At COP29, world leaders doubled down on carbon markets–one of the most debated tools in the fight against climate change. But are they a real solution or just a clever way to keep polluting? Let’s break it down. 

So, what are carbon markets? 

The Basics: How do Carbon Markets Work?

Carbon markets work like a “cap-and-trade” system for pollution. Countries that emit less than their limit can sell their unused carbon credits to those who exceed theirs.  

Let’s start at the beginning. This is not a new phenomenon. In 1997, the Kyoto Protocol commodified carbon as a tradeable asset. This was to encourage a cost-effective method to decrease greenhouse gas emissions (GHG). As long as emissions were reduced somewhere, it counted–no matter where in the world it happened.  

At Kyoto, The Clean Development Mechanism (CDM) was one of the first international climate finance initiatives designed to allow countries to fund reduction projects in developing nations. The idea was that states could surpass their emission limits if they aided in funding reduction projects.However, it has become problematic because many CDM projects generated carbon credits for activities that would have occurred regardless of the funding. 

For instance, a group of researchers led by Georgetown University Professor Raphael Calel published a study detailing CDM- subsidized wind energy projects in India. They concluded that at least half of these wind farms would have been built anyway, meaning they received unnecessary subsidies despite being economically viable. 

Additionally, these projects received carbon credits under CDM without creating additional emissions reductions. This meant that companies could buy these credits and continue polluting and the project could benefit without making a difference in emission reductions.

In fact, the project according to the study may have inadvertently added 6.1 billion tonnes of carbon emissions to the environment. This is the equivalent of running a 20 gigawatt coal power plant for 50 years. 

On a more positive note, COP29 negotiators agreed to phase out the CDM, setting plans for its official expiration.

This strongly reflects climate action on the global stage, where numerous projects ultimately prove to be ineffective. For example, many organizations assert that they are “net zero.” But what does that truly entail, and is it as impactful as it appears?

Claiming net zero is claiming carbon neutrality, which sounds like cutting emissions–but in many cases, it just means paying for offsets rather than reducing pollution at the source. 

So what is carbon offsetting? It involves projects such as reforestation, renewable energy, and carbon-storing agricultural practices to ‘neutralize’  emissions.

Does Carbon Offsetting Work?

The answer isn’t straightforward–some argue it helps, while others see it as a loophole. They are, however, the most appealing tool for policymakers, businesses, and developed countries to use when cornered into taking accountability.

However, there is little proof that it actually does balance out pollution; instead, it creates an ethical cover for institutions to appear sustainable. This begs the question: 

Does this fix the root of the issue, or is it just a bandaid? 

The debate continues over its effectiveness as critics argue that these mechanisms permit those most responsible for carbon emissions to continue their harmful practices. 

There are concerns that carbon offsets are diverting funding from more long-term climate mitigation solutions. One of the main concerns is that many of these initiatives end up being greenwashing PR schemes that do not reduce emissions at the source. 

Concerns include “over-crediting,” where carbon credits promise more emission reduction than they actually achieve. In 2023, The Guardian released an investigation indicating that the forest carbon offsets by carbon certifier Verra, and used by big corporations, largely do not represent real emission reductions. They suggest that threats of deforestation are frequently exaggerated, raising doubts about the conversion into carbon credits.

For instance, tree saplings that will take decades to grow to maturity, or carbon credits sold for forests that subsequently burnt down. Who is liable for these risks if they do not legitimately remove carbon from the atmosphere?

It seems more logical for offsets to be a last resort after exploring other measures to reduce or avoid emissions. However, in practice, institutions rely on them as their main and often only solution rather than a last resort.

So what does the other side say? The institutional argument is that carbon markets are one of the only tools entities agree upon to reach climate goals. Furthermore, they see this method as an incentive for climate action. It allows parties to reduce GHGs from the atmosphere by switching from fossil fuels to renewable energy or conserving carbon stocks in ecosystems such as forests.

Carbon offsets are better than doing nothing at all. However, in the midst of continuing climate crises and global warming, it is not logical to only do the bare minimum. There needs to be more proactive steps to reduce carbon footprints from the source.

However, this method is appealing because it is a more cost-effective way for countries to achieve their Nationally Determined Contributions (NDCs).  The cost-effective nature of carbon markets has made them the most popular climate mitigation option over the last two decades. 

The cost advantage of carbon markets has driven their widespread adoption over the past two decades, but concerns persist about the governance of carbon credits. At COP29, after a decade of negotiations, countries have agreed on how carbon markets will operate under the Paris Agreement. 

Governing Carbon Credits

How are these credits governed? Countries and entities trade emissions reductions and removals with one another through bilateral and multilateral agreements. The trade of credits can take different forms: project-based credits generated by private developers, jurisdictional credits generated by government, and international linking of emissions trading systems.

