COP29 Approves Carbon Credit Standards to Pave Way for Global Emissions Trading

During opening plenary of #COP29 in Azerbaijan on 11 November 2024, two standards for the creation of a global carbon exchange under the auspices of the UN were approved thanks to the decisive push by the Azerbaijan’s presidency.

Proponents hail the move as a breakthrough as it paves the way for the long-awaited #CarbonExchange set out in Article 6 of the #ParisAgreement. Critics deplore insufficient scrutiny as some experts could not examine the text in detail.

Azerbaijan defended the move by pointing out that the standards of Article 6.4 are not set in stone and are governed by the CMA (Conference of Parties for Paris Agreement). The Parties still have the opportunity to amend them further down the road.

In particular, Article 6 allows a country to voluntarily exchange carbon credits with another in order to meet its climate commitments as set out in its Nationally Determined Contributions (#NDC). Article 6.2 addresses carbon trading on a bilateral basis whereas Article 6.4 outlines a carbon exchange platform backed by the UN.

Trading of voluntary carbon credits has been operational for a number of years, but remains rather small in scale. It was the centralized carbon market that was blocked for years due to a lack of agreement on the rules to govern it. Therefore, Azerbaijan has managed a major step towards the Global Carbon Exchange (#GCE) at COP29.

In 2023, the volume of Voluntary Carbon Market (VCM) was USD 723 million, a 56% fall from 2022. Countries and businesses have been reluctant to resort to #VCM due to concerns about ‘greenwashing’ and ‘reputational risk’. The UN Global Carbon Market is projected to be much larger in scale and could unlock at least USD 250 billion annually.

The two key standards for the UN Carbon Markets pertain to the (1) methodology for assessing carbon credits and (2) the requirements for projects that avoid or remove Greenhouse Gases (#GHG). The standards thus define how the emissions should be calculated and monitored.

It is worth recalling that the operationalization of the UN Carbon Market was discussed at both COP27 and COP28 without reaching an agreement. At COP29 in Azerbaijan, the standards managed to pass by asking the Parties to focus to the principle and approach, while leaving room for debate on the modalities at a later stage.