COP29 opened this week in Baku, Azerbaijan, amid geopolitical tensions and diplomatic challenges. Governments are meant to hammer out a climate finance agreement, although expectations have been muted by Donald Trump’s U.S. election win and his campaign promise to pull the U.S. out of the Paris Climate Agreement COP21, the global accord aimed at capping global warming at 1.5 degrees Celsius.
The lead-up to COP29 had been rocky. Azerbaijan, an authoritarian state heavily reliant on fossil fuels, presents a divisive backdrop for negotiations. The absence of key world leaders and a focus on the complex issue of financing have only deepened skepticism around the summit’s potential outcomes. Yet, despite these hurdles, some encouraging signs have begun to surface already.
On the first day of of the summit, nine years after the Paris Agreement, countries agreed on international trading rules for carbon credits. The Wall Street Journal called it “a key step to a global carbon deal.”
On Monday, the first day of COP29, nearly 200 nations at the two-week climate summit approved new UN standards for international carbon markets, which are critical to launching a U.N.-backed global carbon market that would fund projects that reduce greenhouse gas emissions.
The accepted framework aims to facilitate international cooperation in reducing greenhouse gas emissions through a centralized crediting mechanism and enables countries to trade high-quality carbon credits, to offset their emissions by financing projects worldwide that absorb or reduce CO₂.
The announcement of new carbon trading standards on COP29’s opening day was met with a mixed response. Bloomberg says that proponents argue the new market will form the gold standard for emissions trading, yet some environmental groups labeled it a way for rich countries to pay for cheap climate action abroad, without providing an incentive to lower their own carbon emissions.
COP29’s carbon trading deal: quick win or damaging precedent?
The Financial Times provided a balanced summary: “At issue is Article 6.4 of the Paris Agreement. This clause of the 2015 text was aimed at creating an international carbon credit market under the UN umbrella, to unlock financial flows from companies and other non-state actors that would help nations reduce carbon emissions. But ever since Paris, countries have failed to agree on the principles that will guide this market. In the run-up to COP29, the official supervisory body for this subject — 24 officials nominated by member states and regional groups — decided to force the issue.
They prepared a 15-page set of guidelines for what sort of projects should be eligible to sell carbon credits under the mechanism. Requirements included a “conservative” approach to estimating carbon mitigation impacts, and transparency around data used and assumptions made by project developers.
A second document dealt with specific guidelines for projects that remove carbon from the atmosphere (as opposed to those that aim to prevent or reduce emissions — see our earlier piece on the importance of this distinction).
The conventional next step would have been to present these principles for consideration at the COP, and await permission to implement them. Instead, the supervisory body just went ahead and adopted them — and in effect dared the delegates in Baku to order them to reverse that step.
The bold tactic paid off. The Azerbaijani organizers of the conference grabbed the opportunity for a quick win, putting this matter on the agenda for the very first day. No country had the stomach for a serious fight on this issue, and the meeting on Monday night in effect gave an green light to the supervisory body’s adoption of its new principles. This was decried by several non-profit groups, who called this a breach of due process, and questioned whether the new guidelines would prove strict enough to ensure high standards.”
The ‘new collective quantified goal’ on climate finance?
Carbon Brief summarized the outstanding issues that are necessary to ensure that Article 6 advances, rather than sets back, the climate agenda. This detailed guide explains what is at stake. It is not expected that all these issues will be settled at COP29, so this overview may prove to be an extensive to-do list for many years to come.
It is an undisputed fact that global leaders have started looking ar carbon credits more favorably. There are parallels with other industries: in the last decade, renewable-energy project developers have benefitted from signing long-term offtake agreements with corporate electricity buyers — known as Power Purchase Agreements (PPAs). Something similar seems to be happening in the carbon credit market, especially where nature-based projects are concerned.
Key findings from MSCI, the leading provider of critical decision support tools and services for the global investor community:
- Record growth in long-term, nature-based carbon credit offtake agreements in 2024, largely for removal credits, signals strong corporate demand for sustained carbon removal solutions.
- Large corporations with ambitious climate goals, including tech giants and energy firms, are committing to these multi-year agreements to secure reliable, high-quality, nature-based carbon credits.
