I'm Lindsay Hall. And I'm Esther Wielden. Welcome to All Things Sustainable, a podcast from S&P Global. As your hosts, we'll dive into all the sustainability topics that are reshaping the business world. Join us every Friday for in-depth analysis and interviews with leaders from around the globe. Together, we'll break down big sustainability headlines and cut through the jargon. Last week, I was on the ground in Houston for Cera Week, the big energy conference S&P Global hosts each year. In 2026, the event convened more than 10,000 participants from the entire energy ecosystem, including heads of state and private sector leaders from oil and gas majors, renewable energy companies, utilities, big tech, finance, and more. From my perspective, the two biggest topics were growing energy demand driven by AI and the war in the Middle East. Those of these topics are reshaping energy dynamics. Energy security is firmly on center stage, and with oil and gas availability and affordability in limbo, countries are turning to other forms of energy, including renewables. On this podcast, we often hear how achieving the low carbon transition on a global scale will require all tools currently available. Carbon markets are one of those tools that both companies and governments can use, and this was a focus during a number of panels at Cera Week as well. Carbon markets are designed to reduce greenhouse gas emissions by creating economic incentives for companies and countries to lower their carbon footprint by trading carbon allowances and carbon offsets. And we've already released a number of episodes about carbon markets this year. We'll include links in our show notes in case you'd like to revisit any of those. In Houston, I sat down with a guest who has unique insight into how global carbon markets are evolving, Dirk Forrester. Dirk is president and CEO of the International Emissions Trading Association, known as AITA. Dirk talks about the fundamental changes carbon markets are undergoing in 2026 amid pushback on climate in parts of the world and disruption from the war in the Middle East. You'll hear him mention ETS, that's the European Union's emissions trading system, a launch in 2005, and is the world's first carbon market as well as one of the largest globally, and it requires polluters to pay for their greenhouse gas emissions. Dirk also mentions Corsia, that's the carbon offsetting and reduction scheme for international aviation. Okay, here's our interview where Dirk starts off by explaining AITA's work. In the realm of policies that are used to tackle climate change, one of the predominant ones is use of carbon markets that cap emissions and lower them over time, but allow companies to trade permits to emit. And our association is the peak body for professionals that are involved in carbon markets. And so we represent those that are covered by those markets, those that are financing the transition, intermediaries, and technology providers. So it's a very broad church of companies involved in market-based solutions to climate change. What should our audience understand? Give us a lay of the land. What's happening here in 2026? Well, I mean, 2026 is a big year. Obviously, the US has kind of backed away from a lot of its climate programs, although at a state level in the US, they're still chatting along in California, Washington state, in New England. But it's also a pivotal time in the European Union where carbon markets have been a part of the institutional fabric for 20 years, and they're going through upgrades right now to be better aligned with Europe's aspirations to meet Paris climate objectives. But that's happening in a way that is inspiring a lot of other countries to step up their own carbon pricing programs. Some of the big ones would be Brazil, Indonesia, India, China. These are all either ramping up or being established this year. So it's a really important time worldwide on carbon markets. And thank you for setting the stage. Now help us understand who are the key players. Well, I think at the policy level, it's ministers and their staff that set up the regulatory programs. But the players that are actually involved in bringing those markets to life tend to involve what we call covered entities, or sometimes called obligated entities. Those are the ones that have an emissions problem they need to solve. They're going to employ technologies to make those changes. It will happen at different paces across different industries. But that means they're necessarily involved with financiers who provide the money for change out in those technology with the equipment providers, with the verifiers that assure the performance is taking place, with the lawyers and accountancies that make sure it's being done honestly and according to good contracts. Involves in mission exchanges and information providers, brokers. It's just a wide array of entities that sort of come to play in making our carbon market work commercially. So again, this is happening in Europe. It's quite mature because the markets have been established there since the early 2000s. But more recently, China and South Korea and Asia and Singapore have been the trend setters. And we're starting to see that in other parts of the world. And what are AITS's big priorities? What's taking up your time in 2020? Well, there's several. One is because Europe is our sort of flagship market, it's going through some fundamental change right now. First of all, it's trying to deepen the targets on sectors that have been in the system for a while. So that would be power, sectors, steel, aluminum, cement. But it's also coming to a point where the international competition dynamics are forcing it to deal with imported products with carbon border adjustment fees. So there's a separate market in certificates for these carbon border adjustments that will be developed over the coming year. And there's another ETS that's brewing out there in Europe to cover transport fuels and fuels for buildings, for heating and cooling. So in Europe, all this stuff is happening simultaneously. So we're incredibly busy there because we want to make sure we get it right in Europe. But it's coming