COP29: An Overview of the Achievements, Missed Opportunities & What’s Next for the Carbon Markets
Global Action on carbon market regulation, project financing and insurance mechanisms.
Carbon Credits
Project Development
Company News
Dec 4, 2024
Sarah Daniel
The 29th Conference of the Parties (COP 29) to the United Nations Framework Convention on Climate Change (UNFCCC) took place in Baku, Azerbaijan, from November 11 to 22, 2024. Dubbed the Climate Finance COP, the event saw major strides in regulating carbon markets, funding mechanisms for project financing and insurance initiatives. Here's a closer look at the achievements, missed opportunities, and implications for carbon buyers and project developers
Key Achievements at COP29
Progress on Article 6 - New Carbon Market Rules
Parties reached a milestone consensus in global carbon market regulation under Article 6 of the Paris Agreement, resolving years of inconclusive negotiations, especially around Article 6.4. Article 6.2 enables country-to-country carbon credit trading through bilateral agreements, further clarifying the process for authorising trades and operating registries. Article 6.4 established a global carbon market under the UN, setting standards for carbon removal and developing project development and assessment.
The new rules aim to improve transparency and credibility, paving the way for the UN-backed carbon market to be operational by 2025. However, concerns about voluntary participation and the risk of offsetting emissions without real reductions remain a topic for further scrutiny. While the framework presents exciting possibilities, it also raises questions about how these new mechanisms will align with or impact existing carbon market standards—a matter that we at Treeconomy are closely monitoring. (Stay tuned for an in-depth blog on Article 6 soon!)
New Climate Finance Goal
A new climate finance goal, the Net Collective Quantified Goal (NCQG), was set at $300 billion per year by 2035, tripling the previous $100 billion target. Developed countries are expected to make most of the contributions, with significant input from the private sector. However, the agreed amount falls far short of the $1.3 trillion per year that developing countries, including Small Island Developing States (SIDS), have said is necessary by 2035. The need for a clear structure for mobilising private finance or addressing the debt burden of developing nations further underscores the gap. SIDS were notably unhappy with the outcome, as the agreement’s ambition does not meet their urgent needs, highlighting the deep divide between developed and developing nations over climate finance.
UK Contributions
The UK unveiled its Principles for Carbon Market Integrity at COP 29 to enhance integrity in carbon markets and boost climate finance.
The guidelines focus on transparent reporting, high-quality carbon credits, accurate claims and biodiversity integration, ultimately supporting the global energy transition.
For carbon market players, projects must now meet additional reporting requirements such as disclosure of impacts, requirement of consent from Indigenous peoples and reporting on environmental, gender and social objectives.
The UK raised its climate target to cut emissions by 81% by 2035, up from the previous target of 68%. This goal supports energy security, job creation, and investment opportunities. To meet this goal, the UK plans to decarbonise the power sector, expand offshore wind and nuclear energy, and invest in carbon capture and storage. The country is also on track to achieve net-zero emissions by 2050.
In line with its efforts to be a global climate leader, the UK government pledged £239 million to combat deforestation in forest-rich countries like Colombia and Indonesia. The funds will be used through the World Bank’s Scale Programme to offer technical and financial support, helping these nations generate high-quality, nature-based carbon credits.
Regional & Bilateral Carbon Markets
The finalisation of Article 6 rules has influenced carbon market regulations at national and regional levels. Several countries have signed bilateral trading deals and introduced national carbon trading laws. Some key developments for Treeconomy projects include:
- Japan & Indonesia: Signed a Mutual Recognition Agreement (MRA) to recognise and exchange carbon credits, facilitating trading between the two countries.
- ASEAN Region: Five carbon market associations formed a partnership to reduce project implementation costs, improve buyers' access, and collaborate on carbon initiatives across the region.
- Democratic Republic of Congo (DRC): Plans to publish carbon market rules in 2025, preparing for participation in global carbon trading.
- West Africa (ECOWAS): Five ECOWAS countries are working on a regional carbon market framework, expected to be finalised by mid-2025.
- Rwanda: Set to launch its national carbon registry in December, enabling carbon credit tracking and trading.
- Brazil: Approved a national carbon market law and signed a deal with NBS Alliance to invest in expanding international markets for carbon credits and stimulate the export of carbon credits on voluntary markets..
- Singapore & Peru: Signed an agreement to trade carbon credits between the two countries, supporting bilateral carbon market growth.
Missed Opportunities
Despite these strides, COP29 left some gaps unaddressed:
Limited Focus on Implementation
The rules for carbon markets concluded at COP29 set out broad principles of regulation and need further clarity on the specifics of implementation and implications on existing carbon standards.
Limited Discussion on Nature-Based Solutions
Nature and agriculture-based solutions received limited attention. Issues like forests, soil, and farming were overlooked, and many countries haven't included nature protection and restoration in their climate plans or discussions on finance, adaptation, and mitigation.
Insufficient Attention to Adaptation
COP29 focused primarily on financing mitigation, with minimal attention to enhancing adaptation and resilience efforts in the Net Collective Quantified Goal (NCQG) framework.
What’s Next for Carbon Markets
COP29 set the stage for transformative changes in carbon markets, meaning stakeholders need to prepare for what’s to come:
Implications for Carbon Buyers
Increased regulation in the carbon market under, for example, Article 6.4 ensures higher standards, credibility and transparency, allowing buyers to purchase credits with integrity.
Opportunities for Project Developers
New global, regional, and national rules may increase compliance requirements (adding complexity) while offering more avenues for certification and trading. Financing initiatives from governments, private organisations and bilateral deals could create new funding opportunities for developers.
Insurance Mechanisms
Insurance initiatives like the World Bank's Multilateral Investment Guarantee Agency (MIGA) can help protect and stimulate investments in high-quality projects. MIGA provides coverage for private investors in the new UN global carbon market, benefiting both buyers and developers.
Regional and Bilateral Initiatives
Bilateral carbon trading deals could foster local competition by encouraging countries to offer better trading conditions, like lower prices and faster approvals. This approach can drive innovation, attract investment in high-quality projects, and improve market efficiency.
Final Thoughts
COP29 brought key advances for carbon markets, particularly in regulation and funding, laying the groundwork for a more robust, transparent, and credible future. The establishment of the UN-backed VCM and the rise of regional and national frameworks signal a shift towards greater regulation and higher standards, addressing long-standing issues of transparency and greenwashing. This is a crucial step forward in mobilising finance towards climate action, and carbon markets are the tool to push it. With demand rising and governments entering the market as buyers, now more than ever, accurate and robust monitoring, verification, and reporting technology is essential to ensure integrity.
Additionally, new certification systems offer fresh opportunities for innovation and competition, creating pathways for diverse participation and improved trading mechanisms. On the funding side, the commitments from governments and private organisations represent a lifeline for high-quality projects, particularly in developing regions. By securing reliable funding for developers and introducing insurance initiatives to protect investments, COP29 has set the stage for a carbon market that is not only functional but also equitable and resilient.
The progress made at COP29 isn’t just about today — it’s about ensuring the integrity and success of carbon markets in the long run.
