COP 29 Must Resolve Carbon Trade Imbroglio


Developing countries like India face the double-challenge of simultaneously investing in development and in climate mitigation and adaptation.

Globally, the scale of this challenge is staggering as close to 900 million people in the world don’t have access to electricity, and more than four billion people (half of the world population) don’t have a social safety net they can rely on.

However, advancing green industrialization, raising public investment, and preparing and responding to multiplying climate disasters all depend on increasing access to finance.

Roughly, USD 5.4 trillion has to be invested annually in developing countries by 2030 for climate and sustainable development. This implies an increase of USD 3 trillion compared to 2019.

India alone has a funding gap of USD 10.1 trillion to achieve its net-zero emissions target by 2070, underscoring the necessity of mobilizing private capital alongside public funds to meet this ambitious goal.

India’s immediate clean energy investment requirement is USD 260 billion from 2026 to 2030, which will surge to USD 350 billion annually over the next five years. However, the current shortfall in green finance, with India only managing USD 45 billion per annum, is a fraction of what is needed to achieve its climate objectives.

Reforms to the global financial architecture would help deliver climate and development finance at the appropriate scale. An important aspect in this regard is international carbon trade.

However, in a major setback to global carbon trading, 190 countries at the 28th UN Climate Change Conference in Dubai last month failed to adopt key texts laid out under Article 6 of the Paris Agreement.

The pact could have provided a high-integrity framework for countries like India to trade carbon credits generated by the reduction or removal of greenhouse gases from the atmosphere.

Article 6.2 is intended to guide carbon trading between any two countries, but a disagreement over how much control should be exercised over those trades meant no consensus was found in Dubai conference.

Article 6.4 is intended to set up a new high-integrity international market for both carbon reductions and removals. It too failed to reach an agreement due to diverging views over recommendations on methodologies and carbon removals.

The absence of a clear decision implied another year of uncertainty in carbon markets. The extant voluntary carbon markets, which help corporations offset their emissions, will continue to fill the void only to some extent.

The Article 6 draft will need to be reworked and presented at the upcoming COP29. The 2024 UN Climate Change Conference (UNFCCC COP 29) is to be held on November 11-24 in Baku, Azerbaijan.

According to the Council on Energy, Environment and Water (CEEW) and the International Emissions Trading Association (IETA), India has historically been a large supplier of carbon credits internationally to the Clean Development Mechanism (CDM) and the voluntary carbon markets.

More recently, India has taken several steps towards the development of a domestic compliance market – the carbon credit trading system (CCTS) – as well as towards international cooperation under Article 6 of the Paris Agreement.

In a net-zero scenario with full international cooperation, India could realise up to USD 12.5 billion annually in international carbon market revenues by 2030. The cumulative financial flows from sales of carbon credits from 2025 to 2050 could amount to more than USD 200 billion, helping to facilitate important international financing towards additional mitigation activities in India.

The GIFT International Financial Services Centre (IFSC) in Gujarat has immense potential to become a hub for trading green credits. The IFSC authorities should work on getting a platform ready so that green credits can also be sold by people who are planting trees, among other credits.

International carbon markets under Article 6 may surpass a value of USD 100 billion by 2030 if all parties choose to implement their Nationally Determined Contribution (climate action to reduce greenhouse gas emissions) cooperatively.

This is important as the world is striving for net zero emissions by 2050, aiming to balance the amount of greenhouse gases released with removal, aligning to limit global warming to 1.5°C above pre-industrial levels. This target is crucial because it helps prevent severe and irreversible damage to the environment and people.

According to CEEW, in a 1.5-degree scenario, the market value of financial flows between countries could exceed $1 trillion per year in 2050 and reduce mitigation costs by USD 21 trillion between 2020 and 2050.

As the world stands at a crossroads, the urgency of climate action is clear. The COP29 cannot be another opportunity for rhetoric only.

This is important to dispel the suspicion of developing countries that developed countries, which account for a disproportionately high share in greenhouse gas emissions, are not serious in their climate action.

This was evident from the fact that the developed countries have not yet met the USD 100 billion annual climate financing pledge made in 2009.

The European Union’s proposed carbon tax, which will largely target imports from developing countries, adds to the suspicion that poor countries will fund the rich countries’ climate action.

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