at a very challenging time with the war in Iran, with the supply disruptions from Russia and Ukraine. So natural gas availability is a huge issue in Europe in its transition, but it's kind of accelerating the need to go more boldly into carbon-free technology. So I'd say Europe is number one on the list. We're also keenly involved from our Singapore office and some of the markets in development in Asia. I mentioned Indonesia. China is expanding. Japan is set to launch a new market next month potentially. So there's also quite a bit of activity where we're providing policy insights to our members, but also providing advice to the governments as they make decisions. And the final one that I want to touch on is what we call the Corsia market. And Corsia is the acronym that covers emissions from international aviation. It's a program run by the International Civil Aviation Organization, IKO. But it covers all international flights. And under that program, companies have choices about improving the efficiency of their fleets or of using sustainable aviation fuel, but to mop up any extra, they'll be buying carbon credits and certain varieties that are approved for use in that system. But it's the first sectoral program that's operating globally for covering the emissions from a really important sector. So that one is, pardon the pun, set to take off this year. We're trying to do that. We love ones on the board. Okay, good. I'm glad to hear it. But that's a really important one. It's important for us to get right for a number of reasons. One of the great things is that it provides a way to actually deliver finance to developing countries that have, maybe they have old equipment or it's right times for a transition in their whole energy system, or maybe they've got nature-based climate solutions that could be turned into carbon credits. And with the availability of those types of emission reductions that can be certified for use in Corsilla, we actually have an avenue for driving clean energy finance into those countries to help them achieve their own future climate objectives. Okay, thank you. So one thing we like to do on this podcast is really break things down in very simple terms. I like to ask, yes, how would I explain this to my third grader? Carbon markets, how would you explain that and the importance of that and why they exist? To your third grader. Well, I think this is not different than what I have had to do with my own family over the years and my poor mother never understood what I do for a living. But I'll try. And what that is, it is just a form of regulation, but it's flexible and that flexibility makes it cheaper. And in the end, it's that affordability that enables us to do more for the climate faster. Because if we go higher priced routes, it's going to take us longer to actually achieve the objectives. So I think it's about speed and it's about doing big things that can really benefit the climate because of its efficiency as a policy mechanism. As we've covered in past episodes, there are two basic types of carbon markets. Voluntary carbon markets are used by companies to reach their climate targets or in expectation of being subject to related regulations in the future. And compliance markets are those that are regulated by governments with the goal of ratcheting down emissions on a local, regional or national scale. I asked Dirk how I eat his thinking about both. Well, voluntary markets have been around as long as I can remember because companies use them to get comfortable with use of those flexibilities. You can do it before the game starts really. You can practice. So we generally think about voluntary markets as an on-ramp to compliance markets because to really solve the climate challenge, it's so big, it's so pervasive. We do need laws and that's our number one objective is to get climate laws in place that allow these flexibilities but structure it in a way so that everybody knows what the rules are. The voluntary market comes in advance of that and it's been a great proving ground for new approaches to reduce emissions. It's been a great way for companies to gain experience and for also communities that are involved in it to gain experience and build trust around the system. So typically in the voluntary markets, you've got more room to experiment and make mistakes and learn from them and improve. Whereas the compliance market, that's serious business and it is governed by law and it's much more costly because it's a much more serious endeavor. Thank you. And this 2026 landscape that you've described and your AIDA priorities happening in all different parts of the world, those developments are compliance markets, if I'm understanding you correctly. That's right. I mean, some of them may have a voluntary front end on them or there would in most jurisdictions already be some voluntary activity taking place but again, a lot of it is with an eye toward the compliance market that's coming around the bend. And so with this global landscape that you've laid out and you've told us about some of the key players, what are the challenges you're facing? Well, obviously the turmoil in global energy markets and economies is a challenge in general. I think we went through a period over the last decade where countries and companies made lofty promises, aspirational promises, some of these actually found their way into the nation's commitments under the Paris Agreement. Some of them took targets that they weren't sure how they were going to meet because they wanted to take a stretch target and they could be a good thing. Now I think reality is setting in because as a rubber hits a road on how do you actually achieve those ambitions, you're facing in some places some really complicated and costly alternatives. And it underscores the need for having international market connections that can help level out the price, that can help achieve the same benefit but do so at a lower cost and can actually enable you to meet those climate goals within the budget that you have. Because I guess in the aspirational world of the past, there's not really a penalty for missing your target except in the court of public