COP29 in Baku was a summit of contrasts – it delivered a complex mix of hope and disappointment, reflecting both progress and persistent gaps in global climate action. Amid the challenges, the breakthroughs on Article 6 of the Paris Agreement stood out, laying critical foundations for the voluntary carbon market to scale after years of gridlock.
The funding gap in climate finance
Developing countries arrived in Baku hoping to secure $1.3trn in annual climate finance to support their increasingly urgent climate change mitigation and adaptation efforts. Instead, the developed nations pledged a New Quantified Collective Goal (NQCG) of $300bn per year by 2035 – a significant increase from the prior $100bn but far short of the scale required.
While new contributions to the Loss and Damage Fund were welcome, the total falls well below what is needed to address the escalating impacts of climate change. As the impacts of climate change accelerate, the gap between what is pledged and what is needed grows increasingly stark.
Government finance plays an irreplaceable role in funding vital climate priorities like adaptation measures for vulnerable communities and support for developing countries to transition to cleaner energy systems. However, given the scale of investment needed, carbon markets have also emerged as a crucial complement – they create market signals that mobilise private capital, drive emissions reductions, and scale proven solutions.
The key lies in harmonising these efforts: public finance can de-risk early-stage investments and build market foundations, while carbon markets can then rapidly mobilise private capital into proven approaches.
Turning the page on Article 6
After years of gridlock, COP29 delivered a significant breakthrough on Article 6, establishing the rules needed to rebuild trust and bring carbon markets to scale. These agreements are designed to ensure transparency, accountability, and fairness in emissions reductions trading.
Article 6.2 establishes a framework for bilateral carbon credit transactions. Negotiators at COP29 agreed that host countries must specify conditions for authorising and adjusting trades upfront. This reduces investor risk and is expected to catalyse the issuance of correspondingly adjusted credits by 2025, benefiting both nature-based and technology-based projects and providing early opportunities for companies seeking CORSIA-compliant credits.
Article 6.4 introduces the Paris Agreement Crediting Mechanism (PACM), which replaces the Clean Development Mechanism (CDM) with a modernised framework under strict quality standards. Negotiators agreed on procedural requirements to facilitate the transition of some CDM projects while emphasising the development of new methodologies focused on environmental integrity and social impacts.
While PACM credits (also known as Article 6.4 emission reductions – A6.4ERs) are anticipated to be in high demand, their success hinges on effective implementation and stakeholder participation, marking a pivotal moment for scaling credible carbon markets.
Setting standards for credible and robust carbon markets
The voluntary carbon market is maturing, with integrity frameworks like the Integrity Council for the Voluntary Carbon Market (ICVCM) and compliance mechanisms like CORSIA and the EU’s Carbon Removals and Carbon Farming Regulation (CRCF) setting new standards for credibility. These frameworks offer pathways for scaling impactful solutions but must work alongside public finance and international agreements to achieve systemic change.
A notable development at COP29 was the UK’s launch of new principles for voluntary carbon markets, which sets out requirements for transparent reporting, quality standards for carbon credits, and integration of biodiversity considerations. It aligns with existing initiatives like the Voluntary Carbon Markets Integrity Initiative (VCMI), which promotes much-needed consistency across the market.
By introducing these principles, the UK becomes one of the first governments to clearly define the conditions under which the voluntary carbon market can help contribute to domestic and global climate and nature goals.
From Baku to Belém: Looking ahead in 2025
COP29’s progress on carbon markets offers hope, but the mixed outcomes of the summit underline the challenges that lie ahead. The hard-won agreements must translate into meaningful action, and the global community must address persistent gaps in ambition to ensure the benefits of these frameworks reach the communities most vulnerable to climate impacts.
As our attention turns to COP30, the urgency of the task cannot be overstated. Bridging the divide between promises and action, as well as between private and public finance, will define whether the global community can rise to meet the climate challenge in the years ahead.
Chimdi Obienu is Carbon Markets Data and Policy Lead at EcoAct, the international climate consultancy and project developer