COP29 agrees to set up carbon market; India to ensure parties weave clearer rules for global carbon markets

New Delhi: A global carbon market will be set up after a landmark decision on the first day of the global climate summit in Baku, at the 29th session of the Conference of the Parties (COP29) to the UN Framework Convention on Climate Change (UNFCCC).

The market will allow nations to trade carbon credits—certified reductions of carbon emissions—whose prices are determined because of emission caps imposed by countries.

The market follows from a section in the Paris Agreement, called Article 6.

Article 6 of the Paris Agreement facilitates international collaboration to lower carbon emissions. It offers two pathways for countries and companies to trade carbon offsets, supporting the achievement of emission reduction targets set in their climate action plans, or nationally determined contributions (NDCs) under its sub-sections 6.2 and 6.4.

India, as part of its NDC, committed to reduce emissions intensity by 45% by 2030 from 2005 levels and create a carbon sink of 2.5 to 3 billion tonnes of additional forest and tree cover by 2030. Countries, including India, must come up with the third round of NDCs by February.

Genuine carbon credits

Although most of the necessary nuts and bolts to make operational such a carbon market supervised by a UN body were in place since 2022, there were several concerns, especially on ensuring that the carbon credits generated are genuine and their antecedents are transparent.

There have been numerous rounds of talks involving the parties (country signatories to the Paris Agreement) on these outstanding worries that are raised. Last month, a supervisory body of the UN, which would be the ultimate arbitrator of the market, set out a draft text that laid out the standards for carbon removal and assessing projects.

In the run-up to COP29, there was optimism that a global carbon trading mechanism will be a reality and that the first UN-sanctioned carbon credits will be available in 2025.

“This will be a game-changing tool to direct resources to the developing world,” Mukhtar Babayev, COP29 president, said in a statement. “Following years of stalemate, the breakthroughs in Baku have now begun. But there is much more to deliver,” he added.

Finalising Article 6 negotiations could reduce the cost of implementing national climate plans by $250 billion per year by enabling cooperation across borders.

Article 6

“India expects to conclude the work on Article 6. COP29 should be able to agree to a mechanism which uses market-based instruments (such as carbon credits) to incentivize low-carbon development. The parties should establish clearer rules for global carbon markets which do not create unfair barriers to trade or development and instead address the technology and financing gaps for supporting developing nations,” officials from the environment ministry said on Tuesday, on condition of anonymity.

“On setting project baselines, the introduction of stricter limits, called downward adjustments, is a good measure,” Dhruba Purkayastha, director of growth and institutional Advancement at Council on Energy Environment and Water, told Mint. It prevents inflated claims by ensuring projects only earn credits for real, additional reductions in emissions. “However, we need to be careful about any exceptions that allow using less effective technology to set baselines—these exceptions must be well-monitored and rigorous,” he said. However, this should not take the focus away from the New Collective Quantified Goal (NCQG) as carbon markets are one of the ways to deliver on the NCQG, experts said.

NCQG refers to an update to the $100 billion a year that was to be made available to developing economies by developed economies to adapt to climate change as well as mitigate emissions. According to the Paris Agreement the new target must come into effect by 2025 and is thereby one of the most awaited outcomes of the Baku accord.

Meanwhile, environment ministry officials in the context of NCQG said India has been vocal and will continue to be vocal about the need for adequate finance for the global south.

“Currently much of the focus of the climate finance discussions are on investments in mitigation actions. The COP 29 should maintain balance and highlight the urgency of addressing adaptation needs, particularly for vulnerable communities in developing countries,” they said.

“India will continue to engage in discussions around the strengthening of collective global climate action and call upon the developed countries to ramp up their climate ambitions. COP29 should ensure that the climate finance is adequate, predictable, accessible, grant based, low-interest, and long-term,” they added.

Meanwhile, Yalchin Rafiyev, COP29 lead negotiator at a press conference on Tuesday said that COP29 presidency and the International Energy Agency will address mitigation with a leader-level dialogue to provide clear direction and mandates to negotiators between Tuesday and Wednesday.

This follows the calls to action that the COP29 presidency jointly published on Monday and will be an important opportunity to take them forward.

It co-hosted a summit of methane with the US and China on Tuesday and will host the leaders of international financial institutions as they have a special role in mobilising climate finance.

“We will continue to work with them and their shareholders to ensure that they continue the climate finance reform agenda,” Rafiyev said. “We will also take historic steps to get the fund for Loss and Damage up and running. Today, we are signing the hosting, trustee and contributor agreements that will turn the pledges into concrete funding. This will allow support to start flowing in 2025.”