Carbon trade was conceptualised under Article 6 of the 2015 Paris agreement. With almost a decade of negotiation, COP29 was able to set the final terms and conditions for operationalisation of the international carbon market.
Carbon trading enables countries to trade their mitigation units among themselves. Article 6.2 of the agreement laid down principles of transparency and environmental integrity and Article 6.4 placed UN-based monitoring mechanisms to market credibility and efficacy.
The carbon market will play a crucial role as it compensates for the green transition process of developing countries and also generates additional resources for climate mitigation.
In 2022, the carbon market increased an exponential value of $100 billion, according to the Carbon Market Institute. This was equal to what the developed countries had committed to provide as climate finance.
A BloombergNEF report showed that the carbon market has a potential of generating $1.1 trillion by 2050. It will attract huge investment for developing countries’ green transition process, enabling them to generate millions of jobs.
The World Bank’s carbon credit dashboard has revealed a significant disparity in carbon market pricing across different countries. The prices vary widely, particularly when comparing the Global South to the Global North. For instance, a tonne of carbon credit costs $126 in Switzerland, while in China, it is priced at just $12.80. The lowest prices are found in African and island nations.
The carbon trade is crucial but controversial, as some environmentalists believe it allows carbon-intensive companies to avoid reducing their emissions by purchasing carbon credits from less developed countries, which doesn’t actually remove carbon from the atmosphere.
But without such fiscal incentivisation it is hard for least developed or developing countries to give away their easily available non-renewable energy sources in order to transition to the renewable energy sector.
