New Standards to Boost Global Carbon Markets

More than twenty years ago, a straightforward yet powerful idea emerged within financial and environmental circles worldwide: international emissions trading. It was designed to help countries that signed the Paris Climate Agreement fulfill their climate commitments while generating new income streams for nations in the Global South. Now, fresh international standards may finally unleash this market’s full potential.

Through the international emissions trading system, nations that struggle to cut enough greenhouse gas emissions domestically can buy carbon credits from other countries implementing emission-reduction initiatives such as afforestation or renewable energy projects. Alongside large-scale compliance markets — which help countries meet legally binding targets — smaller voluntary carbon markets enable companies to buy offsets to claim carbon neutrality or net-zero emissions status.

At the national level, emissions trading has already gained significant traction. The European Union Emissions Trading System (EU ETS) remains the largest carbon market globally, complemented by schemes in China, South Korea, Japan, and Australia. Brazil recently launched its own cap-and-trade system, while emerging Asian markets — Vietnam, Thailand, Indonesia, India, Malaysia, and Taiwan — are developing their own trading frameworks. Collectively, the global carbon market is now valued at approximately US$100 billion annually.

However, despite domestic progress, robust international carbon trading remains limited. While bilateral exchanges do occur, the absence of a standardized framework for credible, transparent, and verifiable carbon credits has hindered widespread cross-border trading. The Paris Climate Agreement, through its Article 6, specifically Article 6.4, committed to creating such a mechanism. Yet nearly a decade later, both investors and project developers remain frustrated by slow progress.

“There has been frustration at the very low speed,” said Andrea Bonzani, International Policy Director for the International Emissions Trading Association (IETA), in an interview with Earth.Org. Negotiations dragged on until COP29, delaying implementation and discouraging some countries from launching new projects. Some initiatives lack additionality — meaning they would have happened anyway — and suffer from weak monitoring and verification.

To tackle these persistent issues, a United Nations body recently adopted new standards under the Paris Agreement Crediting Mechanism (PACM). This initiative operationalizes the long-awaited 6.4 mechanism, enabling countries and private players to trade high-integrity carbon credits backed by credible emissions reductions.

Two key standards were approved:

• A baseline emissions standard to establish what emissions levels would have been without a project, preventing over-crediting and double counting.
• A leakage standard to account for unintended emissions increases elsewhere that could undermine a project’s impact.

Additionally, the Supervisory Body for PACM outlined measures to ensure that project benefits are fairly shared with host countries and purchasing countries alike. It also aims to build local capacity so that more developing nations can participate in international carbon markets.

Jean-Marc Champagne, Managing Director at Seneca Impact Advisors, a development finance firm, welcomed the standards. “One of the biggest challenges from a financing perspective has been the lack of consistency and transparency in carbon accounting and verification. These new standards should unlock climate finance in markets like Southeast Asia, which has high potential for emissions-reduction projects,” Champagne said.

Bonzani added that PACM is expected to “set a very high bar in terms of environmental integrity,” ensuring each carbon credit represents a genuine, verifiable reduction or removal of CO2, with no loopholes to undermine trust in global carbon markets.

The Supervisory Body also addressed crediting for clean cookstove projects, streamlining previous guidance to align with the new standards. However, certain high-potential areas, like regenerative agriculture and other nature-based solutions, may still struggle to qualify under the stricter rules.

For example, the European Alliance for Regenerative Agriculture estimates that regenerative practices could cut 141.3 million metric tons of CO2 equivalent (CO2e) annually — about 84% of the EU agricultural sector’s net emissions. Nevertheless, Climate Farmers, a leading European regenerative agriculture organization, recently announced its withdrawal from carbon markets, citing fundamental misalignments. “The current carbon market system isn’t built for the kind of agriculture we set out to support,” Co-Founder Ivo Degn stated.

“There’s always been a bias within the UNFCCC that makes nature-based solutions harder to credit,” Bonzani noted. “But raising the bar on quality should help raise credit prices and market demand.”

Champagne emphasized that this area is vital for regions like Southeast Asia, which have high potential for coastal restoration and other nature-based projects.

Tackling Greenwashing in Voluntary Carbon Markets

A key threat to the credibility of voluntary carbon markets is green washing. Last month, Australia’s Energy Australia settled a lawsuit filed by advocacy group Parents for Climate, which argued that the utility’s “Go Neutral” carbon offsetting claims were misleading. Energy Australia, the country’s third-largest domestic emitter, conceded that carbon offsets do not prevent the harm caused by burning fossil fuels.

Nonetheless, climate experts like Katherine Hayhoe emphasize that well-regulated, independently verified carbon credits can do much more than neutralize emissions — they can direct critical funding to vulnerable, low-income communities that lack resources to protect and restore ecosystems. “If we scale up cost-effective direct air capture alongside aggressive emissions cuts, it can address the hardest-to-abate emissions — because every bit of warming counts,” Hayhoe wrote on LinkedIn.

The Road Ahead

The adoption of new PACM standards marks a pivotal moment for international carbon trading. If countries and corporations embrace this framework and adhere to its high integrity requirements, the global carbon market could scale up dramatically, providing billions in climate finance where it’s needed most.

However, experts stress that carbon markets must complement — not replace — deep structural changes in how the world produces and consumes energy. Transparent governance, strict standards, and continuous oversight will be critical to ensure international emissions trading delivers on its promise without falling prey to green washing or market loopholes.

FAQs:

Q1. What are the new standards for international emissions trading?
A: The new standards aim to create a more transparent, accountable, and harmonized framework for carbon trading across borders. These include guidelines for verifying emissions reductions, avoiding double counting, and ensuring environmental integrity.

Q2. How do new emissions trading standards impact global carbon markets?
A: They strengthen global carbon markets by increasing investor confidence, encouraging international collaboration, and streamlining market mechanisms, particularly under Article 6 of the Paris Agreement.

Q3. Why is harmonizing carbon market standards important?
A: Harmonized standards reduce market fragmentation, enhance trust among countries, and make it easier to track and trade verified carbon credits internationally.

Q4. Will these standards benefit developing countries?
A: Yes, they provide clearer pathways for participation in carbon markets, potentially allowing developing countries to finance sustainable development and low-carbon projects through emissions trading.

Q5. What role does the Paris Agreement play in global emissions trading?
A: The Paris Agreement, particularly Article 6, provides the legal foundation for voluntary international cooperation on carbon markets, enabling countries to trade emissions reductions to meet climate targets.