The global carbon trading mechanism that was a flagship achievement of last year’s UN climate talks has been slow to take off, according to data from analytics platform Sylvera.
Creating a carbon trading market was among the top priorities for negotiators at COP29 in Baku, who formalised a mechanism first sketched out in 2015. The market, described by Article 6 of the Paris agreement, would help historic polluters pay for climate action and adaptation in poorer countries by purchasing the right to claim emission reductions carried out elsewhere.
But since last year’s COP countries have only struck 15 deals to trade credits, with mostly just three buyer countries: Singapore, Switzerland and Sweden. They have entered into agreements for credits, primarily with South American and south Asian countries, the data shared with the Financial Times shows. These deals are working towards the delivery of credits that represent one tonne of greenhouse gas emissions reduced, avoided or absorbed from the atmosphere.
While the UN has developed guidance for trading and reporting, questions over how to ensure the tonne is removed from the atmosphere for as long as possible as a result of the investment, has damped demand, analysts say.
“There are so many uncertainties when it comes to how [carbon] is being accounted for [and] how countries can apply credits to their national climate plans, so that is one reason why we have seen so very little,” says Fitri Wulandari of the energy analytics firm Veyt.
Countries have had to strike bilateral deals under the UN system as it continues to flesh out rules for a separate market whereby credits could in future be sold to any country or company.
“If there is an accounting error, they can solve that bilaterally between themselves,” Wulandari says.
The market’s slow uptake contrasts with the fact that historically large polluters are increasingly expressing interest in paying for decarbonisation abroad to count towards their domestic targets.
Countries have to submit climate plans to the UN every five years under the Paris agreement. Of those that have already submitted plans up to 2035, 89 per cent say they will purchase other countries’ emission reductions to meet their targets, the UN said last month.
The EU last week said that 5 per cent of the emission reductions in its climate target could be met through the purchase of international credits, up from an original proposal of 3 per cent.
For the UK’s target to reach net zero emissions by 2050, greenhouse gas removals have “moved from being an option to a necessity”, according to an independent review published last month by the UK Department for Energy Security and Net Zero. This is to help offset hard to tackle emissions from shipping and aviation, which have been included in the target since 2021. The UK is however prioritising domestic carbon removal schemes, spending more than £21.7bn over 25 years on carbon capture, usage and storage hubs.
Countries are increasingly concerned about whether emissions from the burning of fossil fuels, which stay in the atmosphere indefinitely, can be offset by removals stored in trees and soils — which can be stored for a few years to hundreds of years before being released by fire or human disturbance.
The carbon-removal industry is gaining momentum. Yet according to the independent report commissioned by the UK government, less than 0.1 per cent of global CO₂ removal is “geologically permanent” — including technologies that capture CO₂ directly from the air — with the vast majority of the non-permanent credits coming from planting and restoring forests.
Despite these setbacks the industry is still bullish about the future of carbon removal and the role of the carbon trading market — which should ensure that countries do not double count emission reductions. Under Article 6, emission reductions can be sold to another country, but only one country may count them as part of its climate plan.
Data provider MSCI Carbon Market anticipates that half of global demand for carbon credits by 2040 — including from airlines, companies and governments — could be bought and sold under the UN system.
James Davis, climate-focused partner at the consulting firm Oliver Wyman, says the push for high standards under Article 6 is part of a “flight to quality” in carbon markets. “There is a heightened bar of disclosure, scrutiny and conservatism.”
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