While the COP29 outcomes were decidedly mixed, the latest annual UN climate meeting in Azerbaijan produced several potentially transformative developments for the voluntary carbon market. With climate finance needing to increase at least five-fold from current levels to $1.3 trillion annually to limit warming to below 1.5°C1, carbon markets are essential for mobilising private sector investment alongside public funding.
After years of gridlock, countries concluded negotiations on Article 6 of the Paris Agreement, laying critical foundations for the mechanisms expected to finally bring the market to scale. In contrast, the agreement on climate finance was extremely underwhelming, with wealthy countries offering far less than what developing countries – and UN research – said was needed. The conference also saw important progress on adaptation planning and saw new pledges to the Loss and Damage Fund established at COP28, though significant work remains to operationalise these advances. Below, we explore these key outcomes, and how Article 6 may provide a silver lining for disappointed onlookers.
Developing countries arrived in Baku hoping to secure $1.3 trillion in annual climate finance, mainly from public sources via grants or concessional loans, to help with their increasingly urgent climate change mitigation and adaptation efforts. However, the developed countries traditionally responsible for these transfers were reluctant to pledge finance from public sources, for reasons both fiscal and political. Ultimately, the final text promises a New Quantified Collective Goal (NQCG) of $300 billion per year by 2035 – a significant increase from the prior $100 billion. But there are no specific commitments for the desired country-to-country grants, possible funding sources include loans and private actors, and there are no real consequences should the agreed target be missed.
There is widespread feeling that the NQCG text represents wealthy economies shirking their climate responsibilities, which is supported by the move to expand the pool of countries deemed responsible for financial transfers. Developing countries and other stakeholders are understandably unhappy, with the agreement being described as a “betrayal”. With uncertainty about climate action brewing in the US, there is little optimism that the public climate finance landscape will evolve positively before COP30 in Belém, Brazil.
While the shortfall in public climate finance commitments is concerning, both public and private funding must work in tandem to address the climate challenge ahead. Government finance plays an irreplaceable role in funding vital climate priorities like adaptation measures for vulnerable communities and support for developing countries to transition to cleaner energy systems. But given the scale of investment needed, carbon markets have emerged as a crucial complement – they create market signals that drive private capital toward emissions reduction projects, enable companies to support climate action beyond their own operations, and help scale proven climate solutions. The key is ensuring these mechanisms work in concert: public finance can de-risk early-stage investments and build market foundations, while carbon markets can then rapidly mobilise private capital into proven approaches.
Fortunately, public grants are far from the only means of delivering effective climate finance. Political wrangling over Article 6 is finally over, with any remaining debates now in the hands of UN technical supervisory bodies. Although the impact of this year’s decisions will not be observed immediately, they could be significant for the future of global carbon markets and the communities that rely on them.
Article 6.2 covers the bilateral trade of carbon credits between countries and private entities. These transactions are based on “authorisation” from the host country that it will apply corresponding adjustments to the associated emissions reductions. Previously, there had been uncertainty about the conditions under which these authorisations could be changed or even revoked – potential buyers were concerned that countries would make such decisions unilaterally and undermine the value of purchased credits. A key agreement at COP was that changes to authorisation can only occur under specific conditions, which the host country must establish when giving the initial authorisation. Negotiators also decided that countries can choose whether to conduct Article 6 trades on their own registries or using a centralised registry administered by the UN.
By reducing investor risk and clarifying the pathway for countries to bring supply online, these decisions should support a significant ramp-up in the issuance of correspondingly adjusted carbon credits in 2025 and beyond. This is fantastic news for communities that host these projects, whether they be nature-based, like reforestation and forest protection efforts, or community/technology based, such those that disseminate cleaner burning household cookstoves. These developments are also positive for companies seeking to secure early stocks of CORSIA-compliant credits.
