COP27
Decarbonisation & Greenwashing

Decarbonisation & greenwashing

A whole day was dedicated to decarbonisation at COP27, which is a timely reminder that it is a key strategic priority for all nations in the fight against climate change.

The extent of the carbon problem was highlighted in a special analysis, released at COP27. In a study of global carbon emissions, scientists concluded that if current levels of carbon emissions continue, there is a 50% chance that the world will see the global warming limit of 1.5°C exceeded within the next decade. This put investment into decarbonisation of the highest emitting sectors and the development of new technology right at the front and centre of discussions.

Under the Breakthrough Agenda, countries representing more than 70% of global GDP launched a package of 25 new collaborative actions to speed up decarbonisation. These 25 actions are listed under five key ‘breakthroughs’ including power, road transport, steel, hydrogen and agriculture. The deadline for completing these 25 actions is by COP28 with the aim of cutting energy costs, rapidly reducing emissions, boosting food security for billions of people worldwide and ensuring a just transition for green jobs.

In a development that will interest those in the construction and development sectors, the First Movers Coalition (a global initiative harnessing the purchasing power of companies to decarbonise seven “hard to abate” industrial sectors) has partnered with the World Economic Forum and Mission Possible Partnership to launch the “FMC Cement & Concrete Commitment”. Signatories to this Commitment have pledged to purchase at least 10% near zero carbon cement and concrete by 2030. This is seen as a significant step forward as cement is the second most-used product on earth after water and is responsible for an estimated 7% of global emissions.

Greenwashing

The United Nations (UN) also urged a crackdown on ‘greenwashing’.

The UN’s “high-level expert group”, set up to advise on rules to improve integrity and transparency in net zero commitments by industry, regions and cities, set out a series of “red lines” to prevent “dishonest climate accounting”. The UN stressed that companies pledging to reach net zero emissions should no longer be taken seriously if they keep investing in new fossil fuel supply, stating, “net zero is entirely incompatible with continued investment in fossil fuels”.

In focus: ESA requests a Call for Evidence on Greenwashing

The European Supervisory Authorities (ESAs) published a Call for Evidence on Greenwashing during COP27.

Due to the growing demand for sustainability-related products and the rapidly evolving regulatory regimes and sustainability-related product offerings, the call is also motivated by the need to better understand which areas may become more prone to greenwashing risks. In addition, the call seeks

input on potential greenwashing practices relevant to various segments of the sustainable

investment value chain and of the financial product lifecycle.

All interested parties are welcome to contribute to the survey, including financial institutions under the remit of the three ESAs and other stakeholders ranging from retail investors and consumers associations to NGOs and academia.

The work for this request for input can be structured in the following main areas:

clearly defining greenwashing and better understanding the phenomenon, its scale and potential related risks;
taking stock of the implementation of relevant sustainable finance legislation within the remit of the ESAs and identifying early challenges for stakeholders and regulators;
mapping out various aspects of the supervisory response and assessing its adequacy from both a legal and a practical standpoint; and
issuing recommendations based on findings within the areas referred to above.

The deadline for submissions is 10 January 2023. The final report will be published in May 2024.

This will be of particular interest to organisations as they establish net zero targets and strategies. This will also be of interest to investment companies as they consider their portfolios or new buying opportunities.

The UN also said companies trying to eliminate their emissions could no longer buy cheap carbon offsets or fail to count all their emissions – using the example of an oil rig counting emissions from rigs but not from their customers using petrol to fuel their cars. They also warned against lobbying Governments to undermine ambitious government climate policies.

It is likely that Governments will come under growing pressure to mandate universal standards, so organisations should prioritise their climate action strategies if they haven’t already.

DJB Partner, Stephen Chalcraft commented: “Decarbonisation is inevitable and will be extremely costly for the real estate and construction sectors. At DJB our main concern is that Government pressure and legislation will dictate a pace of change of that far outstrips the sectors’ ability to respond in an economically effective manner, and that could destabilise a critical part of our national economy. The only way I can see this working is via a sensible and programmed set of measures that (i) promote Green Growth and (ii) builds in resilience which allows us to adapt in a sustainable manner. This is critical to the future success of decarbonisation, and the Government will need to elaborate on these issues and further develop net zero funding strategies.”

In focus: UK Autumn Statement 2022 – Decarbonisation and renewables

Chancellor Jeremy Hunt has reiterated the government's commitment to delivering on the UK's international climate responsibilities, confirming support for the planned Sizewell C nuclear power plant, announcing a new long-term target for UK energy efficiency, and promising continued investment in clean tech innovation.

Speaking in the Commons, Hunt said that despite the economic headwinds the UK is facing it would be wrong to dilute the UK's climate goals.

"The United Kingdom has been a global leader on climate change, cutting emissions by more than any other G20 country," he said. "But with the existential vulnerability we face now would be the wrong time to step back from our international climate responsibilities. So I can confirm that despite the economic pressures we face, we remain fully committed to the historic Glasgow Climate Pact agreed at COP26 including a 68 per cent reduction in our emissions by 2030."

To help deliver on the target, Hunt promised action to bolster the UK's energy independence through investment in energy efficiency, renewables, carbon capture and storage (CCS), and nuclear power. The government will continue to secure the UK’s energy security through delivering new nuclear power, including Sizewell C (subject to final agreement), and the roll-out of cheap, clean renewables, including wind and solar. This will support the government’s commitment to reduce emissions, decarbonise the power system by 2035 (subject to security of supply) and reach net zero by 2050.

However, Hunt's speech offered no new policies on renewables, and tax rates have been increased on clean technologies, extending the windfall tax on oil and gas firms to cover clean power generators such as renewables.

Hunt also confirmed that the government would be investing £6.6 billion into energy efficiency and a further £6 billion from 2025 as well as forming a new Energy Efficiency Taskforce to help direct the funding.

Treasury documents also confirmed changes to tax breaks that the government previously offered to oil and gas companies who invest in new infrastructure, designed to encourage more investment in green projects.

"To continue encouraging companies to reinvest their profits in the UK, we will maintain the existing cash value of the levy's investment allowance, ensuring there is still a significant increase in relief compared to the permanent system," the Treasury said. "To achieve this, the rate of the allowance will be reduced from 80 per cent to 29 per cent for all investment expenditure besides decarbonisation expenditure. The allowance will remain at 80 per cent for decarbonisation expenditure (defined as investment in carbon emissions reducing technology) such as installing bespoke wind turbines to power the production installation."

There is no express mention of comparable tax allowances for renewables generators. The levy on low carbon generators is also higher than the levy imposed on oil and gas firms.

Taxes are set to increase for electric vehicles from 2025. This announcement came on the same day as the UK Government launched initiatives at COP27 to encourage other nations to fast track their transition to zero emission vehicles.