At COP29 in Baku, Azerbaijan, a new deal aims to accelerate global participation in carbon markets, potentially moving billions into emissions-reduction projects, especially for poorer nations. This development comes as the world seeks ways to combat climate change while fostering a just energy transition.
The Potential of Carbon Markets
Carbon trading offers a solution for wealthier nations to meet emission reduction targets while helping developing countries transition to greener energy sources. However, carbon trading is not without its critics. Many environmental groups, such as Greenpeace and WWF, have called carbon offsets a “smokescreen” and warn against their misuse.
Eriel Deranger, Executive Director of Indigenous Climate Action, expressed concern that carbon credits distract from the call for companies to cut emissions directly. She emphasized that carbon credits would likely do little to reduce global emissions on their own.
The EU’s Carbon Market Leadership
Despite these concerns, the European Union (EU) remains a key player in carbon trading. The EU operates the worldâs largest carbon market, the EU Emissions Trading System (ETS), which was valued at over âŹ770 billion in 2023. However, the EU has ruled out using carbon credits to meet its own climate targets, demonstrating the complexity of relying on these markets for emission reductions.
The Struggles of Voluntary Carbon Markets
While the EU’s compliance carbon market remains robust, voluntary carbon markets (VCMs) often face issues like greenwashing. In these smaller markets, companies may buy low-quality credits that donât significantly reduce emissions or engage in scams. This undermines trust and effectiveness in carbon markets.
Can a UN-Backed Market Offer Solutions?
A potential solution to these issues could lie in a UN-backed global carbon market. Discussions around such a market have been ongoing for over a decade, but significant agreements on quality standards have only recently begun to take shape. Andrea Bonzanni of the International Emissions Trading Association (IETA) stated that a UN-backed carbon market would offer much-needed clarity and confidence for investors, countries, and the private sector.
According to IETA, a global market could be worth $250 billion annually by 2030, offsetting 5 billion metric tons of carbon emissions. This could provide vital support for climate goals, especially as the aviation industry and other sectors seek to scale up carbon credit purchases under new UN plans starting in 2027.
The Need for Caution and Integrity
Countries that decide to sell credits in the UN-backed market must proceed cautiously. Akinwumi Adesina, CEO of the African Development Bank, warned against selling credits too quickly or too cheaply. Nations need to ensure they donât get âshort-changedâ in the process.
Furthermore, nations like Uganda and Nigeria are seeking clearer guidelines on how carbon credits can benefit them. Uganda is exploring clean cookstove projects but remains cautious about the potential benefits of carbon credits.
Similarly, Nkiruka Maduekwe, Director-General of Nigeria’s National Council on Climate Change, stressed the importance of high-integrity carbon credits in ensuring that emissions reductions are real and lasting.
While carbon markets offer a promising tool for mitigating climate change, challenges remain, especially in ensuring their integrity and avoiding exploitation. A UN-backed global carbon market could help address some of these concerns, but its success will depend on clear guidelines, transparency, and cautious implementation.
