As the planet gets hotter, Wall St eyes $1tn climate market

Just as the world has seen record land and sea temperatures in 2023, so some research models have for long suggested up to a quarter of global GDP could be lost if no action is taken to reduce carbon dioxide emissions.
Last year was the planet’s hottest on record (going back to 1850) by a substantial margin and likely the world’s warmest in the last 100,000 years, the European Union’s Copernicus Climate Change Service (C3S) has said.
Countries agreed in the 2015 Paris Agreement to try to prevent global warming surpassing 1.5C (2.7F), to avoid its most severe consequences.
Despite the proliferation of governments’ and companies’ climate targets, CO2 emissions remain stubbornly high.
As the carbon offset market got a new lease on life from the COP28 climate summit in Dubai, bankers from Wall Street and the City of London are positioning themselves to get a chunk of the dealmaking they say is coming.
Banks that have been building up carbon trading and finance desks include Goldman Sachs Group, Citigroup, JPMorgan Chase & Co and Barclays.
They’re looking to finance the development of carbon sequestration projects, to trade credits and to advise corporate clients buying offsets. They’re also keen to support local projects in emerging markets that currently lack the financial
Wall Street is racing to get a foothold in a market that has the potential to reach as much as $1tn, as offsets offer a way for companies to hit net zero without actually eliminating all their emissions.
But many of the credits generated have drawn criticism from climate scientists for their ostensible failure to live up to the environmental claims made by those selling them.
In November, the chief executive of South Pole — the world’s biggest seller of carbon offsets — stepped down as the company pledged to look into allegations of greenwashing and “learn from the experience.”
Bankers studying the market say such episodes can’t be allowed to erode confidence in the future of carbon offsetting.
And speaking at the COP28 summit in Dubai, John Kerry, US climate negotiator, described himself as “a firm believer in the power of carbon markets to drive ambition and action.”
Though climate scientists have long warned against relying on offsets to achieve net zero emissions, they also acknowledge that such products are critical when it comes to tackling residual emissions in hard-to-abate sectors.
The US Commodities Futures Trading Commission, which regulates derivatives markets, used the COP28 summit to unveil standards for high integrity carbon offsets futures trading.
The point of the voluntary carbon offset market is to generate carbon credits, which are then generally bought by companies to offset their emissions. A carbon credit is a paper security that’s supposed to represent one tonne of CO2 reduced or removed from the atmosphere.
Project developers team up with middlemen such as South Pole to sell the credits. Buyers can trade the units or use them to offset their own emissions, in which case they must retire the credit to avoid it being used twice.
Among the long list of unknowns surrounding the carbon offset market is the element of technological innovation, which may suddenly turbo-charge the field of carbon removals.
Over the last few years, an ecosystem of climate pledges, groups and models has expanded on Wall Street in a bid to cut — or appear to cut — the financial industry’s role in global warming.
But many of those efforts have had a limited impact on thwarting the damage inflicted by climate change, according to researchers at Columbia University.
Almost $200tn of investment is needed by 2050 to reach net-zero emissions, according to a BloombergNEF estimate last year.