The 29th Conference of Parties (COP29) to the United Nations Framework Convention on Climate Change (UNFCCC) came to a close late Sunday night, with negotiations running 36 hours overtime. The conference focused on financing climate change mitigation. 

So, what did the extended negotiations and spirited debates achieve? Rules, pledges and commitments. 

Carbon credits aren't the first item that comes to mind when presented with overwhelming scientific proof that the Earth is warming, hurricanes strengthening, wildfires raging, corals dying and oceans rising. But to halt these alarming trends, the need of the hour is global collaboration.

And massive amounts of money. Carbon trading is one such system that goes from commitments to cash to carbon cuts.

Money Makes The World Go Round

The world is divided into two types of countries, all of which are expected to follow one principle on climate action: Common But Differentiated Responsibilities (CBDR). Developed countries — historically the largest polluters — are expected to take on a larger share of the financial burden by reducing emissions and financing climate solutions for all, while developing countries focus on economic growth and poverty alleviation without penalty. 

This framework underpins global climate negotiations on climate finance. To that tune, developed countries have pledged US$ 300 billion to developing countries annually for climate action. While this seems like a lot, it is under a third of what the Global South had recommended in order to enact real change. Even India had proposed US$ 1 trillion in climate finance. 

But how exactly does money help? Climate finance is money used to tackle climate change, including funding for renewable energy, disaster recovery, carbon markets and the loss and damage fund. Carbon markets are one way to raise this money, by letting countries and companies trade carbon credits to cut emissions.

Fresh Start Or False Hope?

Carbon markets have long been a polarising issue in climate policy. Supporters argue that they provide essential funding for climate action, helping to channel money toward efforts to reduce emissions. 

Critics, however, point to the history of fraudulent and ineffective projects that have eroded trust and fuelled calls for more stringent regulations.

For almost a decade, negotiators have struggled to reach consensus on the rules for these markets, particularly under Article 6 of the Paris Agreement. 

At the last climate summit, proposals from a UN supervisory body tasked with advising on carbon markets were rejected outright. After several false starts, negotiators and observers had said that this was the last chance to get it right.

That’s why when countries agreed to standards for a centralised carbon market under the UN with Article 6.4 on the first day of COP29, it was considered a breakthrough. The agreement was considered an early win, at a conference marred by host country Azerbaijan’s links to the fossil fuel industry. 

COP29 also made progress on Article 6.2, solidifying the foundation for ongoing implementation between certain countries, and providing negotiators with a reprieve until 2028.

With a decade of negotiation and overtime, the sector sees fresh hope for the international carbon trading system, for countries to meet their Paris commitments. But is that as good as it sounds? 

Convictions, Concerns

The approval of Article 6 brings back the principle of “a tonne is a tonne”. A carbon credit represents one tonne of CO2 emissions reduced or removed from the environment. The question isn’t where the emissions are being reduced from or carbon being sequestered, it’s about how fast and efficient the process can be. 

While there are concerns on how many developed countries will make purchases, Norway has signed agreements of US$ 740 million in Baku with Benin, Jordan, Senegal and Zambia. It could pave the way to a multibillion-dollar market. 

There are also predictions that the formalisation of guidelines will boost the voluntary carbon market, which saw a drastic dip in 2023 attributed to market uncertainty.

The precursor to Article 6 was the Clean Development Mechanism (CDM) under the Kyoto Protocol, and there was no clarity on how projects would transition to the new mechanism. Till date, India has credits worth billions. 

Despite progress, concerns about transparency and accountability in Article 6 remain. Countries participating in the carbon market under Article 6.2 are not required to disclose how they plan to prevent double counting of credits, leaving room for uncertainty. 

The latest draft also fails to mandate countries to quantify mitigation outcomes or address risks of reversals, such as when carbon captured by forests is released back into the atmosphere due to fires or other events.

The absence of strong consequences for misreporting or failing to adhere to the framework’s spirit weakens the system. 

As with the erstwhile CDM, projects can earn certified emission reduction credits without passing additionality tests. Additionality means that the emissions reduced or removed would not have occurred naturally in the absence of the incentive created by carbon credit revenues. Experts observed that there are still no such checks for projects moving from CDM to Article 6.2. 

In that light, a recent study by Nature Communications revealed that less than 16% of carbon credits issued represent real emissions reductions. Proposals on the table would credit the natural absorption of carbon dioxide by forests, but that happens anyway, not due to human intervention. 

The fear is that if credits are used as an excuse to emit more, it would result in more carbon added to the environment instead of cuts. 

Bigger Picture

With negotiations especially tough this year, and not as much progress made as activists had hoped for, skepticism ran thick at Baku. 

A COP29 delegate, speaking anonymously to The Secretariat, expressed frustration: “Why meet every year? This incurs huge expenses and emissions, flying people in and out. On the one hand we are talking about curbing emissions, and on the other we’re adding to it.” 

Simon Stiell, executive secretary of the UNFCCC, summarised this juncture, “COP29 reached global agreement on carbon markets, after almost a decade of hard work, where several previous COPs were not able to get this done. No country got everything they wanted, and we leave Baku with a mountain of work to do.”

The work on carbon markets doesn’t stop at COP29. The supervisory body that is setting up the mechanism, has a lot of homework to iron out more guidelines, and will continue to be accountable to the parties. 

The bottomline is that COP29 achieved what previous conferences could not — a consensus on Article 6. But the devil is in the details, and its success will depend on how effectively the rules are implemented in the coming years. For now, the world watches and waits, hoping this breakthrough will translate into tangible action. 

At this “Finance COP”, the cheque is still in the mail. All that developing nations can do, is hope it doesn’t bounce.