Climate solutions take many forms. New and exciting technologies can solve technical problems, while policy and advocacy can (sometimes, hopefully) shift behavior. And between those solutions is the burning need for more money, ideally as much as $5 trillion per year, to make them a reality.

Earlier this year, one story that escaped headlines pointed to a significant breakthrough in the way money can be moved to implement climate solutions.

After more than two decades of negotiations, two governments successfully exchanged carbon credits under Article 6.2 of the Paris Climate Accords (and the preceding Kyoto Protocol), marking a long-sought victory for the highest level of climate negotiations.

The government of Thailand agreed to sell 1,916 of its national carbon credits, known as Internationally Transferable Mitigation Outcomes (IMTOs), to Switzerland in exchange for cash to convert public buses in Bangkok to an all-electric fleet.

It may sound wonky, but the transaction lights a path for climate action in small, wealthy countries like Switzerland where money is abundant and opportunities for domestic decarbonization are not. At the same time, the Swiss strategy poses tough questions about climate justice and the role of public opinion in shaping responses to climate change.

The Carbon Deal

Article 6 of the Paris Accords has become something of a stand-in for the international compliance carbon market, but it actually contains three distinct carbon reduction mechanisms.

• Article 6.2: allows for trading carbon credits between countries against their Nationally Determined Contributions (NDCs) and establishes a framework for accounting.
• Article 6.4: creates a carbon market to trade credits through specific projects, and allows one nation to pay another nation to develop a low-emissions project.
• Article 6.8: establishes a “work group” to study non-market approaches– mainly taxes and capital controls to rein in emissions.

The exchange between Switzerland and Thailand is the first of many that are expected to be completed this year. Switzerland has made similar agreements with countries such as Georgia, Ghana and Dominica, while the highly vulnerable island nation of Vanuatu has launched its own registry to promote more transactions.

Swiss Context & Tricky Politics

It’s just one transaction, but the carbon credit purchase represents a victory for the viability of climate policy in a country where climate action has, at times, conflicted with democratic will.

Switzerland is famously known as the world’s only direct democracy. Swiss citizens vote several times a year in referenda, giving the people a voice not just on who makes the decisions, but on exactly what those decisions look like in their final form.

Switzerland is also considered one of the most socially conservative countries in Europe. Women didn’t win the right to vote until 1971, and in 2009, an overwhelming majority of Swiss cantons approved a ban on building minarets in the country’s handful of mosques– a move that the UN High Commission on Human Rights called “clearly discriminatory”.

In recent years, that combination of direct democracy and a cultural resistance to change has carried over to climate action.

In 2011, voters passed a loosely-worded carbon law, but have since then gone back and forth on implementing real emissions reductions. In June of 2021, voters rejected an amendment to the climate law that was itself an attempt to revive the failed “Glacier Initiative” of 2019. The 2021 proposal would have had taxpayers foot the bill for a carbon tax by increasing the cost of fuel, a clear violation of the iron law of climate policy that was predictably shot down by voters.

But as is so often the case, climate change did not wait for the right political moment to leave striking impacts across the Swiss landscape. Swiss glaciers have been hemorrhaging ice for years, and paltry snowfall is quickly threatening Switzerland’s famed ski slopes. Earlier this year, The New York Times published a fascinating look at how the retreat of Swiss glaciers is obliviating centuries-old cultures and ways of life in the mountain nation that prides itself on tradition.

So in 2023, legislators went back to the drawing board and proposed another amendment. This time, the proposal passed by offering homeowners incentives for home electrification and other low-emissions technologies. The bill also put more pressure on financial institutions to decarbonize Switzerland’s most famous export after chocolate, watches and cheese: money.

The Role of Money

Switzerland’s biggest climate impact comes from capital, not combustion.

Switzerland’s per capita emissions are comparable to nations with a much lower GDP per capita, such as Mexico or Algeria. More than 90% of Swiss electricity comes from hydroelectric power and nuclear, although transportation is still heavily reliant on oil. Even Swiss historical emissions going back to 1750 come out to 0.17% of the CO2 that has accumulated in the atmosphere.

Campaigners against the 2021 carbon law seized on this data to argue a familiar line in climate discourse– our emissions aren’t the problem, and we shouldn’t have to pay for them.

That may be true for the average Swiss citizen, but Swiss banks have played a particularly big role in financing fossil fuels. Credit Suisse and UBS alone financed more than 93.9 million tonnes of CO2e in 2017, although their fossil fuel activities have trended downward in recent years in the face of persistent public pressure.

With emissions cuts so few and far between at home, the Swiss government has taken an active approach to meet its emissions targets by using its ample funds as its leverage point to reduce emissions. That’s why it has been one of the most active participants in international carbon markets, leading to the landmark transaction in January.

Climate Justice

Switzerland’s finance-first approach to dealing with climate change has not come without its critics.

A New York Times piece from 2022 suggested that the Swiss strategy to finance emissions reductions abroad was tantamount to buying off its climate impact could be “dangerous” if it undermines climate justice and meaningful reductions.

At the core of these concerns is the fear that rich countries like Switzerland can sprinkle some cash on low-emitting poor countries to avoid their climate responsibilities at home. In the same vein, the article also intimated that the projects Switzerland is supporting abroad would have happened anyway, further undermining the legitimacy of their impact on climate change.

This concept is known in climate policy jargon as “additionality”. Carbon credits of any kind are counterproductive if they support carbon reductions that would have happened without the intervention of another country or entity.

That same year, however, the Swiss government commissioned a thorough report on ensuring the additionality of IMTOs that speaks to some of the complex realities of carbon trading. The government outlined a three-pronged approach it takes to assessing whether a trade would be financially viable without an IMTO purchase.

The Swiss government report points out that there is always an asymmetry in trading carbon since the additionality of a project can only be measured against a counterfactual– a thing that did not or might not have happened. It is all but impossible to guess what a country’s plans to reduce emissions were unless they publicly state them, which many often do not.

In short, it is easy to criticize what looks like throwing money at a complex problem. One persistent source of tension in climate talks has indeed been rich countries leaving the hard decarbonization work up to poor countries, as the President of Guyana kindly reminded a BBC journalist last week. But as in the case of Switzerland, sometimes money is the weapon of choice for governments looking for ways to fight climate change to keep their economies and their identities intact.