Is the COP29 carbon market agreement a true climate milestone?
By Hana Abdelatty Thu, Nov 14, 2024
After almost ten years of debate, the rules for the Paris Agreement’s global carbon market have been approved at the United Nations Conference of the Parties (COP29). But can the UN-backed global system address the international concerns and criticisms of carbon emissions trading?
Understanding carbon credits
Carbon credits function as official certifications that measure and verify efforts to remove carbon dioxide from the atmosphere. They quantify the benefits of carbon removals like planting trees or protecting forests. This allows governments and businesses to offset emissions when reducing them is financially, politically, or operationally challenging. However, the goal of a carbon credit system is not only to incentivize offsets, but also to reduce carbon emissions in the long-term.
To date, several carbon credit markets operate worldwide, including ones in the European Union, Canada, China, and thirteen US states. Each carbon credit marketplace uses distinct approaches towards the scope of stakeholders that are involved, how credits are allocated, regulatory requirements, and overall emission caps. As global leaders push towards the Race to Zero to meet the goals set out in the Paris Agreement, carbon markets must be standardized to ensure international progress can be monitored.
In light of the new agreement, the UN-backed system would standardize a single global market. The agreement could encourage large-scale emissions reductions across borders. It could also pave the way for new investments in climate mitigation and adaptation initiatives across the globe.
What is Article 6.4 of the Paris Agreement?
The text reads: “A mechanism to contribute to the mitigation of greenhouse gas emissions and support sustainable development is hereby established under the authority and guidance of the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement for use by Parties on a voluntary basis. It shall be supervised by a body designated by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement, and shall aim:
- To promote the mitigation of greenhouse gas emissions while fostering sustainable development;
- To incentivize and facilitate participation in the mitigation of greenhouse gas emissions by public and private entities authorized by a Party;
- To contribute to the reduction of emission levels in the host Party, which will benefit from mitigation activities resulting in emission reductions that can also be used by another Party to fulfill its nationally determined contribution; and
- To deliver an overall mitigation in global emissions.”
A new era of carbon trading
The decision to develop a global carbon credits program was enshrined in Article 6.4 of the Paris Agreement. However, its approval has been a point of contention. Countries have struggled to agree on the types of projects that should qualify as carbon removal and how they are regulated. Following nearly a decade of negotiations and deadlock, the parties reached a significant breakthrough. They approved the standards for Article 6.4 on the first day of COP29.
While recent political transitions in the United States and other countries have left climate outcomes uncertain, this carbon market agreement reached consensus. Thus, even if President-elect Donald Trump chooses to withdraw the United States from the Paris Agreement once he takes office again, the proposed carbon marketplace would still be able to continue operating. This consensus underscores a commitment from the global community to implement the carbon market and broaden global climate cooperation, regardless of policy shifts in participating countries.
In addition, an international carbon trading market could unlock billions of dollars in climate financing while simultaneously offsetting global emissions. A UN-backed carbon marketplace could reduce the costs of fulfilling Nationally Determined Contributions (NDCs). In fact, it could save $250 billion by 2030 and remove 50 percent more carbon emissions at no additional cost.
The creation of a global carbon market would also open an additional channel of investment to developing countries. Historically, developed countries have been responsible for around 80 percent of cumulative global emissions. On the other hand, developing countries account for just 20 percent. A global carbon trading market would allow countries with higher emissions to purchase carbon credits from lower emitting developing countries. It could also create a new, regulated channel of investment into the economies of those on the frontlines of climate change.
Challenges and criticisms: The inequality of decarbonization
Despite widespread support, critics have expressed reservations about the success of this milestone moment. In previous years, country negotiators had the opportunity to discuss amendments to the proposed rules. In fact, at last year’s conference in Dubai, the parties failed to finalize an agreement following two weeks of negotiation. This year, however, in an effort to break the deadlock, the engagement with country negotiators was limited. Thus, some experts worry that the rapid adoption of the rules on the first day of COP29 could impact its long-term success.
Also, global carbon trading initiatives can be decidedly unequal. The investments that come from the carbon market rarely go to the communities that need the most support. Existing global carbon trading initiatives have not effectively accommodated frontline communities to attract investment, especially since these communities often lack the infrastructure and resources that would allow a rapid deployment. As a result, the most climate vulnerable countries have often seen low returns from carbon market initiatives. Critics point out that this undermines the effectiveness for carbon trading as a tool for equitable climate action.
Further, many experts worry that the focus on capturing externalities in this way ignores the larger problem of the rapidly worsening climate crisis. A globally recognized carbon credit system could allow major emitters to deprioritize decarbonization by enabling them to purchase carbon credits rather than actively reducing their own emissions. Some view it as officially sanctioned greenwashing. The carbon credit system cannot be a substitute for meaningful steps to decarbonize and phase down emissions.
The path forward for international carbon offsets
Addressing representatives at COP29, UN Secretary-General Antonio Guterres said that “climate finance is not charity, it’s an investment.”
The adoption of the standards for the UN-backed global carbon market marks a significant step in creating a streamlined framework. There is now an opportunity to establish global standards on cap-and-trade mechanisms, paving the way for more accountable emissions trading. Without proper standards, cap-and-trade programs can be ineffective and create challenges in verifying emissions reductions. They can double count reductions claimed across multiple programs. An international standard can ensure that emissions reductions across countries are more equitably counted and registered.
However, the success of a regulated international carbon market hinges on careful design and implementation.
To most effectively incentivize sustainable development, the framework must encourage emissions reductions among major carbon emitters. It must also address accessibility challenges that many developing countries face.
By establishing mechanisms that allow equitable access to carbon finance, the UN-backed market can play a transformative role. A standardized market can level the playing field, enabling developing countries to attract climate investments that foster sustainable growth and resilience.
