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Matthew Bell, Director and Joint Head of Public Policy at Frontier Economics and former Chief Executive Officer of the Committee on Climate Change the UK's independent adviser on tackling climate change, joins the podcast. He discusses carbon offsets and the role they can play in mitigating climate change. He also talks about his work with Guernsey's government, economic theory behind carbon pricing and the insurance sectors role in climate adaptation.
Welcome to the Sustainable Finance Guernsey podcast page.
Guernsey Finance is a joint government and industry initiative tasked with promoting and connecting Guernsey as a leading international finance centre.
Named as one of the Green Finance Guide's top 10 must-listen sustainable finance podcasts, our broadcasts feature news, insights and discussion about green and sustainable finance, and the contribution which Guernsey, as a global leader in green finance, is making in this space.
Rosie 0:05
Hello and welcome to the latest Guernsey Green Finance podcast rated one of the top 10 most useful sustainable finance podcasts by the green finance guide. Guernsey is one of the jurisdictions leading the way in green and sustainable finance. And as part of this podcast series we'll be speaking to and learning from some of the leading global figures in the field. My name is Rosie Allsopp. I'm Communications Director, at We Are Guernsey. That's the promotional agency for Guernsey's finance industry. Today, I'm delighted to be speaking to Matthew Bell, Board Director and Joint-Head of Public Policy at Frontier Economics. Today, among other topics in the climate finance space, we'll be discussing carbon offsets, and the role they can play in tackling climate change. Welcome, Matthew.
matthew 0:56
Thank you very much, Rosie. Pleasure to be here. That's great.
Rosie 0:59
So let's kick off by introducing you to our listeners, can you tell me a bit about how you came to be a Board Director, and Joint-Head of Public Policy at Frontier, and maybe a little bit about your career to date?
matthew 1:14
Well, it certainly follows a long 20 plus year career at at Frontier Economics company was actually set up in in 1999. And I was there at the beginning and slowly I guess, made my way up through a whole range of work spanning competition issues, international issues, regulatory issues and policy issues to, to arrive where I am today. But during the during the course of that, that 20 plus years, I also took a few breaks, shall we say a few times out from from Frontier and, and went and worked in the public sector in the UK, in various roles. But my most recent one was as Chief Executive of the UK committee on climate change, which where it was until the summer of 2017. And and that's the independent public body that's responsible for all the advice that goes to parliament on on climate change issues.
Rosie 2:13
Okay, so you've previously worked with guarantee and government here, can you discuss some of that work as it relates to sustainability?
matthew 2:22
Yes, I've been fortunate enough to work with, with the government in Guernsey over many, many years now, across actually a very wide range of issues. And one of the one of the nice things I guess one of the interesting things about about sustainability is that it touches on so many different issues. And so we've, we've done work on skills with the government and some of that forward looking and what will be the skills needed in the future, clearly some of that being driven by by sustainable, low, low carbon and other and other issues. We've done work on the airport and some of the environmental issues around the airport, and indeed, transport more generally in and around and around Guernsey. And we're doing work on trade issues, following Brexit and the trade negotiations that are taking place. And increasingly, as your listeners may know, some trade agreements thinking about how to incorporate issues around climate, climate change and sustainability into into the trade issues.
Rosie 3:19
really broad spectrum of work that you've done
matthew 3:24
we're getting to, yes, we've, yeah, probably over 12, 13 years or so now working with, with a range of different people across across the island, and, and really being able to spend time there unfortunately, interrupted by COVID. But being able to spend time working on lots of those issues. And perhaps the most exciting area, obviously, is, is the developing discussions and discussions that are ongoing to help Guernsey formulate its own climate and environmental objectives.
