The Future of Carbon Credits at COP29

2nd of February 2025

By Sheralyn T. (Net Zero Analyst, UCL Green Economy Society)

COP29, held in Baku, Azerbaijan, from November 11–22, 2024, marked what could be a pivotal moment in global climate discourse as it sought to inspire change. Building on the commitments of the 2015 Paris Agreement, the summit aimed to enhance mechanisms for achieving net-zero emissions, focusing on financing poorer countries with a $300B transition aid by 2035 and refining rules governing carbon markets and carbon credits. 

What are Carbon Credits? 

Carbon credits are a financial mechanism designed to incentivise greenhouse gas reductions. Each credit represents one metric ton of carbon dioxide avoided or sequestered from the atmosphere, often through projects like reforestation, renewable energy installations, or methane capture. These credits are traded in carbon markets, offering flexibility to corporations and nations seeking cost-effective emissions reductions. 

While their flexibility is a key selling point, carbon credits have been controversial. Critics argue they enable "greenwashing," allowing entities to appear environmentally responsible without substantially changing their carbon-intensive practices, or delaying decarbonisation efforts. Other sources of criticism stem from project standardisation,  how much CO2 projects actually sequester, and carbon leakage. This raises questions about their efficacy as a long-term climate solution, especially if they are used as substitutes rather than supplements to internal decarbonisation. 

Key Developments at COP29 

After almost a decade of discussions, COP29 achieved a significant breakthrough by finalising rules under Article 6 of the Paris Agreement, enabling the global trading of carbon credits. These rules are set to launch in 2025 and incorporate several mechanisms to address the flaws that have historically plagued carbon markets: 

• Enhanced Verification and Reporting Standards 

Stricter verification protocols, requiring independent third-party audits, will ensure the credibility of carbon credits. This move aims to eliminate "hot air" credits—those lacking genuine emissions reductions or generated through dubious accounting practices. By addressing double counting and enhancing transparency, these standards are poised to restore trust in carbon markets and align them more closely with climate goals. 

• Introduction of a Global Carbon Registry  

The establishment of a unified global carbon registry represents a groundbreaking reform. By tracking the lifecycle of carbon credits from issuance to retirement through a central database, the registry will foster market confidence by preventing fraud, streamlining transactions, and enhancing project standardisation. Moreover, this initiative could facilitate the transition from fragmented, national-level carbon markets to a cohesive global trading system, potentially lowering costs for developing economies and expanding participation in mitigation efforts. 

• Carbon leakage 

With rules to govern a global carbon market being agreed upon at COP29, carbon leakage will hopefully be eradicated. Carbon leakage is a large concern in voluntary carbon markets today, as strict climate policies in one region can drive emissions-intensive industries to relocate to areas with less stringent regulations, potentially undermining global efforts to reduce emissions. If rules are strict enough with cross-border carbon trades, one of the largest issues surrounding carbon credits will be addressed, resulting in a more robust and effective carbon market. 

• Better climate finance tracking  

With the deal on global carbon credit markets being met at COP29, poorer countries will better benefit from carbon market equity via enhanced market transparency. If executed properly; poorer countries that offer decarbonisation projects, whose credits are sold on the carbon market, will receive the most financing. This may allow them to invest in sustainable and low-carbon development, driving both decarbonisation for the credit purchaser but also accelerating poorer countries to fund low-carbon infrastructure. 

Challenges and Criticisms 

Despite the optimism surrounding COP29’s reforms, carbon markets remain deeply controversial. Not only have carbon credit markets crashed twice in two decades due to reduced credibility, but critics also argue that offsets often serve as a "smokescreen," enabling governments and corporations to defer meaningful reductions in their emissions. For instance, the focus on purchasing credits risks entrenching the status quo, delaying the systemic transformations required for genuine decarbonisation. 

Additionally, the social implications of carbon offset projects often go overlooked. Reports of land grabbing, inadequate consultation, and the exploitation of indigenous and local communities continue to undermine the ethical foundations of carbon credits. While COP29 introduced measures to improve oversight, it failed to establish robust safeguards to protect vulnerable populations, perpetuating a perception of carbon markets as tools of environmental colonialism. 

Lastly, while the stricter standards introduced in Baku aim to enhance accountability, enforcement remains a major concern. Many nations lack the regulatory capacity to ensure compliance, leaving the system vulnerable to abuse. The balance between tightening rules for credibility and maintaining market accessibility is delicate; overly rigid standards could discourage participation, potentially shrinking the market and limiting its effectiveness as a climate solution. 

Conclusion 

While the reforms at COP29 mark progress, they must be understood as part of a broader strategy for achieving net-zero emissions. COP29 has laid the groundwork for a more credible and transparent carbon market, offering tools to address long-standing challenges. The adoption of enhanced verification standards and the creation of a global carbon registry will enhance the credibility of carbon markets, accelerating climate finance. However, these reforms alone are insufficient to guarantee the integrity and effectiveness of carbon markets to help us meet international climate goals. 

To fulfil their potential, carbon credits must be embedded within a framework of genuine emissions reductions and equitable climate action. This requires addressing the structural weaknesses, safeguarding the rights of vulnerable communities, and ensuring inclusive decision-making processes. Deciding whether COP29 was successful in its deals will ultimately hinge on the ability of all stakeholders to transform its ambitious frameworks into tangible outcomes, advancing the global transition to a sustainable and equitable net-zero future. 

References: 

• Bryan, Kenza. “Kick-Start for Carbon Credit Market after Loose Rules Agreed at COP29.” @FinancialTimes, Financial Times, 23 Nov. 2024, www.ft.com/content/cc0cba2f-751a-4909-806d-c975c15feeea. Accessed 25 Nov. 2024. 

• Furness, Virginia, et al. “COP29 Agrees Deal to Kick-Start Global Carbon Credit Trading.” Reuters, 23 Nov. 2024, www.reuters.com/sustainability/sustainable-finance-reporting/cop29-agrees-deal-kick-start-global-carbon-credit-trading-2024-11-23/. Accessed 25 Nov. 2024. 

• Greenfield, Patrick. “Cop29’S New Carbon Market Rules Offer Hope after Scandal and Deadlock.” The Guardian, The Guardian, 24 Nov. 2024, www.theguardian.com/environment/2024/nov/24/cop29s-new-carbon-market-rules-offer-hope-after-scandal-and-deadlock. Accessed 25 Nov. 2024.