What Happened to Global Carbon Markets at COP28?

The final text of COP28 largely left carbon credits and markets out of the picture, pushing off unanswered questions until COP29 next year. 

Carbon credits are tradable credits representing a ton of carbon emissions reduced or removed from the atmosphere. Essentially, countries can pay for decarbonization projects abroad to account for their pollution at home (“pay to pollute” by some negotiators’ standards). The market on which these credits are traded, and the price at which they cost, were heavily debated at COP28.

Carbon markets have faced criticism for a lack of credibility in true environmental impact. As such, delegates at COP28 discussed an organized, UN-overseen carbon market, on which emissions can be traded and climate finance can be funneled to developing countries. Negotiations, however, ultimately fell through. As a result, how the carbon market will function — and what role credits will ultimately play in global decarbonization — is up in the air. 

Clash Between EU and US

The collapse in negotiations was mainly due to a clash between the European Union and the United States over regulations, with the EU wanting stricter guidelines on the carbon market, and the US wanting more lax rules. 

The US approach would call for flexible UN standards for carbon credits, allowing the private sector to play a more substantial role in the voluntary carbon market. Kevin Conrad, a director of the Coalition for Rainforest Nations, says that the US called for“anything goes.”

The Coalition for Rainforest Nations allied with the EU, who together pushed for more robust checks and balances and higher scrutiny on credits. Without these guarantees to hold parties accountable, many fear that any carbon market would be a wild west, running rampant with scams and dishonesty.

As debate raged on, COP28 President Sultan Ahmed Al-Jabar put a “take-it-or-leave-it” framework on the negotiating table, one that EU delegates thought weakened the system. “Trading carbon credits requires strong environmental and human rights guardrails,” said Gilles Dufrasne, policy lead at Carbon Market Watch. “The text on the table just didn’t provide this.”

The EU rejected the proposal, meaning once again countries left COP without an agreement on carbon markets. Questions linger about how carbon markets will operate, what will become of bilateral deals, and what may or may not count for carbon credits.

Carbon Markets in Limbo

Carbon markets are essentially governed by Article 6 of the Paris Agreement, specifically Article 6.2, which allows countries to trade carbon credits bilaterally, and Article 6.4, which provides a framework for UN oversight of carbon markets. Without a clear consensus on how these articles should operate, states are left to their own devices

Deals under Article 6.2 are continuing to be signed without UN oversight. At COP28, while negotiations on carbon trading halted, bilateral agreements were announced: South Korea, Switzerland, Singapore, and the United Arab Emirates are among countries who agreed to deals. It’s unclear, however, whether these credits will be recognized under the Paris Agreement, and whether any emissions reductions will count toward countries’ nationally determined contributions. 

Furthermore, states are uncertain about what counts towards carbon credits generally: Article 6.4 determines that emissions removal and reduction factor into carbon credits, but many countries at COP28 pushed for emissions avoidance to count as well. This might include a project like REDD+, which rewards forest owners for conserving their forest instead of cutting it down. Some argue that avoided deforestation doesn’t meaningfully reduce emissions if the trees wouldn’t be chopped anyway; others, however, argue that forest protection projects successfully prevent deforestation.

Despite initial progress on an Article 6.4 agreement, which would have allowed emissions avoidance in the cases when it can be treated as reduction or removal, ultimately, the deal was not adopted.

Looking Forward

The next chance for a major international deal is at COP29 in Azerbaijan next year, where negotiators will attempt to finally create a stable carbon market with international cooperation. 

That gives a year for negotiating parties like the EU and the US to find middle ground over regulations on carbon trading, and a year for more bilateral deals to be agreed upon with private industry acting as certifiers on the voluntary carbon market. Global UN-backed carbon trading will have to wait.

It could be argued, however, that this delay is for the best: it’s better to have an effective and environmentally sound carbon market next year than a potentially harmful one now. There was progress on the table at COP28 — even if it lacked consensus and therefore couldn’t be adopted. This progress can be built on, even through another year of ambiguity and indecision. Ultimately, at COP29 the world will expect a resolution to rebalance the global carbon budget.