Rosie 3:54
Absolutely. So in terms of your role as Chief Executive of the Committee on Climate Change, how was the sustainable finance space change during your time there?
matthew 4:06
While sustainable finance was a was a huge issue, when I was there and has been growing growth grew throughout the time and obviously and obviously since then, as well. And it encompasses such a wide range of topics. From some more traditional issues. I remember having lots of discussions about how to finance new nuclear power to very new issues like green bonds, and more generally, how to provide suitable certainty and a suitable policy environment to allow the financing of often new and innovative technologies.
Rosie 4:40
Okay, so what weren't some of your key responsibilities and achievements when you were working with the committee on climate change?
matthew 4:49
When the Committee on climate changes has mainly a domestic role and so while I was there, we pass through Parliament, for example, the fifth carbon budget which covers the particularly The iconic year of 2030. At this time that was also linked to the Paris agreement and the opportunity to participate in the in the Paris conference was certainly a highlight of the of the time I was there. And generally increasing the international reach of the Committee on climate change to provide support to other jurisdictions, other countries to develop similar bodies and similar ways of approaching a sort of slow and steady way to, to develop measures to tackle to tackle climate change. But we also did lots of other work on competitiveness, the impact on industry on finance, as you said, and also on affordability, as well as topics that might sometimes be put on the sidelines like adaptation, and what we need to do, which was perhaps more central in Glasgow more recently.
Rosie 5:51
Okay, so leading on from the Paris Agreement. Here on this podcast, we've been discussing the outcomes of COP26. In your view, what's the most important commitment or theme that's coming out of cops that you would like to see followed through?
matthew 6:07
There's clearly been, a whole range of things came out of out of latest COP26, as you say, in in Glasgow, and obviously, since then, huge political difficulties and invasion of Ukraine and various things that make international consensus very difficult. And so after work through a combination of climate issues and and other issues, but to my mind, one of the most important aspects of Glasgow, aside from the commitments to net zero and and related commitments that were made by countries around the world, was moving forward with this idea that we could develop a credible international carbon market, and Glan Paris laid the very, very foundation stones for that and Glasgow moved on a significant step forwards in terms of developing some of the rules that could help to govern a carbon market.
Rosie 7:06
You've been an advocate for the proper use of carbon offsets in tackling the climate crisis. Can you talk to me a little bit about why you think the carbon markets are important from an economics perspective, and maybe talk about the economic theory behind the carbon market, and how it works in practice?
matthew 7:25
Certainly, going, going back to not not even economics 101. But maybe one of the first things lots of us will have touched on in school at various times, one of the first things you learn about is this idea of externalities, this idea that the price that you pay for a good might not encompass all the costs of producing it. And, and often the examples that are given are around pollution of rivers as a consequence of manufacturing or other practices, which doesn't get priced in, or even the fact that we generate lots of waste, and often don't pay for, for that waste as examples of externalities. And carbon, the greenhouse gas and the greenhouse gas emissions more generally, that come from manufacturing is maybe the the quintessential example of an externality in the, in the process of living our lives of producing goods that we need to consume. We also often produce greenhouse gases, and the price of that the cost of that to society in the world is not included in the cost of those of those products. And all of our theories, and all of our knowledge of how capitalism works is that prices reflect the cost of production, and where prices don't reflect the full cost of production. And resources don't get allocated efficiently. And and that's where carbon markets can play can play a big role is they are a way of trying to correct for that market failure to bring that cost properly, where it belongs into the into the cost of production, which would allow us then to make decisions that reflect that reflect those costs. And for a whole range of reasons. Only doing that by itself would not be enough, but it would be a significant step forward.