opinion. And so now I think the reality is coming to bite. An example would be in Europe right now, which is again, I really appreciate for all the leadership that they've offered over the years, but a big part of their transition strategy is use of natural gas that comes from international sources. That got challenged with the war in Ukraine where Europe swore off the use of Russian gas. Then it switched its reliance to the US and to the Middle East. Now the Middle East supply is kind of locked in with the conflict in Iran. So it's really putting pressure on policymakers and energy providers to look for other alternatives, look for how to use those flexibilities to keep costs down for consumers and to maintain the ability for industries to compete in a system like the European market. So I think it's an example of how some of the challenges that you read about in the headlines every day in the newspaper related to energy and economics and affordability, those are coming home to roost right now on climate change front. I'm using Europe as an example, but Japan's facing the same questions. South Korea's facing the same questions. Want to stick with the climate program, but want to make sure that they give their consumers a fair shake. And we think that a big part of that is going to be engaging more aggressively with international market opportunities that can help bring the costs down. Okay, so this is one of the big questions I'm asking here at Sarawak in 2026 is how does this disruption in the Middle East impact sustainability strategies, climate goals and carbon markets? Well, I think I can give real concrete examples in Europe. Initially prices started to creep up in response to the crisis in the Middle East because of that concern about availability of natural gas for powering Europe, at least a portion of it. It's softened a bit because policymakers are looking now at what some of their alternatives are. So some in the market are worried about intervention that will weaken the targets. I'm doubtful that Europe will weaken them very much. It's going to want to maintain its climate aspirations, but it can use those flexibilities to reach the targets smarter. That's the way that it's changing things. So renewable energy opportunities right now, if they're not yet tapped in Europe, they will be. But I think it also means that their interest in international solutions, international market linkages is going to grow stronger. But we're entering the beginning of an important phase of policymaking. The Council of Ministers from all the member states set a deadline for the European Commission to come back with a proposal for improving the ETS and to bring that proposal in by the end of July. So that will start a process of looking at these various alternative ways of getting to the targets that can preserve that competitiveness and cost effectiveness for consumers in Europe. And so when you say improving the ETS, what are they trying to solve for? Well, I think some of the things they're looking at is the biggie from our vantage point is at what point might they allow international credits to be imported into Europe, either for use by member states or by companies in Europe. The rules for that would be potentially defined in this ETS reform, but they also have a couple of other levers. One is they have a reserve just like you have strategic petroleum reserves. Europe has a strategic carbon reserve of sorts, and they call it the market stability reserve. It's a place that they have held back some of the allowances that they would normally auction, but held them and kept them in reserve in case times get troubled. So the rules for how and when credits would be released from that reserve are also under debate. And then a final area, and this is getting into technical detail, but it's really around how aggressive the step down would be in Europe. Is there a way that they might go a little easier at the beginning and then steep in the cuts later? These are all ideas that are on the table for consideration, so I can't predict where they'll come out, but they do have a number of policy levers available. So what, from your perspective, are the biggest questions over the next, say, three months when it comes to carbon markets and climate and sustainability goals? I would say for Europe it's how they meld their energy security and climate objectives. Part of that is around developing more diverse energy supplies, but also more diverse environmental carbon credit supplies, if you will. For old energy policy nerds like myself, this is a classic way of dealing with energy security worries, is to deal with it with diversification. So something's going bad one place, you can shift to another. That same thing, that same kind of flexibility, has not been available in recent years in Europe on the carbon credit side. And that's why we think that will be a big topic for European leaders to wrestle with now is under what terms, at what point in time, should those come in into play? Because they will lower the cost in Europe, no doubt about it. But Europe also has aspirations, kind of wants to have its cake and eat it too, right? It wants to keep enough of a price signal on European industry to encourage them to change out their equipment, to go for greener alternatives. But those alternatives may take more time than they have, so this bridge of allowing use of carbon credits could be really helpful. Okay, and what about beyond Europe? What are key questions you're asking? Well, so beyond Europe, believe it or not, in China, the emissions market that has existed for the power sector for a number of years is getting revamped. And they're also adding additional sectors. So they're adding steel, aluminum, cement, fertilizers. These are same sectors Europe is looking at applying border adjustments to. But China is going to impose emission constraints on those sectors. And as it does, it's also examining whether it will allow international credits into the Chinese system. That might fit with some of their technology export goals with their Belt and Road Initiative international partners. So we're watching China, quite interested in what