COP29, held in Baku, Azerbaijan, concluded with a set of agreements that could significantly shape global climate policy and voluntary carbon markets (VCM). Key discussions included operationalizing Article 6 of the Paris Agreement, updating Nationally Determined Contributions (NDCs), and finalizing the New Collective Quantified Goal (NCQG) for climate finance. Despite notable progress, the outcomes revealed persistent gaps which could have implications for the VCM’s future in mitigating global emissions.
Article 6.2
Article 6.2 of the Paris Agreement establishes a framework for country-to-country carbon trading through Internationally Transferred Mitigation Outcomes (ITMOs). At COP29, negotiators reached a significant breakthrough by agreeing on key guidance for authorization and transfer of credits, including establishing a dual-layer registry system for tracking ITMO trades and revocation terms. The agreement clarifies how countries will authorize carbon credit trades and how registries will operate, with new provisions for transparency and environmental integrity through technical reviews.
The market impact of these decisions is complex, with potential challenges for early Article 6.2 adopters whose existing engagements might fall short of the new COP29 requirements. Market participants, particularly those purchasing for international mitigation purposes, will need to navigate varying conditions between countries regarding credit authorization and revocation. Looking ahead, several fundamental challenges remain unresolved, including the precise level of standard rules for this decentralized mechanism, the extent of United Nations Framework Convention on Climate Change (UNFCCC) oversight, and the full implementation of the registry system.
Article 6.4
Article 6.4 establishes the Paris Agreement Crediting Mechanism (PACM), a centralized carbon crediting system under UN oversight. On the first day of COP29, two critical standards were adopted: methodology requirements for activity development and assessment, and requirements for carbon removal activities. This has effectively operationalized the mechanism, but credits under Article 6.4 will be unavailable until the mechanism’s Supervisory Body begins approving methodologies. The implementation timeline suggests the first Article 6.4 transactions could occur in late 2025, as the registry system is still under development.
The conference also made significant strides towards transitioning eligible Clean Development Mechanism (CDM) projects. Currently, afforestation and reforestation CDM projects have a clear transition pathway, and proponents have until the end of 2025 to submit transition requests. Due to the differences in transitioning across project types, forestry credits could see a demand-driven price increase since Article 6.4 Emission Reductions (A6.4ERs) are expected to command a premium. As the Article 6.4 market scales and credit supply grows, this could result in less competition for credits and downward pressure on A6.4ER prices. If countries commit to more ambitious Nationally Determined Contributions (NDCs), the resulting surge in demand for carbon credits could outpace the supply growth, driving an overall upward pressure on prices. Additionally, the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) could amplify demand pressures approaching the Phase 1 compliance deadline of 31 January 2028. More detail can be found in ClearBlue’s Article 6 Corresponding Adjusted Credits (CACs) Supply and Demand Outlook.
Nationally Determined Contributions
As seen through the UNEP’s 2024 Emissions Gap Report, current NDCs fell short of global climate goals and were estimated to align with a 2.6°C warming pathway leading into November 2024. Many countries have yet to submit their 2035 NDC targets, but with the February 2025 deadline approaching, some early movers announced their updated targets during COP29.
A notable NDC update during the conference was from the United Kingdom, announcing an emissions reduction target of 81% by 2035 relative to 1990 levels and decarbonizing their power grid by 2030. These announcements act as a benchmark for developing countries, which may lead to more ambitious NDCs that align with a maximum temperature rise of 1.5°C. As a result, countries would be required to meet those obligations through reducing emissions directly and purchasing more eligible Article 6 credits. Countries with limited resources for carbon dioxide removal with economies that rely on hard-to-abate sectors could have higher marginal abatement costs, which may result in a greater demand for Article 6 credits to meet their more ambitious NDCs.
New Collective Quantified Goal
The last major development from COP29 was an agreement on the New Collective Quantified Goal (NCQG) for climate finance. It targeted USD 300 billion annually in core funding from developed nations by 2035 and an extended target of USD 1.3 trillion, incorporating all public and private sources. While tripling the previous USD 100 billion target, the NCQG falls significantly short of the USD 5.8–5.9 trillion needed annually by 2030 for developing nations’ NDCs.
Despite the agreement, widespread dissatisfaction remains among representatives from developing countries. Combined with the evolving geopolitical landscape, the funding gap could have major implications for future cooperation and the approach developing nations take to meet their financial needs. Global consumption of oil and coal are at record highs, and based on the evolving geopolitical landscape, this trend may not reverse anytime soon. The combination of the underwhelming NCQG and global emissions trends puts developing nations in a challenging position, which may result in them prioritizing economic development over climate mitigation.
Insufficient funding for climate mitigation and adaptation may lead to significant impacts on the VCM as developing countries attempt to meet their financial needs through different strategies. Supplying more credits under Article 6 could be one method to attract capital, which could have downward pressures on prices in the long term. Domestic carbon pricing, either through carbon taxes or an emissions trading system, could also help close that gap. While there is already a growing trend, adopting these mechanisms could accelerate to meet the needs of developing countries.
COP29 marked a critical juncture in international climate policy, advancing carbon markets and climate finance frameworks while exposing significant gaps in ambition and implementation. For the VCM, these outcomes offer opportunities in scaling high-integrity credits but also pose challenges with supply-demand imbalances and funding gaps. As nations prepare for COP30 in Brazil in 2025, refining these frameworks and ensuring adequate climate finance will be crucial in enabling carbon markets to play an effective role in achieving global climate goals.