billion as part of the Inflation Reduction Act (IRA), it’s safe to say the global cleantech race has moved up a gear.

The proposal for mandatory climate transition plans for banks is slowly making its way through the regulatory debate. Proposed by the European Commission and confirmed by the EU Council, this proposal has now also been taken up by the European Parliament. This obligation could be a game-changer for financial risk management and the alignment of financial flows with the transition to a low-carbon economy. It could lead banks to limit their activities in climate-damaging activities, adjust their business models, review their strategies as well as their governance and risk management procedures.

The legislators in Europe are discussing the introduction of mandatory climate transition plans for banks. After the European Commission and the Council, the European parliament has adopted its position. Now trilogue negotiations between the three will begin. While all three seem to agree on the idea itself, differences remain in how these plans are defined. Anuschka Hilke, Director of the Finance program from the Institute for Climate Economics (I4CE), explains in this blog which parameters will be decisive for framing the ambition of this legislative proposal.

Last August, the US Congress adopted the Inflation Reduction Act (IRA). It became the epicentre of EU fears of seeing cleantech projects, like battery or solar panel gigafactories, settling in the US rather than in the EU. There is some rationality behind that fear. The IRA indeed provides sizable public funding, with 10 years predictability and the simplicity of having a single federal level scheme. Moreover, the IRA does not only subsidize cleantech manufacturing. For instance, in the case of electric vehicles, the IRA supports the mining of critical minerals, the manufacturing of the battery, the purchase of the electric car and the production of renewable electricity. In other words, with IRA the US now has a genuine long-term climate investment plan.

For years, the European Union assumed it would lead the cleantech race because it was the only one running in it. Mistakenly so. With the Inflation Reduction Act, the US quickly catches up. This brief argues that the best EU policy answer to the IRA is an EU long‑term climate investment plan. As the political appetite for such a plan is currently limited, the European Commission should use the political momentum to propose a targeted investment plan that focuses on the development, scale-up, manufacturing and deployment of clean technologies in the EU. It identifies three first bricks that can already be laid out to build this plan.

Private finance will not fund the transition without a stronger commitment from public authorities. For several years, and particularly since COP 26, considerable time and attention has been dedicated to the subject of voluntary commitments from private financial actors. These commitments, made within the framework of international initiatives, should in principle enable private finance to be mobilized for the transition to a carbon neutral economy.

How can we differentiate between projects that really enable carbon to be stored and those that only claim to do so? This is a complicated question when dealing with projects in agriculture and forestry, where quantifying carbon storage is complex, and where other environmental challenges, like the preservation of biodiversity, must also be taken into account. A complicated question, therefore, but one that needs an answer! Private actors and public authorities want to ensure that the agricultural and forestry projects financed in the name of the climate have a real environmental benefit.

Yesterday, 30 november 2022, the European Commission adopted a proposal for a first EU-wide voluntary framework to reliably certify high-quality carbon removals. This proposal provides a framework, broad guiding principles, and the details will be specified in 2023 supported by an expert group on Carbon Removals. “The devil may be in the detail”, but the framing is no less important. Claudine Foucherot of [i4ce] has analysed it and identified four points on which we must be vigilant. Overall, it can be said that the Commission is submitting an ambitious proposal, which nevertheless presents a risk: not being sufficient incentives to ensure a massive deployment of certified projects.    

One year ago the creation of the Glasgow Finance Alliance for Net Zero - GFANZ – was announced. The expectations were as big as the numbers: a coalition gathering 500 financial actors representing 130 trillion dollars. Private financial actors were finally stepping in and mobilizing. But one year later, the coalition raises many doubts. On one side it faces criticism from NGOs, and on the other some US actors are considering leaving the coalition under the pressure of members of Republicans Party.  

The European Union has made rapid progress on the issue of transition plans for companies and banks. First of all, the CSRD directive obliges each listed company to publish its plan for achieving carbon neutrality by 2050. Published by EFRAG this summer, the standards set for these plans can be considered ambitious and commensurate with the challenges they face. With regards to banks, it is now clear that they will be required to publish their transition plan. What remains under debate is whether these transition plans should be integrated into prudential regulations, which would open the way to numerous possibilities of action and sanctions by supervisors.

Carbon revenues were nearly USD 100 billion in 2021. This represents a more than 80% increase year-on-year (USD 53.1 billion in 2020, USD 97.7 billion in 2021). This increase is largely driven by the rise in allowance prices on the European carbon market, which exceeded the symbolic threshold of EUR 100/tCO2 for the first time in the summer of 2022.

The European Commission will propose a `carbon certification’ by the end of the year as a first step towards remunerating farmers and foresters who contribute to carbon farming. This certification project raises debates and concerns. For Adeline FAVREL of I4CE, the EU can respond and develop an ambitious certification by relying on the experience of the Member States in this field.

To achieve the climate goals of the UE, The European Commission wants to create a carbon certification framework to encourage carbon storage in the land sector. The challenge is to develop a common and harmonised framework at the European level by better relying on the expertise acquired through existing certification frameworks. With this study, I4CE propose 7 recommendations, inspired by both our concrete experience with the French Label Bas-Carbone to which we have contributed, and by 15 years of research on carbon certification.

The restructuring of the economy towards a low-carbon system will lead to develop activities that are aligned with the needs of a net zero economy, to restructure others in order to make them compatible with these needs and to stop harmful activities. The financial sector needs to anticipate these dynamics to address strategic risks and […]

The transition plans aim to establish a progressive decarbonisation strategy by 2050, in line with the European Union’s objectives. The European Central Bank, through Frank Elderson, as well as several NGOs are calling for transition plans to be made mandatory for banks and to be integrated into prudential regulation. This note first looks at why […]

In order to reach the objectives of the recently approved EU Climate Law, the agricultural sector has to simultaneously reduce significantly its level of emission, increase the amount of carbon it sequesters, and augment the production of biomass in substitution of fossil fuel – which are to be phased out in the short term. In […]

On December 15, 2021, as part of its communication on carbon sinks, the European Commission made public its proposals to strengthen carbon storage in agricultural soils. Its objective: to remunerate farmers to encourage them to store more carbon. To achieve this, it is first necessary to build a European carbon certification framework to guarantee the […]

Explicit carbon pricing systems - a tax or a carbon market - continue to develop around the world. In the 2021 edition of its Global Carbon Accounts, I4CE presents the main trends and provides an overview of these public policies ...