The global community has taken a significant step towards operationalising carbon markets, with COP29 in Baku delivering long-awaited rules under Article 6 of the Paris Agreement. These rules seek to establish a global system for trading carbon credits, potentially mobilising billions of dollars to mitigate climate change. While this agreement has been heralded as a breakthrough, a closer examination reveals both the promise and the pitfalls of the new framework.
Carbon markets have the potential to mobilise substantial climate finance by channelling funds into decarbonisation projects in developing countries. These projects could include renewable energy initiatives, forest conservation, and carbon removal schemes, which are critical for global climate action. Advocates of the agreement estimate that the global market could reach a valuation of $250 billion annually by 2030, enabling the offset of up to 5 billion metric tonnes of carbon emissions. This anticipated influx of investment presents an opportunity to accelerate climate mitigation efforts in regions that lack sufficient resources.
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A long-awaited landmark
The operationalisation of Article 6 has also been a long-awaited milestone. By establishing a dual system for carbon credit trading — comprising a centralised UN-backed system and decentralised bilateral trading mechanisms—the agreement accommodates countries with diverse capacities. This flexibility aims to ensure that nations with varying levels of preparedness can engage meaningfully with the market.
Additionally, the provision of a centralised registry system for countries unable to establish their own registries represents a significant step toward inclusivity. By lowering entry barriers, the framework enables broader participation, particularly for developing nations that may otherwise struggle to meet technical and financial requirements.
Moreover, the new framework has generated heightened interest in scaling carbon removal technologies. Many large technology companies are actively exploring offsets through innovative removal solutions. If successful, this aspect of the agreement could spur the deployment of such technologies, which are vital for achieving global net-zero targets. The convergence of market mechanisms and technological advancements creates a pathway for addressing emissions more effectively.
The flaws in the framework
Despite its potential, the COP29 agreement is not without significant flaws. One of the most pressing concerns is the issue of environmental integrity. Numerous studies have revealed that a substantial proportion of carbon credits issued under previous frameworks fail to represent actual emissions reductions. In fact, less than 16% of credits are estimated to reflect real-world impact, casting doubt on the efficacy of the market. Without robust oversight, the framework risks perpetuating the issuance of “hot air” credits, which could undermine its credibility.
Another critical weakness is the lack of accountability. The agreement lacks clear penalties for non-compliance, creating a loophole that countries could exploit. While the framework emphasises the need to address inconsistencies, the absence of deadlines or stringent repercussions reduces the incentive for countries to adhere to the rules. This gap leaves the system vulnerable to misuse and undermines the trust necessary for its success.
Transparency is another area where the agreement falls short. Although the framework introduces some improvements, such as requiring countries to publish information on approved carbon credits, critical details about trade deals may not be disclosed until years after issuance. This delay in information dissemination hampers real-time scrutiny and accountability, limiting stakeholders’ ability to address issues proactively.
The inclusion of legacy credits from the Clean Development Mechanism (CDM) under the Kyoto Protocol further complicates the framework. Allowing these projects to transition without additional scrutiny raises questions about their legitimacy. Many of these projects have been criticised for failing to meet the additionality principle, which requires credits to reflect actions that would not have occurred otherwise. The continued reliance on such credits risks diluting the integrity of the new system.
The final agreement at COP29 reflects significant concessions, particularly by the European Union, to accommodate the preferences of the United States. By decoupling registry services from UN endorsement, the deal seeks to balance autonomy and oversight. On the one hand, this compromise allows countries greater flexibility in managing their carbon trading systems. On the other hand, it weakens the framework by leaving it vulnerable to misuse and undermining efforts to establish a uniform standard. While the compromise was necessary to secure agreement, it also highlights the challenges of aligning diverse interests in a global context.
A missed opportunity to set high standards
The agreement’s approach to safeguarding the system from misuse has drawn criticism. For instance, it permits credits from natural absorption processes, such as forest growth, which often occur independently of human intervention. This practice risks undermining the additionality principle, as it allows for the issuance of credits that do not represent new efforts to reduce emissions. Furthermore, these credits could contribute to double-counting, where the same emission reduction is claimed multiple times, further eroding the market’s integrity.
Concerns also persist regarding the commodification of carbon-rich ecosystems, particularly in developing regions. In Africa, for example, there have been instances where vast tracts of forest have been sold off in large offsetting deals, raising fears of a “new scramble for Africa.” Without adequate safeguards, these practices could exploit vulnerable communities and ecosystems, perpetuating inequalities rather than addressing climate challenges.
The future of global carbon market
Significant reforms are necessary to avoid a third collapse of global carbon markets. Strengthening oversight mechanisms should be a top priority to ensure that credits reflect genuine emissions reductions. Drawing lessons from the failures of the Kyoto Protocol, future iterations of the framework must incorporate stricter quality standards and verification processes.
Transparency and accountability are equally critical for restoring confidence in the system. Early disclosure of trade details and the imposition of stringent penalties for rule violations can enhance trust and deter misuse. In addition, the Supervisory Body must adopt science-based standards to guide its decisions. For example, carbon storage projects should meet stringent permanence criteria, ensuring that emissions reductions are sustainable over the long term.
Ultimately, the success of carbon markets depends on the commitment of all stakeholders to uphold high-integrity practices. Governments, private actors, and civil society must collaborate to set an example through stringent quality standards and active monitoring. Without these efforts, the framework risks becoming a distraction rather than a solution.
The COP29 agreement represents a critical milestone in the global fight against climate change. However, its compromises and gaps underscore the challenges of balancing inclusivity, economic interests, and environmental integrity. As the framework moves toward implementation in 2025, the global community must act decisively to address its shortcomings. Done right, carbon markets can bridge the emissions gap and help achieve the 1.5°C target. If not, they risk becoming yet another missed opportunity in the fight against climate change.