Carbon markets operate under both compliance markets and voluntary markets. Compliance markets are created and regulated as a result of a national, regional or international policy. On the other hand, voluntary carbon markets (VCM), both national and international, are usually private entities, whether individuals, businesses, or governments, that develop programs certified by carbon standards to generate emission reduction. Thus, they are overseen by self-appointed standard bodies allowing entities to claim “net zero” emissions by voluntarily purchasing carbon credits.

VCMs are decentralized markets where people and businesses can choose to offset their emissions. 

So who can buy voluntary carbon credits? 

Basically, anyone can voluntarily purchase carbon credits. For instance, Bill Gates, who in an interview with 60 Minutes, admitted, “I’d probably have one of the highest greenhouse gas footprints of anyone on the planet.” He further states in the interview that he pays USD 7 million a year to offset his carbon emissions through a company “ that a very high price can pull carbon out of the air and stick it underground,” so “I am offsetting my personal emissions” 

So, does it work? The prevailing argument is that the only way for high-flying billionaires or celebrities to reduce their climate impact is to fly less or choose more sustainable forms of transport. 

For instance, ahead of COP29, Oxfam released a report titled “Carbon Inequality Kills,” in which they argued that to effectively meet the NDCs,  economically developed nations in the Global North—home to many of the world’s richest —must take stronger action. Oxfam proposes higher wealth taxes on the top 1%, taxes on fossil fuel profits, and taxes on carbon-intensive luxuries like private jets to fund climate initiatives. 

This highlights a broader debate about who should bear the greater financial responsibility for emission reductions. This is because, whilst developing nations emit the least amount of carbon emissions, they face grave climate crises without the sufficient resources to mitigate. In response, each COP ends with a renewed promise to meet a financial goal that has remained unfulfilled since its first commitment in 2009.

At COP29, nations set a new finance goal of USD 300 billion annually by 2035, tripling the previous target. Previously, in 2009, at COP15, nations committed to achieving a collective goal of USD 100 billion per year by 2020 for developing countries. In fact, they have paid the annual goals once in 2022, where they only reached 80% of the total. 

So this begs the question; are carbon markets a fair form of climate finance? 

Are Carbon Markets a Fair Form of Climate Finance? 

Often carbon markets cannot guarantee environmental rights and are not a solution to the climate crisis. It seems as though the benefit of corporations over people undermines the process of finding ‘real’ solutions for climate concerns in the Global South.

For the first time in thirty years and in its sixth report on “Impact, Adaptation, and Vulnerability,” the Intergovernmental Panel on Climate Change acknowledged that colonialism has historically disadvantaged certain regions. The Global South is plagued by a historic climate disadvantage that can only be solved through adequate climate financing,

In international spaces such as COP, representatives of developing nations often point out how carbon markets harm their communities and are a distraction from fundamental change.  

Prime Minister Mia Motley of  Barbados in COP27 said, “We were the ones whose blood, sweat, and tears financed the industrial revolution,” she said. “Are we now to face double jeopardy by paying the cost because of those greenhouse gases from the industrial revolution?” 

Does the nature of the climate finance discussion make it difficult for the Global South to mitigate its climate crises? 

COP29 and What it Means for MENA

COP29 agreements clarify how carbon markets will operate under the Paris Agreement, facilitating country-to-country trading and a carbon crediting mechanism. 

Does this solve the problem? Not exactly. Carbon markets do not replace climate finance, which comes at the expense of the Global South.  While the MENA region has emitted less than 5% of global emissions, it faces severe climate crises, including water scarcity and extreme heat. This means vulnerable communities suffer disproportionately yet have limited access to climate financing.

However, the other side argues that easing access for businesses and organizations to carbon credits will foster climate action in the region. Yet, greenwashing concerns remain because as discussed ad nauseam, often the quality of a carbon credit can be called into question.

One of the biggest concerns about carbon markets is “double counting”–where emissions reductions are counted twice, making them meaningless. How does this happen?  Simply, entities aiming to reach their NDCs count the same emission twice. For instance, counting emission reductions or removals towards their targets whilst authorizing another country or entity to use the same credit.

This can be particularly problematic in the voluntary carbon market because private companies do not have to comply with Article 6 of the Paris Agreement.

How did COP29 attempt to tackle this? It attempted to address these concerns through Article 6.4, the Paris Agreement Crediting Mechanism. Under this system, a UN supervisory body and the host country must approve projects before issuing UN-recognized carbon credits. This applies to corporations, countries, or even individuals. This could allow less developed countries to receive the climate finance required to mitigate climate crises. 

The voluntary carbon market in the MENA region is rapidly expanding, and this increase in transparency could mean more meaningful carbon trades. Thus, opportunities for climate finance are expanding, and the region’s climate mitigation agenda is pushing forward.

Carbon markets sound like a smart fix–but without real action, they risk becoming a get-out-of-jail-free card for the world’s biggest polluters. Meanwhile, the people least responsible for climate change will continue to suffer the most. The real question is: will we choose convenience or accountability?