Delegates from nearly 200 nations convened in Baku for COP29 to address critical issues in scaling climate finance and operationalising key aspects of the Paris Climate Agreement.
After two weeks of discussions and negotiations, some progress was achieved on international carbon offset markets, but little to no progress was made on climate finance.
Climate finance: central but insufficient
Climate finance was a central focus at COP29, with the final text referencing an ambition to mobilize $1.3 trillion annually by 2035. However, developed nations agreed to increase their collective climate finance pledge to $300 billion annually by 2035—a figure that falls far short of both the stated ambition and the actual needs of developing nations to address their urgent climate mitigation and adaptation challenges.
Article 6: A step forward
Progress on Article 6 was a positive outcome of COP29. Delegates advanced guidance for government-to-government exchanges of internationally transferred mitigation outcomes and finalized implementation details for Article 6.4, which governs international carbon markets.
This progress is important, as government-to-government trading under Article 6 could pave the way for more ambitious Nationally Determined Contributions (NDCs) at the next COP. This aligns with the five-year timeline for reviewing and enhancing each country's NDCs, potentially fostering greater collective ambition.
NDCs are essentially the climate action plans that countries submit under the Paris Climate Agreement. These plans outline the promises countries make to reduce their carbon and greenhouse gas emissions and combat climate change. NDCs have two components:
- Unconditional contributions: These are the actions a country commits to achieving on its own, using its resources and capabilities. For example, mandatory carbon pricing mechanisms, such as carbon taxes or emissions trading systems, typically operate within this space. These contributions reflect what a country believes it can achieve without external assistance.
- Conditional contributions: These represent additional actions that a country can take if it receives external support, such as climate finance or technology transfer. These commitments rely on cooperation and resource mobilisation at the international level.
The unconditional part forms the baseline effort, reflecting not only a country’s domestic conditions but also external factors like the actions of other nations. The conditional part instead represents a pathway to higher ambition, very likely made possible only through global collaboration.
Some criticise international carbon trading as a 'false solution', arguing that it might enable countries to outsource their emission reductions, potentially doing less domestically. This concern is valid if international carbon trading lacks transparency and is poorly integrated into a country’s NDC. However, Article 6.4 aims to address these issues by enhancing transparency and accountability in international carbon markets. If a country’s unconditional contributions lack sufficient ambition, international carbon trading could become a mechanism to avoid hard choices at home, undermining global efforts to reduce emissions.
However, the criticism should not be directed at international carbon trading itself or mechanisms like Article 6. The issue lies in the design and ambition of a country’s NDC, particularly its unconditional contributions. Sceptics should focus on ensuring that countries establish ambitious, proportionate, and context-appropriate unconditional targets before utilizing international carbon trading as a tool for further action.
The role of international carbon trading in increasing ambition
International carbon trading, when implemented properly, has the potential to enhance global ambition, especially for the unconditional part of NDCs. This is particularly important for low-income countries, which often lack the financial and technical resources to achieve ambitious climate goals independently.
For low-income countries, international carbon trading is not about outsourcing responsibility. Instead, it is about unlocking resources to achieve higher levels of ambition than would otherwise be possible.
Looking ahead: COP30 in Brazil
A successful implementation of Article 6.4 in the coming months could encourage countries to include more ambitious commitments in their updated NDCs, which are set to be submitted at COP30 next year.
Luca Taschini is our Chair in Climate Change Finance.