What You Need to Know.

  • “We very much believe and respect the science,” said COP28 President Al Jaber on Monday after it had been reported that he had earlier commented that there was “no science” behind requiring the phase-out of fossil fuels to limit global warming to 1.5C. President Al Jaber went on to say that “the phase down and the phase out of fossil fuel is inevitable.” This statement comes after heavy criticism from climate activists and scientists of President Al Jaber’s earlier comments, further emphasizing the centrality of the “phase down” vs. “phase out” debate as a wedge issue at this COP.
  • According to the UAE COP Presidency, the first four days of COP28 have seen a collective commitment of USD $57 billion in climate finance from governments, businesses, investors, and philanthropies. Although still falling short of the global investment needs, these collective pledges show the continuing growth in climate-focused capital around the globe.
  • The U.S. Commodity Futures Trading Commission (“CFTC”) has issued proposed guidance regarding the listing of voluntary carbon credit derivative contracts, the first guidance specifically targeting the voluntary carbon market (“VCM”) by a federal U.S. regulator. The proposed guidance outlines certain factors a CFTC-regulated exchange, or designated contract market, should consider when addressing requirements of the Commodity Exchange Act (“CEA”) and CFTC regulations that are relevant to the contract design and listing process. The proposed guidance will be open to public comments until February 16, 2024.

Why This Matters for Businesses.

  • The conciliatory tone from the COP Presidency with an explicit acknowledgement of fossil fuel “phase out” is an effort to regain some goodwill that will be important for the difficult negotiations ahead. These will concern, for example, the incorporation of the Global Stocktake into the COP’s outcomes and how it impacts countries’ climate commitments, particularly with respect to future energy policy.
  • Climate finance, once actually available to borrowers, creates many opportunities for the private sector. Once COP28 concludes, it is important that companies assess how any new climate finance pledges may affect their business sectors and create opportunities going forward.
  • The CFTC’s announcement to propose regulation of the VCM is the latest sign that regulators across jurisdictions are moving toward stricter rules. The CFTC’s actions follow California’s AB 1305, which requires companies to disclose key details about voluntary carbon offsets, and the EU’s European Sustainability Reporting Standards that also require extensive information about carbon credits.

Covington Commentary.

“I gather a sense of optimism that seems to be arising from the sheer scale of the financial commitments being brought forth in this COP’s many initiatives. While the challenge and pace still dwarf the response, there is a sense of momentum on climate finance issues.”

Gary Guzy, Senior of Counsel, Co-chair of Energy Industry Group