After COP29’s turning point, Mark Kenber, Executive Director of the Voluntary Carbon Markets Integrity Initiative (VCMI), sees more work ahead to ensure the integrity of carbon credits.
While the overall outcomes of COP29, particularly the New Collective Quantified Goal (NCQG) on climate finance, fell short of developing nations’ urgent needs, the conference did deliver a crucial signal: the recognition of carbon markets as a vital mechanism for financing the global transition to net zero. Coupled with the finalisation of Article 6 rules, we are witnessing a turning point for use of high-integrity carbon markets in driving meaningful climate action.
The NCQG, while representing a marginal improvement on previous commitments, pales in comparison to the estimated US$1.3 trillion needed annually by developing countries to finance their transition and mitigate the worst effects of climate change. The stark reality is that public finance alone – while essential for covering costs the private sector can’t bear – cannot bridge this gap. However, the COP29 text, with its references to “innovative sources of instruments” and “non-debt creating instruments”, creates a clear opening for carbon markets and corporate investment in high-quality credits to contribute meaningfully towards this goal.
High-integrity voluntary carbon markets (VCMs), when implemented effectively, possess the capacity to channel innovative, debt-free finance directly to the countries that need it most, with the potential to mobilise up to US$50 billion by 2030 alone.
Article 6 finalised
If this nod to carbon markets wasn’t explicit enough, the finalisation of the Article 6 rulebook was.
Within this rulebook, Article 6.4 establishes the Paris Agreement Crediting Mechanism, which will facilitate the tracking, approval, and trading of carbon credits between project developers and buyers (countries and companies), thereby funnelling financing to the countries which host projects.
Article 6.2, meanwhile, allows for bilateral and multilateral agreements for transferring mitigation outcomes (ITMOs) between nation states.
Whether it’s to meet compliance requirements, meet customer and stakeholder expectations, or to drive deeper internal decarbonisation, companies now have another UN-mandated option for financing climate action, in addition to the independent VCM standards. Corporate decarbonisation and the strategic use of carbon credits are not mutually exclusive but rather complementary strategies, with high-quality credits now providing solutions to companies, helping them act on unabated emissions that are technologically or economically challenging to reduce in the near term, while simultaneously supporting critical climate mitigation projects in developing countries.
The onus now falls on corporate actors to take responsibility for their emissions, set ambitious targets, deliver immediate action, and put these solutions to use to meet global climate goals.
Work-in-progress
The VCM has gone through an intense period of reform over the last two years, addressing legitimate criticisms about the quality of carbon credit projects and misuse by companies.
Establishing robust methodologies for testing additionality – ensuring that carbon credit projects deliver emissions reductions that would not have occurred without carbon finance – and developing effective mechanisms for project developers to mitigate risks, are essential to build confidence and trust.
For carbon markets to function effectively, buyers must have confidence that credits represent genuine, additional emissions reductions and that they contribute meaningfully to sustainable development through a just sharing of benefits. The work of the Integrity Council for the Voluntary Carbon Market (ICVCM) via its Core Carbon Principles is delivering this change. And stakeholders must see that use of carbon credits is not a means for companies to circumvent their primary responsibility to decarbonise their own operations, but in fact enables companies to be more ambitious and deliver climate action more rapidly than decarbonisation alone. That is the role of the Voluntary Carbon Markets Integrity Initiative’s (VCMI) Claims Code of Practice – to provide clear guardrails for organisations to make credible and transparent use of carbon credits and make claims that are credible and robust.
Looking ahead
The momentum surrounding carbon markets is building. At COP29, we witnessed encouraging signals from governments and industry bodies alike, including the UK government’s announcement of new principles for VCMs, the ASEAN Alliance on Carbon Markets’ progress toward a common carbon market framework, and the International Organization of Securities Commissions’ (IOSCO) release of its report on good practices for ensuring financial integrity in VCMs.
These developments underscore the growing global recognition of the potential of well-functioning carbon markets. Now we need to take the principles and reforms and ensure the private sector can step in and deliver the scale of investment required.
Ahead of COP30 in Brazil next year, several priorities must be addressed to ensure robust, transparent and inclusive participation in the market.
First, we need to see clear policy signals and incentives from governments to boost private sector confidence to invest. Governments must move beyond simply acknowledging that organisations can make use of carbon credits, to actively encouraging their use within a robust integrity framework.
We will also need consistency in approaches from standard setters to integrate how carbon credit use is included in reporting regulations, such as the EU’s Corporate Sustainability Reporting Directive (CSRD) and the Task Force on Climate-related Financial Disclosures (TCFD), and how it is used as a critical complement to decarbonisation pathways. This must be done alongside widespread adoption of high-integrity standards, such as those developed by ICVCM and VCMI, across policy, business, and NGOs.
Countries hosting carbon credit projects and programmes will need to prepare themselves – often with external support – to ensure that incoming carbon finance aligns with their broader development and inward investment priorities.
Finally, the supervisory board of Article 6.4 must continue to approve robust methodologies for assessing additionality, safeguarding sustainable development, and quantifying emissions reductions.
Corporate decarbonisation and the strategic use of high-integrity carbon credits are not mutually exclusive but rather essential components of a comprehensive strategy to address climate change at the pace and scale required.
COP29 marked a turning point for carbon markets, with clear signals of support from governments across the globe. The foundations for robust carbon markets are now in place. To deliver results and impact we must have private sector buy-in, enhanced transparency, and mechanisms to ensure integrity. Only then can carbon markets fulfil their potential to drive meaningful climate action, deliver much-needed finance to developing countries, and ensure we achieve a global low carbon transformation.
