Negotiators are Working to Build an International Carbon Market at COP28 — But Should They?

The 28^th iteration of the Conference of Parties started Thursday in Dubai and is presided over by Sultan al-Jaber, CEO of the United Arab Emirates’ national oil company. Many activists have questioned the United Nations Framework Convention on Climate Change’s choice to let one of the world’s largest oil producers host COP, and the audacity to head it with the CEO of an oil company with questionable green credits. But did we all have it coming? 

In September, a UAE company known as Blue Carbon signed a Memorandum of Understanding with Zimbabwe to acquire a large swath of land — almost 20% of the whole country — to sequester carbon and sell it as carbon credits. CNN has reported that Blue Carbon has acquired lands equal to the size of the United Kingdom in several African countries to offset carbon and facilitate carbon credits. In recent times, the UAE has established itself as a leading buyer of African carbon credits. During the Africa Climate Summit in Nairobi, a coalition of UAE Energy (oil) and Finance companies committed $450 million to buy carbon credits generated in Africa.

Last year, the Africa Carbon Markets Initiative was inaugurated at COP27, with the goal to “produce 300 million carbon credits annually by 2030, and 1.5 billion credits annually by 2050.”

At COP28, countries will continue working to agree on frameworks for a new, UN-run international market for carbon credits. While this has been slowly taking shape, there are already functioning carbon markets worth more than $865 billion globally.

What Are Carbon Credits?

The carbon credit market is essentially the trade of carbon emissions. 

An entity that is producing more emissions than are permitted by carbon caps or other regulations — or that simply wants to reduce its pollution footprint — offsets its emissions by paying another entity that has an activity that is carbon negative: that is either removing greenhouse gases from the atmosphere or sometimes preventing the release of those gases. 

A less popular counterpart, biodiversity offsets, is much easier to explain: an entity — often a business — that is obligated, whether internally or externally, to be sustainable, can mitigate operations that displace wildlife and biodiversity by funding conservation exercises that protect the same species and amount of wildlife and biodiversity that the company’s operation displaces. 

There are also two types of carbon markets: the compliance market and the voluntary market. The compliance market houses mostly those mandated by regulations to offset their excess emissions and is more regulated. The voluntary market is less regulated and much more voluntary, as the name implies.

With the carbon market, entities can release as many emissions as they want, but they pay for carbon credits from carbon sink projects to offset those emissions. It’s a simple but brilliant model that has become an important tool in negotiations about the environment. It means entities like big oil can emit and pay to offset, while also focusing on transitioning to more sustainable ways of operating. On the flip side, private and public entities get funded to implement green or carbon sink projects.

One immediately obvious problem with carbon credits is that they are a band-aid fix to environmental damage.

Afforestation projects, forest reserves and even green energy projects can be funded (and earn a profit) by trading the carbon they remove or prevent as carbon credits. With the status quo,  the carbon market is run by good old capitalism. For example, how Blue Carbon acquires land across Africa to “produce” and “sell” carbon credits. 

The use of carbon credits dates as far back as the Kyoto Protocol in 1997 which was supposed to set a targeted reduction in emissions for industrialized countries. In 2005, the European Union began the EU Emissions Trading System, which was the first carbon market in the world. Essentially, entities are given an emission limit and required to offset the surplus.

Clare Shakya, the Global Managing Director for Tackling Climate Change at The Nature Conservancy in London, says it’s going to take a lot of time to reduce the emission cost of businesses around the world, so right now most are focusing on “investing in the offsetting of the emissions they’re unable to offset.”

This investment, she says, creates an opportunity to get money to fund climate recovery projects.

Problems

One immediately obvious problem with carbon credits is that they are a band-aid fix to environmental damage. True healing won’t come from displacing the pollution we’ve already normalized, but from rebalancing our relationship with the environment more largely. Yet, conversations and promises have disproportionately focused on carbon credits and not so much on how governments and businesses can transition — in the long- or short-term — to more sustainable ways of operations. “Countries and companies still need to reduce their emissions,” says Shakya.

