Despite their increasing coverage, current structures have a long way to go to support climate goals. The difficulty lies in building high-integrity markets that balance scale with credibility. Advances in standards, oversight, reporting and verification will accelerate improvements in both of these aspects. Progress at the UN climate summit in Baku last year was significant. A new protocol under Article 6.2 of the Paris agreement established a governance architecture for international carbon trading, with provisions to prevent accounting duplications and market distortions. “Countries can elect to implement Article 6.2, meaning they have a lot of control over what types of projects can be pursued and how they are pursued,” Ms Klaczynska Lewis points out. These provisions incorporate vital safeguards for indigenous populations while providing a pathway for nations to achieve their nationally determined contributions.
For environmental markets to scale meaningfully, the transition from voluntary to regulated frameworks needs to harmonise across jurisdictions. “The standardisation challenge permeates every aspect of carbon credit or offset projects,” says Ms Klaczynska Lewis. “From legal structures to taxation mechanisms, to emissions monitoring, reporting and verification protocols.” Rather than seeking to simplify the intrinsic complexity of environmental markets, regulatory systems must accommodate it, she warns.
“My response is to look at it as a grassroots harmonisation movement, where institutions and governments can learn from each other, can build a joint understanding of different policy design options and share best practices,” explains Ms Klaczynska Lewis. Some policy innovations are meeting the challenge head-on. The EU’s Carbon Border Adjustment Mechanism (CBAM) is shifting global trade dynamics by embedding carbon pricing into cross-border commerce. The mechanism enacts enforcement measures, such as financial penalties, to ensure corporate compliance and prevent market misuse.[6]