Rosie 9:10
Yeah, absolutely. You've been careful to point out caveat to the use of carbon offsets and how you've previously stressed that the use of carbon offset hinges on them being properly regulated. Can you talk to me a little bit murky about how you envisage them being regulated in practice?
matthew 9:29
Yes, well, one of the one of the difficulties with the with carbon markets in general has been the reputation and shall we say of the of the carbon credits that are purchased and when you as with any other good or service when you purchase it, you want to know that it's of the quality that is advertised but it does what it says on the tin, and that's very difficult when it comes to carbon because you need to assure that an invisible odorless gas And that has been not taken into account for a very long time, all of a sudden is properly taken into account and properly Incorporated. And that's and that's very difficult. We've seen when we are seeing clearly carbon markets and pricing of carbon improving and perhaps the one of the leading examples being in the EU Emissions Trading Scheme, that that has developed quite a quite a good reputation for, for how it tracks carbon in particular sectors and, and requires companies to buy offsets and to to buy them through that market. But that works in a relatively restricted range of sectors and obviously, across a relatively restricted number of countries. The UK since Brexit now setting up its own UK Emissions Trading Scheme and that similarly as a similar job, but the broader carbon markets that are discussed under the Paris and the Glasgow agreements, which require broader international participation will require similar measures that that clarify and give confidence that when you buy, then you purchase carbon, or you purchase one tonne of offsetting reducing carbon emissions. But that is properly documented somewhere and properly traceable, and is a genuine additional reduction to the emissions compared to what otherwise would have occurred.
Rosie 11:26
It's no easy task. You've also led projects with the Environment Agency, and with Defra and biodiversity looks to be a growing theme globally and something that Guernsey is very much focusing on this year. Now, obviously, time is a factor. So would you be able to give a brief explanation of the economics behind biodiversity?
matthew 11:52
Yes brief is, is the difficult part, I suppose. But as we know, diverse ecosystems produce a whole range of benefits. And often similar to the carbon example, we don't properly take into account those benefits and how the economy functions. And those benefits can range from, you know, the enjoyment people get from diverse landscapes and diverse ecosystems to the stability that they provide for the broader environment, things like drugs and other services that pharmaceutical products and other services that diverse ecosystems can provide. But again, we're in the early stages of properly, being able to measure and understand what those values are, what those benefits are, and incorporate them into decision making.
Rosie 12:41
Thanks for that overview of biodiversity and why we should be investing in it. Can you talk about some of the leading investable projects within biodiversity that you've seen that are exciting or interesting to you?
matthew 12:54
It is, it is at a very early stage. And lots of the projects currently are being supported or a sponsored by global development bank's through their financing, and indeed, directly from from some governments. There are, there are increasing attempts to feed projects through regulatory systems. So you have water companies, for example, investing in, in maintaining biodiversity or enhancing biodiversity through their regulatory frameworks, or their companies and other regulated sectors. And where we really need to move towards is allowing broader set of financial instruments to invest off the back of projects that will generate clearly a return. And the key is how do we, in some cases, monetize that return? In other cases, ensure that investors can get a can get a return from from improving the biodiversity of an area?
Rosie 13:55
Let's talk about the work that you do with Frontier. Are there any climate led projects that you're working on that you're able to share with us that you're particularly excited about?
matthew 14:07
Oh, there are a lot, the most, most recently, in fact, in the last couple of days, we just completed some work for the Department for Transport, looking at the links between the competitiveness of aviation and the use of and its requirements to participate in carbon carbon trading schemes, as part of a big UK consultation on on how it's going to approve or how it's going to approach aviation going forward. And and that involves lots of careful thinking about the impacts of a fundamentally international industry, when it is required to comply with different domestic approaches to in this case carbon in different circumstances. But we're also also been working on on issues to do with intergenerational equity and The impacts of decisions we make today on future generations both in space of things like biodiversity and adaptation, as well as climate change and emissions reduction.