their decisions might be on use of international markets. But we're also in a time period where I mentioned Japan. Japan will announce a program, we think, next month on how they're going to meet the next phase of their national obligations under the Paris Agreement. South Korea is doing a similar thing. But the exciting part for us really is that some of the countries that we think of as suppliers, especially on the nature-based solution side of things with rainforest protection and what we call reduced emissions from deforestation and degradation, red, another acronym. Some of the big suppliers would be Indonesia and Malaysia. And then in South America, places like Brazil, Colombia, Ecuador, Peru. All of these jurisdictions are looking at their own carbon trading programs that they're trying to establish. And the ones we're watching this year with most interest, I think, are Brazil and Indonesia. They're two of their real powerhouses when it comes to nature-based solutions. And they haven't been selling in the international market to any major degree. So bringing those assets online could be good not only for those countries in improving their own sustainable development priorities, meeting their goals, helping with their climate goals as well. But it could also bring a type of cost mitigation to some of these compliance systems that are getting expensive. In Europe, I'll use Europe as the example again, prices climbed up to nearly 100 euros a ton within the last year. They climbed back down. But at those levels, it causes a competitiveness concern for European industry unlike we've seen before because they were able to absorb some of the carbon mitigation costs and times pass and pass it through in their products. And it worked okay. But it's the cost that's risen up. It's really hard to pass all of them on in globalized markets. So the pain is starting to appear. And we really need to find ways to support them in keeping the integrity high, but delivering the benefits to consumers and to those industries so that they can stay competitiveness and continue to provide jobs and produce products in Europe that are truly valuable for consumers because they've got their environmental benefits dealt with. And you'll see I'm weaving a web here of international cooperation. This is something we've studied as an organization a lot. But this international cooperation and climate through markets has the potential of cutting the costs in half in achieving the Paris objectives. And in times like these, when government budgets are stressed, the only way of mobilizing the kind of capital that's needed is through market-based solutions. And so these systems that can connect different markets through carbon credits that are recognized everywhere can truly make a difference economically and ultimately inspire us to reach for higher goals on climate change. At least that's our thesis. And I think whenever you can talk about cost savings, that certainly resonates with the business audience. When you're talking about cutting costs in half, cost of what? Just to be... Oh, the cost of reaching the goals. And it goes back to some of those grade school stories you had, like where you can pick one stick and break it easily. But if you put a bundle of them together, it's harder to break. It's like the value of cooperation is kind of like this. It brings everybody into a common cause, a common system that's stronger, that's more cost-effective, but also achieves the environmental protections that you're looking for. And does your job as AITI become more challenging in this landscape that we're seeing where there's a move away from multilateralism in some parts of the world? For sure. I think the climate space overall is suffering from fragmentation right now, but also from political headwinds unlike we've seen before. The Trump administration has pulled back on most of its climate programs. And it's disappointing, I think, to many in the private sector in the U.S. because they laid in investments that were aligned with trying to achieve Paris goals, even though there wasn't yet a federal program. But that's also led other countries to reconsider how they're approaching the issue. And cooperation is in short supply. That's why I think a lot of people in carbon markets were really inspired by the Canadian Prime Minister's remarks at Davos about middle powers banding together, could be stronger together and cooperate. He didn't mention carbon markets in particular. He did mention climate change as one of the areas of cooperation that he thought would be ripe for improvement. And so I do think in the business community, people are accustomed to cooperating across borders through their own supply chains. We've all become more globalized than we were 20 or 30 years ago. And so I think on a problem like climate change, it's really hard to answer it unless it's a cooperative approach. And that really is the reason you have international agreements like the Paris Agreement. That's why there's an whole article in the Paris Agreement about cooperation through markets. It's the Article 6 section of that, that we live and breathe that policy trying to make sure that it's actually going to work to deliver benefits. But I think it's for the business community, we may be part of the continuity in the system, like if governments are willing to cooperate and allow on a carbon commerce to happen across borders, subject to the rules that they put in place. This could be a real shining example of cooperation that helps us long into the future if we can get it right now. Dirk talked about the important role that nature can play in addressing climate change. In the interest of clearly explaining terms, I asked him to define nature-based solutions and their role in carbon markets. Here's what he said. So I'll start with trees, although it's also true of plants or things that we farm and how we manage nature on the ground. But kids learn about photosynthesis, right? You learn that in science class about how trees take carbon dioxide and through the process of photosynthesis turn it into leafs and turn it into rings on trees. So in a carbon market, we know how to