The 29th United Nations Climate Change Conference (COP 29) marked a historic step towards creating a global carbon credit market. After nearly a decade of stalled negotiations, the conference, which runs until November 22 in Baku, established initial rules to guide this mechanism. This system aims to provide financial incentives for companies and countries to reduce greenhouse gas emissions.
The New Carbon Market Framework
Carbon credits, representing one ton of carbon dioxide (CO2) reduced or removed from the atmosphere each, will serve as the backbone of the market. Organizations that emit less than their allotted quota of greenhouse gases can sell credits to those exceeding their limits. Industries such as aviation and construction are expected to benefit by compensating emissions through activities like reforestation or adopting low-emission technologies.
The framework adopted on the first day of COP 29 outlines quality standards for carbon credits. These rules are essential to ensure transparency and credibility in the market, which experts predict will be operational by 2025.
Key features of the new rules include:
- Framework Adoption
- COP29 established Article 6.4 rules under the Paris Agreement to regulate a UN-operated global carbon market.
- The market will trade “A6.4ERs” (emission reduction credits) to promote emissions reduction and carbon removal projects globally.
- Baseline Standards
- Clear standards were set for emissions baselines to ensure credits are issued only for additional and verifiable reductions.
- Reversal Risk Management
- Mechanisms were included to address risks such as carbon leakage back into the atmosphere (e.g., from forest fires).
- Nature-Based and Technological Solutions
- Both nature-based (e.g., reforestation) and technological (e.g., carbon capture) solutions qualify for generating carbon credits.
- Transparency and Verification
- Rules enforce transparent methodologies, ensuring all carbon credits are uniformly validated and monitored.
- Bilateral Trading Rules (Pending)
- Article 6.2 negotiations for bilateral carbon trades remain ongoing, focusing on aligning national climate goals with global market mechanisms.
- Financial Mobilization
- Experts estimate $250 billion in annual savings on climate action costs by leveraging efficient markets【9】.
- Implementation Timeline
- The system is set to launch by 2025, with further refinements expected at COP30 in Brazil
Economic and Environmental Impact
A study by the International Emissions Trading Association estimates the market could generate over $1 trillion in annual financial flows by 2050. It could also reduce global mitigation costs by $21 trillion and lower emissions by 5 billion metric tons annually.
Pedro Côrtes, an environmental expert from the University of São Paulo, highlighted the urgency of action:
“While the rules may not be perfect, delaying decisions further could worsen the climate crisis. Urgent measures are essential.”
Brazil’s Role and Challenges
Brazil, with its clean energy matrix and the Amazon rainforest, holds a strategic advantage in the carbon market. However, experts emphasize the need for the country to meet its emissions reduction targets, monitor progress, and build infrastructure to sell surplus carbon credits.
Looking Ahead
The finalized framework from COP 29 paves the way for a more defined mechanism to be implemented by COP 30, scheduled for 2025 in Belém, Brazil. This development is seen as a crucial step in combating global warming and meeting the goals of the Paris Agreement, which aims to limit global temperature rise to 1.5°C above pre-industrial levels.
Environmentalists hope the momentum from Baku will lead to actionable policies in the coming years, accelerating the global fight against climate change.
