REI Training Courses Show it is Possible to Invest into Climate Change Reduction Now

In looking at the question of financing investing in Climate Change Reduction, we can envisage the Global Carbon Budget [1] in the following simple diagram.

ANNUAL GLOBAL CARBON DIOXIDE BUDGET (2006-2015)

This diagram showing us an annual rate of emissions and absorption by carbon sinks, and other work by the UNFCCC and other researchers, essentially shows us that as agreed at the Paris Accord (PA) in December 2015, anthropogenic ie man-made emissions must balance carbon sinks which absorb CO2e [2] by 2050 if mankind is to ensure that we do not exceed a 2 °C temperature increase by 2100, with the catastrophic consequences this would have. Each country committed under the PA to Nationally Determined Contributions (NDCs). It was estimated at the time of the signing of the PA that the amount of capital required to achieve these NDCs between 2015 and 2035 was approx $13.8tr, or on average $690bn per annum [3] [4].   The process of how this is to be achieved under the PA can be shown schematically as follows:

THE FIVE YEAR CYCLE FOR NATIONAL CLIMATE PLANS [5]

The PA reinvigorates efforts for cross-border pricing of carbon. It envisages the voluntary transfer of emissions credits between countries (Internationally Transferred Mitigation Outcomes – MITOs) towards the fulfilment of their national climate plans, and requires that countries apply robust accounting and avoid double counting when doing so. It also creates a new sustainable development mechanism (SDM), a possible successor to the Kyoto Protocol’s Joint Implementation (JI) and Clean Development Mechanism (CDM), which could enable activities financed in one country to be counted towards another country’s national climate plan [6]. This is very important as it provides the legal basis for international investment into and trading of abatement outcomes to allow countries to find the lowest cost ways to meet their NDCs. The scale of historical investment by region from 2000 to 2016 and that required from 2016 to 2040 to achieve the PA NDC commitments is shown below:

ANNUAL CLEAN ENERGY INVESTMENT [7]

One interesting and very novel area for participating in climate finance and carbon trading is through Blockchain. Experts meeting at the recent UN Climate Change Conference [8] in Bonn in May have said that the Blockchain could play a major role in tackling climate change. A Blockchain is a distributed database that is continuously updated and verified by its users. Each added block of data is “chained” and becomes part of a growing list of records, under the surveillance of network members. This technology enables the transfer of assets (in this case carbon emissions and carbon emissions avoidance) and the recording of transactions through a secure database. “As countries, regions, cities and businesses work to rapidly implement the Paris Climate Change Agreement, they need to make use of all innovative and cutting-edge technologies available. Blockchain could contribute to greater stakeholder involvement, transparency and engagement and help bring trust and further innovative solutions in the fight against climate change, leading to enhanced climate actions,” said Alexandre Gellert Paris, Associate Programme Officer at the UNFCCC [9].    The Blockchain process in the context of emissions reductions looks like the following:

