COP29, held in Baku, left many disappointed, particularly those advocating for wealthier nations to provide substantial compensation to vulnerable countries. However, two key agreements emerged: one addressing the $300 billion climate finance agreement, and another on carbon credit trading standardization.
The $300 Billion Climate Finance Agreement
The first agreement finalized at COP29 commits wealthier nations to contribute $300 billion to support climate-vulnerable countries. While this figure is significant, it falls far short of the $1.2 trillion that experts argue is necessary to address the impacts of climate change comprehensively. This funding will primarily focus on climate adaptation and mitigation efforts, such as building resilient infrastructure, disaster preparedness, and transitioning to renewable energy systems.
However, the agreement underscores the challenges of mobilizing larger sums, especially in the context of political realities in donor countries. Most developed nations that are supposed to fund the system are democratic governments that face domestic voter pressures, especially during economic uncertainty, making it difficult to justify large-scale international aid. Concerns about the governance and accountability of these funds in recipient countries, particularly those with less transparent systems, further complicate the issue.
This agreement, while a step forward, highlights the urgent need for a global shift in focus toward solutions that go beyond adaptation and mitigation. Experts emphasize that addressing climate change at its core requires significant investments in technologies that can actively remove carbon dioxide from the atmosphere. This would mark a paradigm shift from merely managing the symptoms of climate change to targeting its root causes.
While the $300 billion agreement acknowledges the plight of vulnerable nations, it also reflects the limitations of current international cooperation and the pressing need for innovative financing mechanisms that engage both public and private sectors.
The Carbon Credit Trading Standardization Agreement
The second major agreement at COP29 revolves around the standardization of carbon credit trading. This aims to establish a unified global framework to ensure credibility, transparency, and interoperability in carbon markets. By creating common standards, the agreement seeks to address longstanding issues of fragmentation and inconsistency that have plagued voluntary carbon markets.
These challenges often lead to the proliferation of low-quality credits that fail to deliver genuine environmental benefits. While still in its early stages, the agreement signals a commitment to developing a more structured and accountable carbon trading ecosystem that can drive meaningful climate action.
However, the agreement stops short of resolving key issues such as the prioritization of carbon removal credits over avoidance and reduction credits. This distinction is crucial, as avoidance and reduction credits merely slow the growth of emissions without tackling the existing stock of CO₂ in the atmosphere. To make a lasting impact, carbon markets must incentivize removal solutions that permanently sequester atmospheric carbon for hundreds or thousands of years to prevent it from futher heating the climate.
The current agreement lays the groundwork for these discussions but leaves much to be defined. The path forward will require rigorous efforts to ensure that carbon markets prioritize long-term, high-quality removal solutions that align with the broader goal of climate reversal.
Tracer Proposes Key Metrics for Carbon Removal Credits
While the agreements at COP29 highlight mitigation and adaptation strategies, a careful balance must be struck with investment in climate reversal solutions. Carbon removal technologies hold the potential to directly address the root cause of climate change by reducing the 2,200 gigatons of CO₂ in the atmosphere. This shift in focus is necessary to complement immediate relief efforts with long-term solutions.
Study Highlights Challenges in the Market
A recent study by Kyoto University, EPFL, and the University of Hamburg revealed that demand for low-quality carbon credits undermines the integrity of the carbon market. Companies purchasing cheap offsets weaken efforts to achieve true sustainability.
Tracer proposes two critical variables to evaluate the effectiveness and integrity of carbon credits:
1. Duration of Carbon Removal
Carbon removal solutions should be assessed based on the length of time the captured CO₂ is sequestered and risk of reversal. Tracer’s Carrot smart contract employs a simple grading system to reflect this:
- Removals lasting over 10,000 years are deemed permanent and receive the best grade.
- Solutions with durations under 100 years are considered unsustainable and unsuitable for funding, as they only delay the problem, leaving future generations to contend with its consequences.
2. Pricing Aligned with Duration
Carbon removal credit pricing must reflect the duration of the removal. The longer the CO₂ is securely removed from the atmosphere, the greater its value. To drive meaningful climate action, investments should prioritize and channel resources into long-term solutions that offer durable and measurable impact, ensuring that captured CO₂ does not return within the foreseeable future.
Hopeful Developments Post-COP29
Despite the challenges, progress continues:
-> Carbon Removal Subsidies in the US
A bipartisan bill aims to expand tax credits for carbon removal technologies, signaling growing federal support.
-> EU’s Certification System
The EU finalized a certification framework for permanent carbon removals, ensuring credible and measurable impacts.
-> Ocean-Based Carbon Removal
Planetary Technologies delivered its first ocean alkalinity enhancement credits (to Stripe and Shopify), marking a breakthrough for ocean-based CO₂ removal.
Why It Matters
Carbon credit projects aren’t just about cutting emissions, they deliver co-benefits such as preserving biodiversity, supporting clean energy, and creating jobs. For instance, REDD+ and afforestation projects provide employment opportunities while protecting ecosystems. Between 2013 and 2023, nearly $42 billion was invested in carbon credit projects, with nature-based solutions leading the way. These initiatives align with broader sustainability goals and demonstrate the power of well-structured markets. (MSCI)
Final Thoughts
While COP29’s outcomes fell short of expectations in some areas, the agreements and initiatives emerging from it provide a pathway for progress. At Tracer, we remain committed to focusing on long-term, high-quality carbon removal solutions to address the root causes of climate change.
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