Thanks to the efforts of government officials, conservation organizations, and industry groups, COP28 has seen progress in negotiations related to carbon markets, a less publicized yet crucial aspect.
The path of progress
As is the case with anything, there is always room for improvement, and the carbon market is no exception. A number of European countries, including the Netherlands, Germany, France, Spain, Finland, Belgium, and Austria, proposed joint recommendations to enhance the integrity of the voluntary carbon market. These recommendations aim to ensure transparency, high-quality credits, and credible claims. The proposals include, but are not limited to, mapping emissions, prioritizing emission reductions within organizations and value chains, and promoting the purchase of high-quality certificates contributing to sustainable development goals. The recommendations are intended for immediate adoption by the market, with a long-term goal of influencing EU-level frameworks.
Why consider the carbon market?
It is argued that purchasing high-quality credits can transfer funds for nature-based solutions, Indigenous community support, coal power phase-out, and renewables in developing countries. Initiatives are underway to certify carbon projects and address greenwashing, but debates persist about offsets’ role in sustainability. The sector faces challenges of human rights issues, worthless credits, and financial transparency concerns, with demand reducing after peaking at $2 billion in 2021.
At COP28, influential figures, including US climate envoy John Kerry, EU commission president Ursula von der Leyen, and former UK prime minister Tony Blair, supported efforts to revive the market for environmental action funding. However, concerns arise about carbon markets’ role in formal climate talks and potential inclusion in the Paris Agreement. Carbon market certifier Verra collaborates with the Climate Crisis Advisory Group to assess the market scientifically and build trust. Despite acknowledging the challenges, some believe carbon markets can be reformed to address climate goals effectively, emphasizing the importance of emission cuts alongside offsets. The UK-backed Voluntary Carbon Markets Integrity Initiative (VCMI) sparks debate as it explores expanded roles for offsets in corporate climate claims.
While Article 6 faced challenges at COP28, the Voluntary Carbon Market (VCM) gained a better reputation. The VCM has addressed some of these challenges, providing capital to impactful projects in impoverished nations. Investors seeking guidelines may turn to the VCM, offering operational solutions and attracting attention due to its straightforward operating environment. Additionally, industry bodies announced collaborations to establish an integrity framework, contributing to market consistency and confidence, in contrast to the conflicts around Article 6. Guidance from regulatory bodies signal the mainstreaming of carbon into financial markets. The VCM, with its maturing infrastructure, stands as an operational, impactful, and continuously improving market, providing a positive outlook.
Moreover, discussions under Article 6 of the Paris Agreement focus on international cooperation for climate policies, including carbon trading. Article 6.2 enables countries to transfer emissions reductions through internationally transferable mitigation outcomes (ITMOs), with COP28 aiming to facilitate ITMO trading by addressing technical elements. Article 6.4 is a key area of attention, outlining a centralized mechanism to replace the Clean Development Mechanism. Recommendations from the UN Supervisory Body regarding Article 6.4’s guidelines were presented at COP28, addressing methodologies, removal activities, additionality, and permanence of emission reductions. While COP28 has not committed to a global fossil fuel phase-out, it shows progress in developing international carbon markets. The success of these developments depends on effective implementation and further clarification of details.