This year’s Conference of Parties (COP) held in Baku, Azerbaijan, garnered a mixed reception towards its overall climate progress, but a key advancement made was the “operationalisation” of international carbon market governance.
Article 6.2 of the 2015 Paris Agreement allows countries to voluntarily trade emission reductions to meet climate targets through bilateral agreements, while Article 6.4 details a UN-supervised international voluntary carbon market (VCM).
A decade in the making, COP29 negotiations established how countries can authorise carbon credit transactions and manage tracking registries, alongside mechanisms for technical reviews on environmental and human rights.
At the London Climate Technology Show 2024, industry experts discussed the role of carbon credits in driving climate mitigation, describing COP29’s progress as an “incredible breakthrough”.
Panel chair Andy Harris, managing director of natural capital brokerage Nature Broking, cited Oxford University’s State of Carbon Dioxide Removal report, which finds that the Paris Agreement’s 1.5°C goal hinges on seven to nine billion tonnes of carbon being removed from the atmosphere per year by 2050.
Harris asked Julien Hall, pricing director at carbon credit marketplace Climate Impact X, for his assessment of COP29.
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By GlobalData“You can argue that all COPs are bad because they have failed so far to get us where we need to be – but for only the second time in history, a carbon market was born.
“Critically, going forward there will be stability around carbon trading policies, with no more decisions around carbon trading until 2028”, he explained. “This means that the market can go ahead and start trading, and projects will be more bankable because there will be less uncertainty around carbon policy.”
Carbon credit projects can include forest conservation, waste management, agricultural activities or implementing household and community devices such as biogas stoves.
The position of smaller nations was also highlighted, as headlines during COP29 reported walkouts over negotiations on climate financing, with an eventual compromise of $300bn. Hall highlighted that support also emerged for smaller nations setting up their own carbon registries as “the World Bank stepped in with templates, documentation and guidance”.
Corporate carbon credits
Integrity Council for the Voluntary Carbon Market (ICVCM) director of public affairs Lorna Ritchie emphasised the inclusion of the private sector as a positive step forward for VCMs. “This ensures the finance is actually reaching the local level, compared to trying to distribute money purely through private funds, which is a very top-down process.”
The role of carbon credits in corporate sustainability is a contentious issue. A 2022 report by the Climate Change Committee asserted that offsets can mask companies’ “insufficient efforts” to cut emissions. ‘Phantom credits’ also made headlines in 2023, causing skittishness in the market.
Hall acknowledged the difficulties of decarbonisation for businesses. “Very often it is hard, expensive and has diminishing returns, but it is cheaper to buy carbon credits with a greater impact per pound spent, and many carbon projects around the world need this money, so it is a win-win.
“With the new regulatory framework coming in, you are seeing companies realise they need to engage with this market.”
The panellists identified the UK as a leader in carbon credits due to its two government-endorsed mechanisms: voluntary emissions reduction from projects with third-party certification and certified emissions reduction, which is validated by the UN.
Sam Welsh, head of sales and marketing at carbon project partner Forest Carbon, explained that the UK’s frameworks, which are currently focused on nature-based solutions (although talks on social accrediting are ongoing), are “built on the core principles of the international markets”.
Securing carbon markets
While COP29 has helped restore confidence in carbon credits, Welsh emphasised the enduring risks. “We don’t know what their value will be in five or ten years, let alone post-2050. We need to understand that there is long-term risk, and the market requires careful navigation.”
Ian Jones, chair of agricultural investment platform Carbon Asset Solutions, cited “precision, transparency, consistency, permanence and reliability” as crucial considerations for buyers that are currently “holding the market back”.
To ease the identification of high-quality credits, in mid-2024, the ICVCM established seven carbon crediting methodologies under its Core Carbon Principles. With an additional 27 categories under assessment, Ritchie stated that the organisation is aiming to “transform the market and ratchet up ambition”.
As a nascent industry, Harris predicted that carbon credits are “on the threshold from becoming voluntary to regulated”, citing Japan as an example of “the second version of the carbon market”.
The panellists agreed that technology is key to achieving integrity and encouraging participation with carbon credits. Digitalised finance and risk management tools supported by robust regulatory frameworks would “stimulate participation, as we are at greater risk now of inaction as opposed to getting involved with an imperfect market”, Welsh concluded.
