On the 13th of November, COP26 delegates and negotiators achieved an agreement to establish rules for carbon markets around the globe. This landmark carbon trading agreement offers one of the most concrete outcomes of COP26 for countries and businesses and it unlocks trillions of dollars for protecting forests, building renewable energy facilities and driving the efficiency and decarbonisation of real estate assets. The final details have been agreed to by almost 200 countries under the requirements of Article 6 of the 2015 Paris Agreement. For those that missed it, Article 6 sets out the potential for a market-based mechanism that will allow for and facilitate international carbon offset trading, one of the most complex and arguably important structures put forth in Paris.
International carbon trading and subsequent market creation is undeniably an opportunity to lower the cost of reducing greenhouse gas emissions by opening up and creating a robust and reliable financial market to facilitate country and organisational net-zero journeys. The market-based mechanisms would enable countries and businesses to commit to more ambitious targets as we pursue capping global warming at 1.5 degrees.
Prior to COP26, Article 6 proposed to implement a tax on trades that would generate a fund to support the development and climate adaptation of poorer nations, leading to a disagreement between many countries and thus no uptake, initially. The recent COP26 agreement addressed this stalemate with a compromise that has taken a dual-pronged approach. Under the newly agreed terms, bilateral trades of offsets between countries will not be subject to the adaptation fund tax. In a separate centralised system for issuing offsets, 5% of proceeds from offsets will be collected to go toward this conceptualised adaptation fund for developing countries.
Asia Pacific maybe be a significant beneficiary of this new market. As many of our economies pursue development, investment in renewable technology in our countries through offset trading may result in significant fiscal injections into our region. Countries like Australia and Singapore could establish themselves as a global centre for carbon trading.
Similarly, by implementing a price on carbon and opening up a global carbon market, the ROI on driving super low-energy buildings and pursuing decarbonisation retrofits becomes more attractive to building owners, operators and occupiers.
This mechanism signals an increasing global commitment to decarbonisation, and with the built environment representing 30-40% of global emissions, our industry has a significant role to play, and will realise significant value from mechanisms like the proposed global carbon trading market.
Article 6 has the potential to promote and open up carbon finance for the real estate industry, clean energy, and carbon removal.
Despite the value that a carbon market would bring the global community, we must be sure to pursue offsetting as a final resort, countries and businesses must adhere to the carbon hierarchy in our respective pursuits of sustainability to ensure truly responsible and meaningful decarbonisation of our properties, our businesses and our economies. As a community we must remain vigilant against greenwashing.