Carbon Coup: The significance of the Baku deal for global carbon trading

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The countries assembled at the recently-concluded 2024 UN Climate Conference (COP29) signed the much-awaited global carbon market rules on November 23, after nearly a decade of negotiations.

The COP29 organised at Baku, Azerbaijan, paved the way for the creation of an international carbon trading system for countries to help reduce emissions.

Moneycontrol looks at the key decisions taken regarding the global carbon market and its impact on India.

What are carbon credits?

Carbon credits are permits or sold to companies that allows them to emit a certain amount of greenhouse gases (GHGs). The funds created by the sale of carbon credits are in turn used to finance climate-centric programmes such as planting trees or investing in a renewable energy (RE) project.

A company can emit a tonne of GHGs with one carbon credit.

What has been finalised at COP29?

In order to ensure the integrity of the carbon market, the countries at COP29 agreed on rules for the creation, trade, and registration of carbon credits under Article 6 of the Paris Agreement. The carbon credits market has been under scrutiny in recent years over the worth of the issued credits, and it has been questioned whether  the funds are being utilised properly.

Article 6 of the Paris Agreement outlines how countries can reach their climate targets by voluntary cooperation. Under Article 6.2 of the Agreement, rules were set for trading of carbon credits between buyer and seller countries in a way which promotes sustainable development and ensures environmental integrity and transparency.

The clear rule-setting is expected to help ensure the integrity of the carbon credit trade through technical reviews and transparent tracking.

Meanwhile, Article 6.4 deals with the creation of a global carbon market overseen by a supervisory body, which would approve projects using robust methodologies before the issuance of carbon credits.

What would be the impact on India and how has the industry reacted?

As India is working on creating a domestic carbon market, the decision paves the way for the country to increase its presence in the global carbon market.

A clear and concise framework for the trading of such credits internationally eliminates risks associated with the industry, encouraging players in India to participate in the carbon market.

EKI Energy Services, an Indore-based carbon credit developer and supplier, said that the frameworks provide clarity on key aspects, including the authorisation and tracking of carbon credits, ensuring environmental integrity through technical reviews, and  adhering with the latest climate science. The company said it would contribute its expertise in carbon management, climate finance, and capacity-building to help realise the ambitious vision set forth in Baku.

What is the status of the domestic carbon market?

With the intent of developing a carbon market for India, the Indian government in June 2023 notified a draft of the long-awaited Carbon Credit Trading Scheme (CCTS). The notification does not provide the regulations, procedures, and guidelines for the functioning of the carbon market as of now. According to the notification, a National Steering Committee would be constituted with the Secretary of the Power Ministry as the ex-officio-Chairperson.