Rosie 15:11
That sounds like a hugely exciting project, I'd be really interested to see how that develops over time. And know what particular issues with respect to the environment and climate Do you think you'll be focusing on in 2022?
matthew 15:29
Well, I certainly hope to be doing some work in Guernsey on on climate and as you say, broader biodiversity and an international work. And we're in some discussions around around that. But But more generally, I think that one of the trends we've been seeing for a number of years, which will become more and more apparent in 2022, are is the behavioral side of tackling climate change. And so to date, a lot of the measures and successful measures have been based on what we might call the supply side, can we change technologies? Can we bring forward new technologies, particularly clearly in electricity generation, and offshore wind and solar, but also increasingly on transport and electric vehicles? And as those technologies are coming through, the questions are now increasingly changing to how will people change their behaviors, either to purchase some of those technologies like electric vehicles, or indeed in other in other areas of decisions that they have to make about about transport about eating about, about heating their homes, and clearly, a lot of shifting the focus to the demand side. And currently, obviously, a lot of focus with the with the cost of energy skyrocketing, and, and the impact on people's people's bills and financing, which I'm sure will be prominent in 2022, as well.
Rosie 16:51
Oh, absolutely. Yeah, I couldn't agree more. Now, you've spoken a bit about adaption to climate change in terms of biodiversity. How do you balance climate mitigation and adaption? And what's the role of financial services particularly the insurance sector and climate adaption?
matthew 17:10
Yeah, so the insurance sector plays plays a huge role and has been for many years particularly on as you say that up to adoption side or adaptation side of the equation, because they have seen it first, they see the increase in storm activity or the floods that require payout from from insurance contracts, and they've been documenting it and modeling it for for a long time. And so the insurance sector has a big role to play, but also working with the public sector, and governments often, because some of these risks are difficult even for the largest insurers to monitor. And in the UK, we've seen the development of new government backed insurance schemes for homes in some floodplains, for example, where even the insurance sector struggles to struggles to offer products. So there's a combination of public and private finance and backing, that that is going to be required both on the adaptation side as well as, as well as mitigation. And the challenges are slightly different in each of those areas.
Rosie 18:17
For sure, it's good to hear about initiatives like that. As you may know, Guernsey green finance, which is guernseys initiative for greening the financial system has been an integral member of the United Nations financial centers for sustainability. And here in Guernsey, we consider the island to be a leading center of green and sustainable finance. But within that, we know there's always more that can be done. I'd be really interested to have your thoughts on the role that you think Guernsey and other global finance centers can play in transitioning the global economy into a sustainable force?
matthew 18:55
Yes, so I guess I guess you could divide that role into two into two parts. So one is developing financial products that can help finance some of these more innovative technologies and a new emerging areas, as we were talking about on the adaptation side as well around in biodiversity side around how thinking through given all the knowledge and expertise that exists in Guernsey, how can we generate finance or projects in in areas like biodiversity and as well as in low carbon technologies, I think are the expertise that exists in in financial centres, like Guernsey and indeed in related products, whether it's across pensions as well as insurance as well as more as well as bonds and elsewhere and other financial products. How can we use a combination of different financial instruments to find out some of these, some of these projects. And then the other area that we touched on earlier is using the expertise to develop carbon markets and to be a role In the development of new instruments and new ways of trading, carbon of trading gains and improvements in biodiversity in the environment.
Rosie 20:10
Okay, thank you, Matthew. That's all we've got time for today. It's been fascinating to hear you talk about the role of carbon offsets, possible development of a carbon offset market, and the regulation ought to surround such a development. We're very grateful to you for sharing your thoughts and your understanding with us on the podcast today. I'd also like to thank you for tuning in and listening to this podcast, we have quite a back catalogue of interviews and panel discussions on the Guernsey Green Finance podcast channel, and you can check those out by searching for Guernsey Green Finance wherever you get your podcasts. And if you enjoyed today's episode, please leave us a review or a comment we always love to get your feedback. You can also find us at Guernseygreenfinance.org and weareguernsey.com. You can interact with us on Twitter at @gsygreenfinance and @weareguernsey. And to hear more relating to news and developments coming out of ganseys finance industry, check out the week Argosy podcast on your preferred platform. We'll also have links to Matthew and Frontier Economics' social media in our show notes. So check those out to hear more from them. And we'll be back soon with another edition of the Guernsey Green Finance podcast.
Transcribed by https://otter.ai