- Without long-term deals, companies risk credit scarcity and price volatility. However, these contracts pose delivery and financial risks, making spot markets preferable for smaller or short-term buyers.
Lack of climate finance could create carbon credit supply deficit
A shortage in carbon credits is a bigger threat to the voluntary market than a current lack of demand, with the dearth in issuances linked to scarce climate finance, the CEO of the Regional Voluntary Carbon Market Company (RVCMC) told S&P Global Commodity Insights in an interview.
Speaking on the sidelines of COP29 in Baku, RVCMC CEO Riham ElGizy expressed concern over the lack of finance in the Global South and emerging countries, highlighting the key role carbon credits could play in reversing this trend. ElGizy noted the fall in issuances of carbon credits as a worrying trend and shared details about RVCMC’s launch of Saudi Arabia’s first carbon credit trading exchange, as the kingdom looks to engage more in carbon markets.
2024 State of the Voluntary Carbon Market Report
The Carbon Direct State of the Voluntary Carbon Market report examined the key trends and developments shaping the voluntary carbon market, with a focus on carbon dioxide removal.
Key takeaways from the excellent report are:
For buyers
- Both nature-based and high-durability CDR require essential funding now; nature-based projects will deliver the majority of CDR credits in the near term at accessible prices.
- Forward offtakes are essential to scale a nascent CDR market, especially for high-durability CDR, but very few buyers are contracting at the level needed to meet 2030 CDR goals.
- To reach climate targets, buyers and developers need to develop mature market structures for project development and project finance, backed by bankable offtake.
For suppliers
- Projects must distinguish themselves on the basis of quality and transparency to reduce the reputational risks buyers face when purchasing carbon credits.
- Nature-based CDR is likely underfunded and undersupplied. There is a critical need to increase project finance for nature-based CDR to meet demand.
- Scale-up plans for high-durability CDR supply outstrip demand in the near term. High-durability projects need (a) high volumes of bankable offtake from buyers and (b) mature market structures to access project finance and turn scale-up plans into operational projects.
COP29: What is the latest science on climate change?
Taking a step back from the carbon trading markets and looking more broadly at the challenge of climate change on a global scale, COP29 is being held during yet another record-breaking year of higher global temperatures, adding pressure to negotiations aimed at curbing climate change.
The last global scientific consensus on climate change was released in 2021 through the Intergovernmental Panel on Climate Change (IPCC), however scientists say that evidence shows global warming and its impacts are unfolding faster than expected. Reuters summarized the most important findings of the latest climate research:
- 1.5c Breached? The world may already have hit 1.5 degree Celsius (2.7 F) of warming above the average pre-industrial temperature – a critical threshold beyond which it is at risk of irreversible and extreme climate change, scientists say.
- Supercharged Hurricanes. Not only is ocean warming fueling stronger Atlantic storms, it is also causing them to intensify more rapidly, for example, jumping from a Category 1 to a Category 3 storm in just hours.
- Wildfire Deaths. Global warming is drying waterways and sapping moisture from forests, creating conditions for bigger and hotter wildfires from the U.S. West and Canada to southern Europe and Russia’s Far East creating more damaging smoke.
- Coral Bleaching. With the world in the throes of a fourth mass coral bleaching event — the largest on record — scientists fear the world’s reefs have passed a point of no return.
- Amazon Alarm. Brazil’s Amazon is in the grips of its worst and most widespread drought since records began in 1950. River levels sank to all-time lows this year, while fires ravaged the rainforest.
- Volcanic Surge. Scientists fear climate change could even boost volcanic eruptions. In Iceland, volcanoes appear to be responding to rapid glacier retreat. As ice melts, less pressure is exerted on the Earth’s crust and mantle.
- Ocean Slowdown. The warming of the Atlantic could hasten the collapse of a key current system, which scientists warn could already be sputtering.
How can you help solve climate change?
As the urgency to address climate change intensifies, the standardization of carbon credit trading at COP29 marks a critical step forward in creating a more reliable, accessible carbon market.
With the frameworks in place, even as there are many more details to be ironed out over time, Tracer is ready to play a key role in driving accountability and transparency across the carbon removal landscape. Now more than ever, the carbon credit market is essential in the collective efforts to fight global warming and secure a sustainable future.
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