Article 6.4 covers the creation of what is now dubbed the Paris Agreement Crediting Mechanism (PACM), a new crediting standard serving as the official successor to the Clean Development Mechanism (CDM). Negotiators made headlines early in COP by rapidly agreeing to two proposed standards concerning the methodological and procedural requirements for projects to be registered under the PACM. With clear quality standards in place, now begins the process of determining which CDM projects can transition to the PACM – with some observers anticipating the first issuances of PACM units from transitioning projects in early 2025.
However, most interest in the PACM is linked to the future issuance of credits from projects following new methodologies. The aforementioned supervisory body will be working to finalise these approaches next year, in line with agreed Article 6 standards on environmental integrity and social impacts. Project developers will be required to follow clear guidelines on quantification but also encouraging the participation of local communities and a broad, representative set of stakeholders. While the market outlook remains unclear, credits carrying an effective stamp of approval from the UNFCCC will be in high demand whenever they become available.
A notable development at COP29 was the UK’s launch of new principles for voluntary carbon markets2, which could help strengthen market integrity at a critical time. The framework, announced by Climate Minister Kerry McCarthy, sets out requirements for transparent reporting, quality standards for carbon credits, and integration of biodiversity considerations. It aligns with existing initiatives like the Voluntary Carbon Markets Integrity Initiative (VCMI), aiming to create consistent standards across the market.
The principles are significant because they represent one of the first government-led frameworks specifically designed to enhance confidence in voluntary carbon markets. By providing clear guidance on what constitutes high-quality carbon credits and appropriate claims, the UK aims to help businesses make credible use of carbon markets alongside their own emission reduction efforts. The framework will undergo public consultation in 2025 to refine its approach.
Beyond finance, COP29 delivered two significant developments with particular importance for developing nations. The conference made notable progress on adaptation by establishing a framework of up to 100 quantifiable indicators to measure implementation of the Global Goal on Adaptation (GGA). This development addresses a longstanding challenge in climate policy: the difficulty of measuring and comparing adaptation efforts across countries. The introduction of specific metrics will enable nations to demonstrate concrete progress in building climate resilience as they work to complete their National Adaptation Plans by the 2025 deadline.
On loss and damage, COP29 saw additional pledges to the Fund for Responding to Loss and Damage (FRLD) established at COP28. Several countries including Australia, Austria, Luxembourg, New Zealand, South Korea and Sweden, along with Belgium’s Wallonia region, committed an additional $85 million, bringing total pledges to $759.4 million. However, this remains far below the estimated $580 billion in annual losses and damages expected by 2030. The conference also attempted to review the Warsaw International Mechanism for Loss and Damage but failed to reach consensus on key issues, such as guidelines for incorporating loss and damage in national climate plans.
There is no hiding that Baku failed to live up to its billing as the “Finance COP”. The failure to secure an acceptable NQCG deal, combined with the inability to reach consensus on key aspects of the Warsaw International Mechanisms for Loss and Damage, suggest much work remains before COP30. While new pledges to the Loss and Damage Fund are welcome, the total remains far below the scale needed to address growing climate impacts. Similarly, while the agreement on adaptation indicators represents progress, the hard work of implementing and tracking them still lies ahead.
As daunting a prospect as that may be, 2024 has seen genuine progress in the voluntary carbon market, with exciting developments regarding Article 6, integrity frameworks like the Integrity Council for the Voluntary Carbon Market (ICVCM) Core Carbon Principles (CCPs), and pioneering compliance mechanisms like CORSIA and the EU Carbon Removals and Carbon Farming Regulation (CRCF) – a voluntary regulatory framework for the certification of permanent carbon removals, carbon farming and carbon storage in products activities.
For those committed to pursuing positive climate outcomes amidst a complex political landscape, the path forward requires progress on multiple fronts – strengthening both market mechanisms and public finance while ensuring adaptation and loss and damage receive the attention they deserve. As we look toward COP30 in Brazil, the challenge will be converting this year’s frameworks and promises into tangible action.
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