The role of carbon finance in greening global supply chains

March 25, 2019


The 2019 Circularity Gap report warns the rate of raw material extraction at 92 billion tonnes per year is already exceeding planetary boundaries, and that due to population and economic growth this figure could swell to a staggering 184 billion tonnes per year by 2050. Only a mutually reinforcing combination of low-carbon development and resource efficiency can shift our world economy to a low carbon pathway.

The Paris Agreement requires a systematic and holistic approach to climate change which doesn’t focus on a single sector or industry. It defines collaborative financing strategies for transferrable mitigation outcomes through which countries and sectors can cooperate to achieve development priorities, while reducing greenhouse gas emissions and making more efficient use of  resources. This approach also avoids the narrative that reducing emissions is costly to the economy, and instead focuses on a pragmatic and inspiring vision of sustainable, low-carbon growth.

In a world where production and consumption span global supply chains, countries will increasingly have to take responsibility for emissions which are embedded in the products they consume - even if they were outside of their jurisdiction. As we now measure it, developed countries’ carbon footprints are shrinking because raw material extraction and heavy industry is increasingly moving to developing countries where labour costs are lower and there are often fewer regulations.

Consequently, emissions related to the extraction of raw materials and the production of goods along supply chains are the sole responsibility of the developing country, which they must account for under the Paris Agreement. However, within the agreement, parties have the option to pursue voluntary cooperation in their climate pledges, and international supply chain cooperation could create financial incentives for shifting to more efficient means of production.

Cooperative climate finance can take into consideration emissions generated along the supply chains and address the emissions embedded in the products. This could happen through an upward adjusted price per tonne of CO2e paid to the selling country, or downward adjustments of volumes of Internationally Transferred Mitigation Outcomes, transferred to a sovereign buyer.

Circular economies, which are aimed at minizing waste and making the most of resources, are well placed to target these embedded emissions and transform production and consumption patterns.

UNDP, as the largest implementing partner of climate action in the UN system, has been supporting developing countries such as Lao PDR and Kenya to  advance low-carbon, sustainable development pathways in line with the Paris Agreement and the 2030 Agenda for Sustainable Development. UNDP is also exploring cooperative approaches to strengthen a selling country’s ability to adapt to climate change through ensuring a share of proceeds is allocated to green adaptation funds.

Realizing the links between carbon finance and a circular economy will open more concrete sustainable development perspectives and put countries on a low carbon pathways to reaching the ambitious targets of the Paris Agreement.