A CLOSER LOOK AT THE COP29 CARBON TRADING DEAL

By Rupin Chopra and Aishwarya Rajput

Introduction

Climate finance is the lifeblood of climate action, powering the transition to a low-carbon economy, bolstering nations’ resilience to climate change impacts and aiding in their recovery from climate-related disasters.
The COP29 climate conference in Baku marked a significant milestone with the finalization of rules for international carbon markets under Article 6 of the Paris Agreement formally known as New Collective Quantified Goal on Climate Finance (NCQG).[1]
The 29^th Conference of the Parties to the United Nations Framework Convention on Climate Change (UNFCCC), is a global gathering to address climate change issues. It was held in Baku, Azerbaijan, from November 11to 22, 2024.
Following two weeks of intense negotiation, delegates at the 29^th Conference of the UN Framework Convention on Climate Change (UNFCCC) reached on an agreement to provide annual climate funding which aims to reach at least $1.3 trillion by 2035.[2]

What is Article 6 of the Paris Agreement?

Article 6 provides rules and guidance for countries to cooperate through carbon markets and non-market modalities[3]. The goal is to increase climate ambition, promote sustainable development, and protect the environment. It is a framework that guides countries in working together to reduce their carbon emissions and achieve their climate goals.

Key Characteristics of the COP29 Deal:

• International Transfer of Mitigation Outcomes (ITMOs): The agreement establishes a framework for countries to trade carbon credits, known as ITMOs. These credits represent verified emissions reductions or removals.
• Cooperatives: Countries can form cooperative partnerships to jointly implement climate projects and share the resulting carbon credits.
• Sustainable Development Mechanism (SDM): This mechanism allows for the generation of carbon credits from projects in developing countries that promote sustainable development.
• Non-Market Approaches: The agreement recognizes the importance of non-market approaches, such as climate finance and technology transfer, in addressing climate change.

Legal and Environmental Implications of the Carbon Trading Deal Worldwide:

[4]

Positive Aspects:

• Global Carbon Market: The establishment of a global carbon market can incentivize emissions reductions and mobilize climate finance.
• Increased Transparency: The agreement includes provisions for greater transparency and accountability in carbon market transactions.
• Potential for Climate Finance: Carbon trading can generate revenue for developing countries to invest in climate mitigation and adaptation projects.

Concerns and Criticisms:

• Risk of Double Counting: One of the primary concerns is the potential for double counting of emissions reductions, where the same reduction is claimed by multiple parties. This could undermine the overall effectiveness of the carbon market.
• Environmental Integrity: Critics argue that the rules may not be stringent enough to ensure the environmental integrity of carbon projects. There is a risk of low-quality or fraudulent credits entering the market.
• Lack of Strong Enforcement Mechanisms: The agreement lacks robust enforcement mechanisms to deter non-compliance and ensure the integrity of the carbon market.

How will COP29 climate finance be utilized?

Developing nations, which are disproportionately vulnerable to the adverse effects of climate change, will likely allocate the increased climate finance to two primary areas:

1. Climate Adaptation:

• Infrastructure Resilience: Funding will be directed towards building resilient infrastructure, such as flood-resistant homes and roads, and drought-resistant dams and water systems.
• Sustainable Agriculture: Investments will be made in climate-smart agricultural practices to enhance food security and reduce greenhouse gas emissions from agriculture.

2. Climate Mitigation:

• Renewable Energy Transition: The funds will support the deployment of renewable energy sources like solar, wind, and hydropower to reduce reliance on fossil fuels.
• Industrial Decarbonization: Investments will be made in technologies and practices to reduce emissions from industries, such as steel and cement production.

By addressing both adaptation and mitigation, developing countries aim to build resilience to climate change impacts while contributing to global efforts to reduce greenhouse gas emissions.

Conclusion:

The COP29 agreement is a significant development in international climate law. The specific legal implications will depend on the domestic laws and regulations of each country involved in carbon trading. To ensure the effectiveness and integrity of the carbon market, it is crucial to have strong domestic legal frameworks in place.

These frameworks should:

• Define clear eligibility criteria for carbon projects.
• Establish robust monitoring, reporting, and verification (MRV) systems.
• Implement effective enforcement mechanisms to penalize non-compliance.
• Promote transparency and public participation in decision-making processes.

By addressing these concerns and strengthening the legal framework, countries can maximize the benefits of carbon trading while minimizing the risks associated to it.

[1] Available at https://www.wri.org/insights/cop29-outcomes-next-steps

[2] Available at https://wmo.int/media/news/cop29-ends-compromise-climate-financing#:~:text=Other%20steps%20forward%20at%20COP29,invest%20in%20climate%2Dfriendly%20projects.

[3] Available at https://unfccc.int/process-and-meetings/the-paris-agreement/article-64-mechanism

[4] Available at https://unfccc.int/news/cop29-un-climate-conference-agrees-to-triple-finance-to-developing-countries-protecting-lives-and