The second biggest problem with the market is that it lacks a widely accepted framework for regulations. Experts like Shakye say regulations, even in the compliance market, lack standardization, integrity and transparency. “It’s a young industry, so there’s all these needs for standardization of processes and punishment for entities who abuse those processes,” Shakya tells me.

The rise of a UN-led market would be instrumental in creating this framework, which Skakya believes will influence the voluntary markets and set precedence for standard protocols, rules and even financial models that encourage inclusive participation. Regulations in the status quo are led mostly by the countries where the credits are being produced and entities running the market. In May, Zimbabwe announced all previous carbon deals made in the country null and void after introducing its framework, which granted the government to 50% of the total revenue generated from carbon credit projects. 

The carbon market, through different market predispositions, also seems to be increasing inequality rather than reducing it. Currently, the market is dominated by the private sector and increasing participation by governments. “Projects are trust-based and capital-intensive,” says Shakywa. This factor alone presents a barrier to many smallholders and community-based projects from the market. It also leaves them under government-led and capitalist projects.

Technology would play a huge part in both enabling trust through accountability and decentralizing access through digital markets. One of the strongest contenders of the digital carbon marketplace is a Nasdaq-supported digital platform that’s yet to be launched but provides a glimpse of how carbon markets can be digitally merged into preexisting financial markets. 

Still on inequality, last year, Maasai communities in Tanzania made news when they were forced from their ancestral lands to make way for conservation projects that include carbon offset efforts. In northern Tanzania, the Ngorongoro Conservation Area Authority served eviction notices, quenched protests and even blocked their access to water.

Dr. Jubril Adeojo, who works as a climate finance consultant for the African Development Bank Group, says the onus falls on the financiers and regulating bodies of the market to ensure implementations prioritize Indigenous people like the Maasai. The UN will need to set regulations and protocols that protect Indigenous people and people whose way of life would be impacted by carbon sinks. 

“Part of having strong and inclusive systems is also to make sure that these projects are empowering, rather than harming people of lower status,” said Shakya.

Besides the social issues, the science of carbon offsetting is contested and carbon credit projects have been, according to critics, used as elaborate greenwashing schemes by corporations.

“Climate Finance”

In the buildup to COP28, the COP presidency and UAE more broadly have kept the word “climate finance” in the news. The agenda is being framed as the need to reform climate finance and help developing countries access the finance they need to transition to greener energy.

And it sells well. The UN warns that “avoiding the worst impacts of climate change could require $4.3 trillion a year by 2030,” a cost that will only increase as the impact of climate change worsens. The last few COPs have agreed on how this funding can be provided. In 2009, parties agreed on the $100 billion annual fund to be provided through different means. However, the goal hasn’t been reached yet. According to the UN, around $83.3 billion have been raised, and “only eight percent of the total went to low-income countries and about a quarter to Africa.”

“COP has increasingly become about money because many leaders in the Global South are tired of being the center of conversation of the effect of a problem caused by emissions by the developed countries,” says Olasupo Abideen, who has attended the past three COPs and is head of the climate and development think-tank Brain Builders Youth Development Initiative. “Climate action needs money, hence financing. Parties need to put their money where their mouth is.” 

The leading conversations at COP for the past few years have not been about climate displacement, disruption in the food system or even keeping entities accountable to their emission promises or NDCs. Rather, these discussions have been about who’s promising what money, and what the incentives for that money will be.

The UAE has ridden on the obvious financial deficit for developing countries by setting an agenda that prioritizes providing climate financing for the Global South, even if it’s built on capitalism and corporate greenwashing. 

The money needed for transition has to come from somewhere. The risk, however, is that money inevitably invites the same old structures that led the world to the brink of climate destruction in the first place. That a conference about climate change would be ruled by rich oil-producing parties is an inevitable step in that regression.