The long-awaited United Nations Framework Convention on Climate Change (UNFCCC) multilateral meeting, dubbed COP29 or the “Finance COP,” has just begun with a breakthrough in carbon markets.

The carbon markets are a facilitation for the trading of carbon credits with each credit an equal of a tonne of carbon dioxide that has been reduced or removed from the atmosphere.

It’s important to understand that these credits could be generated from diverse sources, including forests, reforestation programs, tree-planting schemes, and renewable energy ventures.

Article 6 of the Paris Agreement points out that carbon credits are to be permissible for country-to-country carbon trading and provide for the creation of a regulated global market. This involves countries getting to collaborate to fulfill their national obligations as per the national adaptation plans(NAPs) and nationally determined contributions (NDCs).

The adoption of rules governing the approach to operationalizing carbon markets hastily during day one of COP29 has stirred mixed reactions from activists, experts, and lobbyists. About the need for due process, the small technical committee mandated to supervise carbon markets (the Article 6.4 Supervisory Body) took the unprecedented move of finalizing and putting into effect rules related to carbon removal—mostly speculative approaches intended to remove carbon dioxide from the atmosphere—as part of carbon market mechanisms.

This move has been questioned because it exceeds the country’s ability to further revise and strengthen the standards.

According to Erika Lennon, the Center for International Environmental Law’s Senior Attorney, the move from the Supervisory Body to prevail in the quest to start COP29 with a “win” is questionable when people’s perspective is prioritized as this is hardly a win for people or the planet. 

“This is very concerning from a procedural standpoint: it bypasses States’ ability to even discuss, let alone revise, the standards before they go into effect. States’ oversight is all the more critical as the Supervisory Body’s efforts to get this done has resulted in risky rules that will lead to human rights violations and environmental harm,” said Erika.

Erika pointed out that approving these carbon market rules without discussion or debate sets a dangerous precedent for the entire negotiation process. However, there is hope that member states can partially correct this by providing stronger guidance to the Supervisory Body to ensure that future rules align with science, human rights, and international law.

How Carbon Markets Became a Climate Finance Option

The developed countries have attached their deliberations of climate financing on the possibility of carbon markets cutting down the costs needed to pay up for the historical injustices.

Led by the biggest polluters, developed countries like the U.S. offered limited resources to be channeled to financing decarbonization instead of the anticipated trillions.

This was backed up by their conviction that if well implemented the carbon markets can be harnessed as a tool for funding mitigation and adaptation. A move that carbon market proponents have fashioned to assert that carbon trading can liaise with climate finance.

However, in practicality purchasing carbon credits to obtain a free pass to continue polluting, chiefly through fossil fuel production and use, cannot be considered true climate finance. Making it important for the path of climate finance to stay unaltered by some of these ‘false solutions’ that might derail the building of resilience for most vulnerable communities.

Lobbyists have emphasized that carbon offsets allowing polluters to buy emissions reductions from other countries instead of reducing their emissions do not enhance overall levels of climate mitigation or adaptation — which is the very defining feature of climate finance.

In the push for the adoption of carbon markets and their regulatory aspects, developed countries are urged to eschew evading their legal obligations to provide financing for mitigation, adaptation, and loss and damage, particularly in the Global South.

“Wealthy countries that bear the greatest cumulative responsibility for the climate crisis are overdue on their payment of predictable, new, and additional grants-based climate finance, and they must agree to put real money on the table — not hide behind dangerous schemes like carbon markets and offsets that may be generated from illusory technologies for CO2 “removal” and geoengineering,” revealed a Center for International Environmental Law statement.

Carbon Markets Contentions for Global South

Article 6 of the Paris Agreement enables countries to trade carbon credits to meet their national climate goals. For example, a nation with extensive tropical rainforests might sell credits based on avoided deforestation or CO₂ absorption by forests, generating funds to protect these ecosystems (known as carbon offsets).

However, the selling country cannot count these emissions reductions toward its own climate goals; instead, the purchasing countries count them toward theirs. The practice has raised concerns as it effectively compels many Global South nations to trade away low-cost climate solutions.

Carbon market rules have been a focal point of climate talks for years. Although basic guidelines were set at COP26, progress on fully implementing these markets has lagged. Finalizing these rules remains essential before trading can officially begin.

Concerns persist over carbon market mechanisms, which often create loopholes for polluters and pose risks to human rights, Indigenous rights, and the environment. Such mechanisms may distract from more effective climate actions. If carbon markets are to be used, robust rules must be in place to minimize environmental damage and prevent negative impacts on communities worldwide.

Since COP28 failed to finalize Article 6 rules, nations have sought common ground. The newly established Paris Agreement Crediting Mechanism (PACM), intended to govern carbon credit exchanges, recently introduced a grievance mechanism and a Sustainable Development Tool.

The PACM’s Supervisory Body has also attempted to finalize two technical carbon crediting standards, though these were previously rejected at COP27 and COP28. In a shift, the Supervisory Body now claims these standards are “fully operational” and need only to be noted, not approved, by the COP in Baku. This approach could undermine the PACM’s credibility from the outset.

A call for genuine climate action is crucial. Rather than relying on carbon markets, nations should commit to substantial climate action and direct funding toward ambitious, necessary efforts to address the climate crisis.