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Carbon markets are stalling right when we need them most. Governments are currently finalizing their national plans to cut emissions ahead of the next UN Climate Summit, COP30, in Brazil.
This may be our last chance to keep the Paris Agreement’s temperature goals within reach. To do that, we need to use every tool available, including carbon markets.
Years of disappointing results have shaken faith in these mechanisms. Many companies fear that using carbon credits will lead to accusations of greenwashing. The value of voluntary carbon market transactions has dropped by three quarters in three years.
And we are re-litigating whether these markets are legitimate in principle and whether they work in practice. Debates over whether they can be included in national climates plan show that the ghosts of the past are paralyzing us in the present.
The debate on principle has a long history. Carbon markets were once dismissed as an excuse not to cut emissions. Yet similar thinking also questioned the need to adapt to climate change rather than focus on averting it. But around the world, and particularly in the Middle East, we can already see the dangers of a changing climate.
To be clear, our top priority must always be deep, rapid and sustained emission cuts at source. Demand for carbon credits must be over and above our best efforts to decarbonize.
This is the most effective way to address the climate crisis. However, we also face the reality that some sectors, such as steel, aluminum and cement, are incredibly hard to decarbonize in the short term. This is where carbon markets can help.
When designed well, they could create essential efficiencies. To take the most basic example, a tree planted in the Congo Basin is cheaper and absorbs more carbon than a tree in Canada. These costs matter — the savings they provide to hit our climate goals are estimated to be as great as $250 billion a year. This money can then be reinvested for even greater ambition and progress on climate change.
Carbon markets are not a silver bullet. But they are a necessary piece of the puzzle.
Mukhtar Babayev
Carbon markets also provide benefits for both climate and people. The total flows could reach $1 trillion per year by 2050, channelling money to the developing world. Amid debt crises, anemic global growth, and collapsing aid budgets this is vital. It means jobs across nature conservation and green technologies, in turn, raising living standards and cementing popular support for climate action.
However, we must acknowledge the skepticism. Some of the early steps taken were misguided. Forests were chopped down to plant new ones and bogus credits battered confidence. A carbon credit is worthless if we can’t be confident that it does what it says it does.
Fortunately, much work has been done to learn from the past and build a better system. Last year at COP29 in Azerbaijan, we concluded a decade-long process to agree stringent new standards for high-integrity carbon markets under the UN.
Countries have a framework for new credits that represent real, additional and verified emissions reductions. And we have agreed routes to improve these standards over time.
This framework should now be the baseline. We must phase out the use of poor-quality credits and pivot to those that meet this new threshold. Buyers have a duty to ensure they transact in the right places. And every time there is a scandal, we must resist the temptation to throw the baby out with the bath water. We need to improve the system, not bin it.
Carbon markets are not a silver bullet. But they are a necessary piece of the puzzle. To unlock their full potential, we need leadership. Governments must take the helm, using this year’s national climate plans to set ambitious emissions reductions targets that will create the demand for a functioning carbon market.
COP30 can then be a moment when we send a strong signal that carbon markets are legitimate in principle and possible in practice. We don’t have the luxury of leaving this tool on the shelf.
• Mukhtar Babayev is the COP29 president.