BLOCKCHAIN TRADING OF CARBON ABATEMENT

The UNFCCC [10] considers that for climate action, Blockchain technology could be used in the following specific ways: Improved carbon emission trading: Blockchain could be used to improve the system of buying and selling carbon assets. For example, IBM and Energy Blockchain Lab are currently working together to develop a Blockchain platform for trading carbon assets in China. By recording carbon assets on a public Blockchain this process could also guarantee transparency and ensure that transactions are valid and settled automatically. Facilitated clean energy trading: The technology could also allow for the development of platforms for peer-to-peer renewable energy trade. Consumers would be able to buy, sell or exchange renewable energy with each other, using tokens (Mitigation Tokens or MITOs) or tradable digital assets representing a certain quantity of energy production. The standard measures are kgCO2e, kWh and kgCO2e/kWh, whilst 1 MITO would represent I metric tonne of CO2e. Enhanced climate finance flows: Blockchain technology could help develop crowdfunding and peer-to-peer financial transactions in support of climate action, while ensuring that financing is allocated to projects in a transparent way. Better tracking and reporting of greenhouse gas (GHG) emissions reduction and avoidance of double counting: The technology could provide more transparency regarding GHG emissions and make it easier to track and report emission reductions, thereby addressing possible double counting issues. It could serve as a tool to monitor the progress made in implementing the Nationally Determined Contributions, or “NDCs” under the Paris Agreement, as well as in company targets. The term cryptocurrency is used to define a form of virtual currency that can only be purchased and traded online. Cryptocurrencies cannot be exchanged for goods or services like a normal currency, they do not even exist in physical form! So, what can you use them for? Any cryptocurrency can be used for one thing and one only: gaining access to the Blockchain Platform. The power and capabilities of this platform determine the value of each cryptocurrency, this is what cryptocurrencies are backed by: not gold, not silver, not a government system, but by their Blockchain platform. They are also outwith the control of any government being virtual and international. One therefore may well, and quite rightly ask is cryptocurrency real money? It is to the extent that websites and others accept as a form of payment for products bought online. You may also notice that alt-coins such as Ether or Litecoin are not accepted whereas Bitcoin is accepted. This is because it may take some time before other cryptocurrencies are accepted however, with Bitcoin now gaining traction, it is only a matter of time before we will start to see other coins finding their way into online payment options. Having a basic understanding of cryptocurrencies, you may be wondering why they haven’t reached mainstream society yet or why we aren’t being pushed further to use them. They are not without their risks and the most significant are: 1. Keep in mind that cryptocurrencies, while also a replacement for regular currency, also have a software component to them. This means they are created by human hands either individually or as a company and just like many companies that were found insolvent during the dot.com bust such as Webyan or Pets.com, these technologies are not immune to failure 2 . Some cryptocurrencies have seen tremendous growth, some in just a few short months with increases of several thousand percent. Unfortunately, this is largely due to speculation and ignorant investors attempting to cash in on the hype. Similar to how many people over invested in internet companies in the late nineties and early 2000s with the assumption that the internet would change the world of business. Of course, we know that it most certainly did but keep in mind that many of those companies were terrible investments and the ignorance combined with hype caused these companies to have over inflated values before going under. 3. Taking this experience and applying it to the world of cryptocurrency, you will need understand that while there are some great investments out there that will change the world others will implode taking your savings with it. 4. Also, be aware of large numbers of scam coins with no real business model that are just hollow. Anyone with a bit of programming experience can create a new cryptocurrency meaning you will need to be able to separate the scams from undervalued coins that could have great growth potential. 5. Before you get started trading, you will need to analyse each of these characteristics to assess whether the currency is worth pursuing: ·        Availability of Current Total Supply ·        Is there a limit imposed on the number of currency in available in the future? ·        Is the supply of currency limited? ·        Does the technology have any real world adoption? ·        Are there any major investors involved in the project? ·        Does the software have any logical applications? An example of a currency that is put to a practical use is Tether, a cryptocurrency aiming to be a proxy for fiat currencies. Interestingly, Tether has a number of different version for every global market such as a Tether for the USD, the EUR and so on. Each of these currencies is pegged to the value of the local currency meaning trading is not a viable option. The idea behind Tether is simply to provide stable and liquid transactions with one USD Tether always having the value of $1. Without the proper understanding of this currency, you may think that is quite undervalued compared to some other cryptocurrencies such as Bitcoin and you place all your money into Tether. While you will not gain any money for this strategy, you will not lose anything either but you will have lost out on other viable investment opportunities and if something were to happen to Tether, you will lack the security that comes with having your funds in a traditional currency. For this reason, it is best to understand the nuances behind each cryptocurrency to make an informed decision. Bitcoin and other cryptos have fallen sharply in value over the past month in a shakeout that saw some of the early longs decide to take their winnings off the table according to Zero Hedge [11]. The 20% fall from record highs has nevertheless not dented interest as smart investors interest in bitcoin and other cryptocurrencies as alternative investments continues strongly. Private wealth managers have been marketing bitcoin and cryptocurrency variants whilst the mainstream financial providers stand by, and are working to scoop up wealthy customers who have expressed an interest in alternative virtual currencies. For example, in Switzerland private bank Falcon has recently launched a service for trading and storing bitcoins. According to CNBC [12] reports Falcon has received approval from Swiss regulators. Falcon is partnering with cryptocurrency broker Bitcoin Suisse for this activity[13]. The Swiss move follows the US CFTC’s [14] recent approval of the first bitcoin Swap Execution Facility. This will now permit centrally-cleared bitcoin options, thus facilitating CTA and hedge fund speculation on the cryptocurrency. Thus, there are real opportunities for investment into projects to reduce the damages of climate change through the use of blockchain based mechanisms. The REI course on Climate Finance and Carbon Trading examines this in detail.

1 Earth syst. Sci. Data, 8, 605-649, 2016 www.earth-syst-sci-data.net/8/605/2016/ doi:10.5194/essd-8-605-2016 2 Greenhouse Gases are measured in terms of their global warming potential (GWP) in terms of CO2 equivalent (CO2e).    For example, Methane (CH4) is estimated to have a GWP of 28–36 over 100 years.   ie its GWP100 = 28-36 that of CO2. 3 The cost of inaction: Recognising the value at risk from climate change   Economist Intelligence Unit. https://www.eiuperspectives.economist.com/sites/default/files/The%20cost%20of%20inaction_0.pdf 4 The Paris Accord: What it means for business.  New Climate Institute https://newclimateinstitute.files.wordpress.com/2016/06/we-mean-business-the-paris-agreement-june-2016.pdf 5 ibid 6 Paris Agreement, Article 6.4 7 The Paris Accord: What it means for business.  New Climate Institute Op Cit 8 http://newsroom.unfccc.int/climate-action/how-blockchain-technology-could-boost-climate-action/ 9 UNFCCC Op cit 10 ibid 11 http://www.zerohedge.com/news/2017-07-13/switzerland-opens-door-bitoin-asset-management-business-0 12 http://www.cnbc.com/2017/07/12/switzerlands-legendary-banking-system-gave-bitcoin-vote-of-confidence.html 13 http://www.zerohedge.com/news/2017-07-13/switzerland-opens-door-bitoin-asset-management-business-0 14 http://www.zerohedge.com/news/2017-07-08/cftc-approves-options-trading-bitcoin