Unlocking the potential of high-integrity carbon markets played a significant role in discussions at COP28 on Finance Day, with senior representatives from multilateral institutions such as the World Bank Group and GFANZ working towards building and supporting the scaling of global carbon markets.
Speakers at a roundtable focused on unlocking high-integrity carbon markets, hosted by the COP28 president, addressed the roles of carbon pricing schemes, compliance markets and high-integrity voluntary carbon markets (VCMs), noting that all three mechanisms could play a critical role in the global net-zero transition. Carbon markets, they suggested, could help channel finance to decarbonisation projects in emerging markets and developing economies, including projects that would otherwise lack financing.
Participants also recognised the need for coordination between key stakeholders to ensure the remaining pieces of the global carbon markets architecture comes together in 2024 and 2025.
As part of the panel session, World Bank group president, Ajay Banga, announced plans for the growth of high integrity global carbon markets, with 15 countries set to earn income from the sale of carbon credits generated from preserving their forests.
Countries including Chile, Costa Rica, Cote d’Ivoire, Fiji and Vietnam are expected to produce over 24 million credits next year, and as many as 126 million by 2028. These credits could earn up to $2.5 billion in the right market conditions, with the money generated going back to communities and countries. All 15 countries are part of the World Bank’s Forest Carbon Partnership Facility (FCPF), which has supported pilot programs since 2018 to establish efficient systems for carbon-crediting initiatives.
“Blessed with natural resources, these countries are set to benefit from carbon markets by earning income from protecting forests and using their land more sustainably,” said Banga.
“With the World Bank Engagement Roadmap for high-integrity carbon markets, we will collaborate with partners to scale effective global carbon markets. Our experience with the FCPF and other initiatives has resulted in a formula that can catalyse effective carbon markets and make good on their promise for people and planet.”
A difficult year for VCMs
According to Dale Hardcastle, partner at Bain & Company, the voluntary carbon market has had a difficult year, with many of its flaws and weaknesses exposed, and high-integrity carbon markets have “paid the price”.
Speaking prior to the event, Hardcastle added: “Urgent and collective international action is key to incentivising climate finance investment at the needed pace, not only to mitigate carbon emissions but also to build capabilities to meet 2030 ambitions.
“To date, the voluntary carbon market has failed to secure the financial investment necessary to scale up and innovate, but we expect to see an announcement emerge that reaffirms the importance of putting a price on carbon and broad institutional support from the public and private sectors in making that a global reality – and the need for voluntary and compliance markets as part of that solution. This should reassure the wide ecosystem of actors committed to making this a reality.
“The parallel efforts of an increasing number of governments to put a price on carbon through domestic carbon taxes or compliance carbon markets is encouraging to see. Eventually we will have to price the externality of carbon emissions appropriately and compliance carbon markets is one of the tools we have to make this a reality. What is critical now is to establish international rules and standards to scale carbon pricing and project financing rapidly, while ensuring integrity of both regulation and project implementation.”
Unifying carbon markets standards
Elsewhere, Finance Day also saw the announcement of a collaboration between some of the world’s largest carbon crediting programmes to increase the impact of activities under their standards, aiming to enhance transparency and consistency across the market.
The pledge, signed by the CORSIA-approved standards Verra, Gold Standard, Climate Action Reserve, ACR, ART and the Global Carbon Council, outlines a number of critical activities designed to help amplify the impact of carbon markets, including aligning standards to common principles, improving the transparency around the use of carbon credits, and working to improve and enhance the flow of finance to developing countries.
Mark Kenber, executive director at VCMI, said that unity across standard setters will “give companies the direction and clarity needed to spur on increased high-integrity climate action.”
“This is now a reality, it is state of the art, and it sets the rules of the game to scale up increased action driven by end-to-end integrity. Working hand-in-hand, we will set the stage for 2024 as the year of increased corporate action.
“We’ve heard consistently at COP28 from governments, multilaterals and many NGOs about the critical importance of high-integrity VCMs in contributing to the five-fold increase needed in climate finance. Companies must now step up and incorporate VCMs in their climate transition plans, enabling them to demonstrate climate leadership and go further, faster.”
