New regulations permitting wealthy, high-emission countries to purchase carbon-offset credits from developing nations were approved on Saturday at the UN climate talks. The decision, finalized during overtime at the COP29 conference, has sparked concerns that it could enable “greenwashing” of climate targets. Delegates applauded when the long-awaited agreement was reached, marking progress on a contentious issue that has persisted in climate negotiations for years.
Proponents argue that a UN-endorsed framework for carbon trading could channel investments into developing countries, where many of these credits are generated. However, critics warn that poorly structured schemes may hinder global efforts to combat climate change.
What Are Carbon Credits?
Carbon credits are generated through activities that reduce or avoid emissions of planet-warming greenhouse gases. Examples include tree planting, conserving carbon sinks, or replacing coal power with clean energy.
Previously, these credits were largely traded by corporations on an unregulated market, often marred by controversies. The 2015 Paris Agreement envisioned a regulated cross-border system enabling countries, particularly high emitters, to purchase credits from nations excelling in meeting their emission reduction targets.
Article 6: A Framework for Carbon Trading
The new framework, called Article 6, includes two components: direct trading between countries and a UN-backed marketplace. It has garnered support from developing nations seeking international funding and wealthier countries pursuing innovative ways to meet ambitious emission targets.
The European Union and the United States strongly advocated for the agreement at COP29, held in Baku, Azerbaijan. Many developing nations in Asia and Africa have already joined related projects. Nonetheless, experts caution that these systems could allow the trading of questionable emission reductions, masking the lack of genuine progress in cutting greenhouse gases.
Early Developments and Concerns
As of earlier this month, over 90 agreements encompassing 140 pilot projects have been established under this initiative, according to the UN. However, only one country-to-country trade has occurred so far, with Switzerland purchasing credits tied to a fleet of electric buses in Bangkok, Thailand. Switzerland has additional agreements pending with Vanuatu and Ghana, while other buyer nations include Singapore, Japan, and Norway.
Despite these advancements, the Climate Action Tracker project has criticized Switzerland for its lack of transparency regarding its domestic emission reductions, warning that such practices risk setting a damaging precedent. Niklas Hohne of the NewClimate Institute cautioned that the system might incentivize developing countries to deliberately set low emission reduction targets in their national plans, allowing them to profit from selling surplus reductions. Hohne described this risk of greenwashing as “the biggest threat to the Paris Agreement.”
UN-Administered Carbon Market
In addition to the decentralized country-to-country trades, a separate UN-administered carbon credit market is being developed. This system will be open to both nations and private companies. On the opening day of COP29, participants finalized key ground rules to operationalize this market after nearly a decade of discussions.
“There are many projects waiting,” said Andrea Bonzanni of the International Emissions Trading Association (IETA), which represents over 300 organizations, including major energy companies like BP.
However, some experts remain skeptical about the quality of credits that will be traded on the regulated market, questioning whether they will substantially improve over the unregulated systems of the past.
Read More: ‘Optical Illusion’: Why India Rejected $300 Billion COP29 Climate Finance Deal?
