Small victory at COP-29 as nations approve new carbon market rules

Establishment of carbon markets is the last remaining part of the 2015 Paris Agreement that is yet to become operational, mainly because the rules, modalities and procedures of this very complicated and technical structure are still to be finalised.

A small step forward towards operationalisation of carbon markets was hailed as an early victory at COP29, even as major persisting differences between developed and developing nations continue to dampen the prospects of a strong and comprehensive finance agreement, the main outcome expected from this conference.

Late on Monday night, the participating nations approved a couple of new standards and rules relating to carbon markets that had been pending for at least two years. Carbon markets allow trade in carbon credits with the overall objective of bringing down emissions. An entity that emits less than what is expected of it, earns carbon credits, which can be traded for money with another entity that is unable to achieve its emissions standards. A mechanism like this is meant to accelerate emissions reductions by offering monetary incentives to do so.

Establishment of carbon markets is the last remaining part of the 2015 Paris Agreement that is yet to become operational, mainly because the rules, modalities and procedures of this very complicated and technical structure are still to be finalised. COP29 approval to a couple of these standards marks a small step forward, but many more steps still have to be taken.

On the finance negotiations, which is the most keenly awaited outcome from Baku, there was no progress. The G77-plus China grouping, which represents more than 130 developing countries, rejected an initial draft proposal on the finance agreement, and called for a new version.

Baku is supposed to deliver a comprehensive finance package to enable enhanced flows of money for climate action. The $100 billion amount that the developed countries are under an obligation to provide every year to the developing countries has to go up substantially from 2026. But this is only the headline number, called NCQG or New Collective Quantitative Goal on finance. Several other aspects of climate finance are being negotiated. These include foundational issues like what classifies as climate finance, how to count these financial flows and where will these come from.

Developing countries, including India, have been demanding that at least $1 trillion per year be made available for climate action from 2026. The G77 group of countries on Tuesday said they would like to see at least $1.3 trillion per year flowing from developed countries to developing nations, and investments that the developed countries make into clean energy technologies or other climate-related projects must not be counted towards this. Also, this money must be new and additional, predictable, adequate, affordable, grant-based and concessional, and non-debt-inducing.

These countries also demanded that the shortfall in the $100 billion amount in successive years be delivered as arrears, in addition to the NCQG.

This is just the start of the negotiations, and countries are in the process of laying out their positions. It is unlikely that all the demands of the developing countries would be met. Fears are that the final amount that is agreed upon might turn out to be a lot more modest than the $1 trillion figure. India said NCQG was the most crucial element of discussions in Baku and that it would continue to be vocal about the need for adequate finance for the global south.