Last month, US Climate Envoy John Kerry, along with the Rockefeller Foundation and the Bezos Earth Fund, came out with a proposal to create a new voluntary carbon credit market — the "Energy Transition Accelerator." The goal is to quickly ramp up the flow of capital to the developing world for climate mitigation and adaptation.

Last week, I was catching up with one of my mentors, someone whose opinion I greatly respect because of his wisdom and his significant learning from decades of leadership experience across government, the private sector, and the NGO community.

We were chatting happily about recent climate progress. Yes, we agreed, we have a long way to go, but there’s also plenty of reason to be encouraged. As we ticked off recent achievements, he asked what I thought about Kerry’s new proposal.

I said I admire the way Kerry — and the Biden administration generally — is leading on climate. It’s mostly been good news. And while the details need to be fleshed out, this new proposal seems positive too. With one caveat.

I think it's crazy to prohibit oil and gas companies from participating.

To be sure, there are good reasons to object strongly to past efforts by some in the oil and gas sector to confuse the public about climate. The same is true for any ongoing efforts to lobby against the public policy we need, or for insufficiently addressing ongoing challenges like methane leakage. We should do that. And yet, as diplomats usually know so well, we can call out bad behavior while still engaging the actors and keeping them in the mix.

Here is how I see it:

Bigger is better. Like all financial markets, especially nascent ones like the carbon credit market, the more participants, the better they work. Carbon markets have significant room for improvement. But restricting who gets to participate doesn’t help. Isn’t it better to have the players with big emissions and substantial capital in the game?

Oil and gas companies are well positioned to deliver what the plan needs. The Kerry proposal is specifically designed to move large amounts of capital quickly to the developing world, where it is urgently needed for energy transition and climate adaptation purposes. Since sufficient capital is not being made available by developed country governments for this purpose, the plan is to get big companies to do this voluntarily in exchange for credit on their own decarbonization plans. This is much more likely to be successful if the oil companies are included.

All corporations — not just fossil fuel producers — need carbon credits to meet their voluntary climate goals. The big privately-owned oil and gas companies (like BP, Shell, Exxon, Chevron, Total, Repsol) have all announced ambitious plans to ramp down the emissions they cause directly (Scope 1 and 2 under the Kyoto Protocol). But advocates are also pressing them to reduce their Scope 3 emissions — i.e., the emissions that occur when their customers use oil and gas products. Various ideas are being pursued (like increasing production of sustainable fuels or hydrogen so they can replace fossil fuels), but they are still in early stages of development. Reducing Scope 3 emissions at scale in any near-term time frame requires carbon credits.

Meanwhile, at the very same time, we’ve also been asking oil and gas producers to produce and sell more oil. The Biden administration, concerned about the high price of gas, has been criticizing big oil for producing and selling too little oil and gas, particularly since the war in Ukraine. Addressing this challenge will obviously result in more Scope 3 emissions, not less. Credits would help.

We should encourage oil and gas companies’ investments in nascent climate solutions. Important climate solutions now in development — hydrogen, carbon capture, offshore wind, sustainable aviation fuels — will all benefit from investment by oil and gas companies. Even if you’re skeptical about any one of these specific opportunities, you’ll likely agree that it's a good thing if large and sophisticated corporations pursue them. This is a good place for advocates to push the sector to do more.

Excluding entire business sectors will be a tricky, slippery slope to navigate, regardless of whether it’s for carbon footprint reasons or because lobbying activity is not fully aligned with optimal policy goals. What about other problematic sectors (say steel, cement, mining, transportation, agriculture, or finance)? Where exactly do we draw the line? And who gets to do the drawing?

Finally, and perhaps most importantly, how exactly does the continual bashing of oil and gas companies lead to significant climate progress? Rather than seeking out scapegoats, won’t we achieve better outcomes if we encourage all players to engage in the specific activities that will reduce greenhouse gas emissions and/or enhance climate adaptation?

My mentor agreed with me that the provision is disappointing and misguided. And he issued a challenge. Would I dare say so in my newsletter? After all, it’s somewhat verboten in many environmental circles to say anything constructive about the role of the oil and gas majors.

I think this is crazy. Addressing the climate challenge is a huge task and we can’t afford to keep any ideas and or categories of participants off the table. So here we are. I accept the challenge and share my views in this newsletter.

Now over to you.

The Instigator

Why restrict participation in climate…