Clifford Chance

The EU has adopted a Regulation establishing a Carbon Border Adjustment Mechanism (CBAM) to deal with the long-standing problem of ‘carbon leakage’ that impedes the EU’s decarbonisation plans. It is part of the Commission’s ‘Fit for 55’ initiative published in July 2021 that will help towards achieving the EU’s target for a 55% reduction in greenhouse gas (GHG) emissions by 2030 (against 1990 levels). Here we answer 10 key questions about the new Regulation.

Energy security and affordability have become a major issue for many countries. Rising inflation, increasingly frequent and significant climate events, and an uncertain geopolitical and economic outlook provide a challenging backdrop for governments committed to net zero targets and keen to accelerate the development of low-carbon energy. We highlight some trends which focus on some of the innovations and legal developments that we are seeing in a number of sectors to meet these challenges. View the Energy Transition Trends 2023.

Clifford Chance, in co-operation with UK Voluntary Carbon Market Forum and the City of London Corporation, has launched a new report: 'Enabling the Voluntary Carbon Market in the Context of the Paris Agreement'.

The Sharm el-Sheikh Implementation Plan agreed at COP27 concluded that a global transformation to a low-carbon economy is expected to require investment of at least USD 4-6 trillion a year. A high integrity scaled Voluntary Carbon Market (VCM) will be essential if we are to mobilise the capital required to achieve the Paris objectives. Investment in the Global South, in nature-based solutions, and in climate technology innovation is vital, and the VCM will facilitate and drive these capital flows.

Earlier this year the Forum undertook a market mapping exercise which sought to identify market gaps and potential actions. A clear conclusion of this work was that uncertainty around Article 6 of the Paris Agreement and what it means for the VCM is holding back urgent investment. 

This paper considers the state of the Paris mechanisms and the VCM, examines actual and perceived barriers to its scaling and identifies recommendations for the way forward.

On 30 November 2022, the European Commission adopted a proposal for a Regulation to create a first EU-wide voluntary framework that would certify high-quality carbon removals. The draft Regulation is part of the EU's drive to be the world's first climate-neutral continent by 2050. The proposal requires third-party verification and certification of the compliance of carbon removals with the QU.A.L.ITY criteria and the related certification methodologies that will be set out in delegated acts. This regime does not apply to the storage of carbon emissions which are already covered by the mandatory EU ETS. Read more about going beyond carbon reductions.

Agreement was reached by 190 countries on the Kunming-Montreal Global Biodiversity Framework (GBF) on 19 December 2022, after two weeks of negotiations at COP15 in Montreal. A key pillar of the GBF is a '30 by 30' pledge, with countries agreeing to protect 30% of land and water by 2030. This has led to the GBF being hailed by some as the Paris for nature, a comparison to the Paris Climate Agreement in 2015 which saw agreement for the first time on a common goal to cut greenhouse gas emissions. This briefing considers some of the key targets in the GBF. Read more about Nature's Paris.

A key hydrogen trend to focus on for 2023 is "trade". The industry has gone from concentrating on the "colour" (i.e., grey, blue and green) of hydrogen in the energy transition to where it is made and whether it is improperly subsidised. Read more about the impact of the US Inflation Reduction Act's hydrogen incentives on trade.

COP27 – the UN Climate Change Conference of the Parties – is intended to build on the work that took place at COP26 last year and move on from pledges to implementation. This year's Conference is lower key and more procedural. Against a backdrop of the Russian invasion of Ukraine, increasing geopolitical tensions, food, and energy security issues, rising inflation and an uncertain economic outlook, Clifford Chance experts take a look at the themes of this year's conference and what is likely to be achieved. Read more about what we can expect from COP27.

COP-26 was an opportunity for states, NGOs, the business community and the public to come together to discuss, debate and develop solutions to the climate crisis. Read more about advancing the conversation on climate change – looking back at COP26.

COP26, has been described as the 'last best hope" to avert climate disaster. In this extract from a recent Clifford Chance event, moderated by Partner and ESG Board member, Roger Leese, our experts assess the effectiveness of government actions and the important contribution made by businesses. Read more about COP26: Did it deliver?