The recently concluded Conference on Parties to the United Nations Framework Convention on Climate Change (COP29) held in Baku, Azerbaijan laid the foundation for global governance on climate finance.
The conference results were a mix of success and sacrifice. Despite global warming and its harsh consequences, the parties agreed on a climate finance goal which is much lower than what was deemed necessary for adaptation and mitigation.
It also opened the much-awaited carbon trading channel for the Global South to play significantly in order to achieve their twin goal of protecting national interest while preserving the world.
India can play a lead role in carbon trading by organising the global south for enhancing bargaining power while setting carbon pricing and promoting meaningful energy transition.
COP29 upset Global South, as it was not able to establish a finance goal of $1.3 trillion by 2030 from the developed countries, despite their acknowledgment of its need. But they successfully thwarted the attempt of developed countries to expand the contributors base by including developing countries on the bases of their emissions, primarily targeting China, among others.
In the end, the Global South partly succeeded in its mission as it increased climate finance by around $250-300 billion by 2035 from current $100-110 billion. The declaration also highlighted that another portion of resources will be generated by private partnership and investment channels, among others.
Carbon trade was conceptualised under Article 6 of the 2015 Paris agreement. With almost a decade of negotiation, COP29 was able to set the final terms and conditions for operationalisation of the international carbon market.
Carbon trading enables countries to trade their mitigation units among themselves. Article 6.2 of the agreement laid down principles of transparency and environmental integrity and Article 6.4 placed UN-based monitoring mechanisms to market credibility and efficacy.
The carbon market will play a crucial role as it compensates for the green transition process of developing countries and also generates additional resources for climate mitigation.
In 2022, the carbon market increased an exponential value of $100 billion, according to the Carbon Market Institute. This was equal to what the developed countries had committed to provide as climate finance.
A BloombergNEF report showed that the carbon market has a potential of generating $1.1 trillion by 2050. It will attract huge investment for developing countries’ green transition process, enabling them to generate millions of jobs.
The World Bank’s carbon credit dashboard has revealed a significant disparity in carbon market pricing across different countries. The prices vary widely, particularly when comparing the Global South to the Global North. For instance, a tonne of carbon credit costs $126 in Switzerland, while in China, it is priced at just $12.80. The lowest prices are found in African and island nations.
The carbon trade is crucial but controversial, as some environmentalists believe it allows carbon-intensive companies to avoid reducing their emissions by purchasing carbon credits from less developed countries, which doesn’t actually remove carbon from the atmosphere.
But without such fiscal incentivisation it is hard for least developed or developing countries to give away their easily available non-renewable energy sources in order to transition to the renewable energy sector.
Henceforth, the carbon credit and trade should be systemically synthesised to promote green transition as well eliminate carbon from the atmosphere. Importantly, it should prevent greenwashing and double counting the credits, which ultimately impact the effectiveness of the carbon market and climate mitigation process.
In these situations, developed nations and carbon-heavy private companies will try to protect their interests by acquiring carbon credits from the least developed countries, as it will be less costly for them.
In the global market, it has been established that people tend to buy low-cost products when they have options of multiple suppliers and producers. Here, the principle of grouping will empower them to set standards and minimum price for their products and prevent them from manipulation of buyers.
In the above situation, India can pitch in by forging alliances or groupings like Oil and Petroleum Exporting Countries and other similar groups of Global South carbon-producing countries. Such groups will secure bargaining power of developing countries and potentially increase their carbon credit market that can convert into their national mitigation projects.
Global South countries currently lack in many aspects like scientific advancement and technological capacities. India supports these nations by aiding in their progress and helping them to better leverage their natural geographical conditions for green energy transition and carbon sinking, among other initiatives.
India is already championing campaigns like International Solar Alliance and Global Biofuel Alliance, which empower countries to achieve their climate mitigation goals. These platforms can now be more effectively used to set carbon prices; otherwise, the existence of multiple markets will hinder the country’s ability to obtain fair compensation.
These groups can also play a key role in enhancing the mitigation strategy and scientific tools of developing and least developed countries, and impart capacity building, knowledge transfer at par with developed countries.
Carbon trade should not only be viewed as another market for these developing countries; it is their historical rightful share as they are facing unbearable climate change consequences while being the smallest contributor to global warming.
It is imperative to form a global alliance for carbon trade to achieve the multiple targets of preventing global warming as well securing national interests.
Thirunavukarasu S is a junior research fellow at department of defence and strategic studies in the University of Madras. Abhijay A is an international policy analyst and independent researcher, specialising in international relations, public policy and global governance.