measure that, not just on an individual tree basis, but on a forest basis, and how to verify how many tons of carbon a tree has sucked out of the air and stored in wood. And those credits or those emission improvements that are sucked out of the air, removed from the air, can be converted through certain protocols into a carbon credit. And a carbon credit can be used to offset the emissions from a car, from a power plant, from a factory. Now this happens at a massive scale. And so if a third grader is getting a chance to see a movie about the Brazilian rainforest and can see how massive these lungs of the earth are and how it's important to keep them healthy and frankly that you can manage it well so that they can actually absorb more carbon, that's what a nature-based solution is. And as I said, there are examples of this in farms. There are examples of this on coastlines and mangroves in algae in the ocean. There are ways that nature can help us manage this problem. That's not going to be enough, but it's a part of the solution. There's also technological ways of doing that, that take a, build a factory to act like a tree to suck carbs out of the air and to store it in the ground or store it in product. But there's so many other benefits that come from doing it through nature that I think it's the ultimate win-win that we can protect nature, we can improve its ability to absorb carbon, we can in doing that make them stronger to resist pests and fires and things that can destroy those very same kind of ecosystem solutions. So we're really excited about the potential that nature has because it's a solution that anybody can relate to. You can go and look back at a forest that's been protected 10 years later and actually see that benefit and know that the financing that's gone into it has gone to a good cause. Okay. And we're having this conversation on the sidelines of SROE, this big energy conference where we're hearing from all parts of the energy ecosystem. What conversations are you hoping to have here as Aida? The part of its conversation and part of its listening, like the conversations I want to have here are with big energy players, big finance players, big tech players that are interested in keeping the forces of good and positive action on climate change moving forward. And I see that all over the place here. These take a long view. They did not start investing in climate change as a whim for just a year or two. They're investing for a long term. And so I think most of them are taking that longer term view, even though we've got troubles in the world right now. They know these climate issues are here to stay and something that needs to be taken seriously. The other thing I'm trying to do though is listen and learn from the number of industry pros here to see how much they talk about it. In the sessions that I've gone to so far, it's still very much a part of the zero affirmament that of course we have decarbonization goals. Of course we have energy security goals. Of course we all have economic aspirations, but it is an industry group like this that will solve the climate problem or will fail. And so I think the key players are here to make it succeed. That's why I want to be here. Great. I've asked you a lot of questions, Jerk. What have I not asked that you think is important to get across to our global audience? Well, I think sometimes when we start talking the jargon of whether it's energy or climate or environment, it's easy to lose the fact that it really is about those third graders that you were talking about. It's about can we set up something that is better for our children. And with all the chaos in the world right now, it's an energy professional. I've been at this virtually my entire career working on climate change. And I think it's in a really messy spot right now. And I hope this is not the legacy we're leaving. It's just dumping a big mess in our kids' lap and saying, you figure it out. Because there's also the very positive side of all the technological improvement that's potential out there. The solutions that our tech friends can bring. You know, it's not lost under anybody here that there's a massive presence of some of the super players from the tech community who can help us figure out this problem and can help us manage this problem better. So I hope we can use this time of chaos to come out with something that's strong and resilient and a truly global business response that fits alongside all the great energy stuff that CIRA is well known for and that this climate component stays strong as a sort of the ying-yang of the system. Like you need the two to go forward together. So today we heard how carbon markets are evolving globally with developments in major economies like Europe, Brazil, Indonesia, India and China. Dirk explained how geopolitical disruption and climate policy pushback are intensifying the need for flexible, cost-effective carbon market mechanisms to balance energy security and climate goals. And despite the challenges, he said business and industry leaders remain committed to long-term decarbonization targets. He emphasized the importance of global cooperation to drive emissions reductions and maintain competitiveness. We'll continue to cover carbon markets in future episodes. We'll also be back with more coverage from CIRA Week. And in some other exciting podcast news, I wanted to flag where you can catch us in person at some upcoming events. We're taking the show on the road for a live podcast event April 29th in London, and this will be our first live event in the UK. So I hope you can join. Check out our show notes for details and to register to attend. All Things Sustainable is also the official podcast of Climate Week Zurich in Switzerland May 4th through 9th. This is the inaugural Climate Week Zurich, and you can find us on the ground all week conducting interviews with climate leaders. More details in the show notes. Thanks for tuning in to this episode of All Things Sustainable. If you like what you heard, please subscribe, share and leave us a review wherever you get to podcasts. And a special thanks to our agency partner, The199. See you next time.
