Carbon markets are carbon pricing mechanisms enabling governments and non-state actors to trade greenhouse gas emission credits. The aims is to achieve climate targets and implement climate actions cost effectively.
There are two types of carbon markets: Compliance and voluntary. In compliance markets such as national or regional emissions trading schemes participants act in response to an obligation established by a regulatory body. In voluntary carbon markets, participants are under no formal obligation to achieve a specific target. Instead, non-state actors such as companies, cities or regions seek to voluntarily offset their emissions, for example, to achieve mitigation targets such as climate neutral, net zero emissions.
The 2021 Emissions Gap Report assessed the importance of carbon markets and found that full use of market mechanisms can enable cost savings in the order of 40-60% in 2030.
UNEP works with countries and non-state actors, supporting them with capacity building and policy development for implementation of carbon markets, and through partnerships and initiatives contributing to regional and global knowledge sharing through a South-South, science-based approach to learning.
International Carbon markets under Article 6 of the Paris Agreement
The aim of Article 6 international carbon markets is to allow for enhanced ambition of climate actions for implementation of nationally determined contributions (NDCs) and to promote sustainable development and environmental integrity.
Parties that have successfully met their own emissions reduction targets can sell their extra reduction credits to finance enhanced climate action. This can move investments to areas and sectors, where emissions reductions can be achieved as efficiently as possible.
Article 6 establishes an international carbon market with multilateral governance under the UNFCCC setting common global standards and guidance for development and trading in emission reductions and Internationally Transferred Mitigation Outcomes.
Expectations for the use of international carbon markets are high. In 2023, 143 of 154 Parties stated in their NDCs that they plan to or will possibly use carbon credits from cooperative approaches under Article 6 as a means to finance climate action and achieve national targets.
UNEP support/resources:
- UNEP endorses and supports the two voluntary carbon market integrity initiatives (VCMI and ICVCM) that are in the process of developing best practice requirements for independent standards and market stakeholders.
- UNEP is engaged through its UNEP Copenhagen Climate Centre in several capacity building initiatives such as SPAR6C, IAAS, the Article 6 and VCM Pipeline Analysis and Database, the Sustainable Development Initiative for Article 6, and the research project Promoting transformational change through carbon markets. The Centre is currently working directly with seven partner countries.
- UNEP Finance Iinitiative and Ecosystems Division are engaged in developing guidance for nature-based solutions and voluntary carbon markets, and UNEP Regional Office in Latin America and Caribbean is working with the International Civil Aviation Organization on rule setting for the Carbon Offsetting and Reduction Scheme for International Aviation.
Highlights:
- Article 6 community meets for inaugural event (July 2023)
- Pakistan on course for emissions trading under Article 6 (June 2023)
- Article 6 community: Carbon Markets and social needs (April 2023)
- Carbon market capacity building (Feb. 2023)
Publications:
- Final Report – Promoting transformational change through carbon markets (UNEP Copenhagen Climate Centre, 2022)
