10 Reasons the World Needs Carbon Markets



November 15, 2023

The world is not on track to meet Paris Agreement goals and current policies put us on the path for 2.7°C of warming, well beyond what climate scientists say is safe for humanity. Even if every country met its current commitments, the world would still be 24 gigatons of emissions short of meeting targets to keep warming under 1.5°C. To get back on track, we need to act now with greater urgency and ambition. Well-designed carbon markets offer an available, scalable solution for the world to take additional action right now with integrity and impact.

 1) Carbon markets reduce mitigation costs and increase climate ambition.

Research from IETA and the University of Maryland found that international cooperation through carbon markets has the potential to reduce costs of meeting NDCs by $250 billion per year in 2030, increasing to  $21 trillion of mitigation cost savings between 2020 and 2050. This is money that can be reinvested into higher ambition goals, which is why “83% of NDCs state the intent to make use of international market mechanisms to reduce greenhouse gas emissions.”

2) Carbon markets are essential to meet Paris Agreement goals.

As the global stocktake highlighted, the world is not on track to meet Paris Agreement goals. The UN estimates that developing countries will need up to $6 trillion by 2030 to finance less than half of their climate goals. Carbon markets offer huge potential for mobilizing private and public finance for the Global South, as recognized in Article 6 of the Paris Agreement.

3) Carbon markets make climate action a business imperative.

Companies that utilize  carbon credits decarbonize faster, according to a growing body of evidence. The reason is simple: If you put a price on carbon, as markets do, you create an incentive to reduce emissions. Carbon markets also give companies the opportunity to take responsibility for their emissions today. In the climate crisis, we can no longer accept unabated emissions; markets offer a path forward.

4) Carbon markets protect threatened ecosystems.

The world is failing to stop tropical deforestation and to protect, sustainably manage and restore forests, grasslands and wetlands. Carbon finance creates one of the most significant opportunities to value these ecosystems and the critical services they provide for biodiversity, traditional livelihoods and regulating the climate.

5) Carbon markets address more than carbon dioxide.

Short-lived climate pollutants, like methane and hydrofluorocarbons, are super pollutants capable of producing up to 10,000 times the global warming potential of CO2. Reducing these pollutants in the near term could slow warming by half of a degree by 2050. Carbon finance offers a proven way to pay for destruction of super pollutants, permanently removing their ability to cause climate change or ozone depletion.

6) Carbon markets get many more people involved in climate action.

Around the world – from Indigenous communities and family woodland owners managing forests, to small businesses plugging orphaned oil and gas wells or collecting refrigerants, to entrepreneurs installing rooftop solar systems – carbon markets offer financial incentives for inclusive climate action. As United Nations Secretary-General Antonio Guterres said, we need “everything everywhere all at once.” Markets activate diverse parts of the economy and motivate new groups of people to get involved, providing opportunities for climate action at a small scale, which can add up to a big difference.

7) Carbon markets can benefit Indigenous People and local communities.

Carbon finance offers Indigenous stewards the opportunity to bring investment into their communities on their own terms. Leading standards recognize traditional tenure and there are a growing number of Indigenous project developers. From Indigenous villages in Guyana to Tribal carbon projects in the US, if done well carbon markets offer Indigenous People and local communities a seat at the table to generate benefits from the lands they manage responsibly.

8) Carbon markets generate a broad range of co-benefits.

Carbon projects create a wide array of additional benefits, such as biodiversity conservation, clean water and air, job creation, and energy access, which can be quantified to show progress towards UN Sustainable Development Goals. Reforestation projects can support biodiversity, clean water and economic development. Capping orphaned oil wells can improve air and water quality. For many people, these “co-benefits” are the primary motivation for using carbon markets to finance their work.

9) Carbon markets drive policy change.

Markets drive adoption of solutions that can then be used to set standards in new policies. And they create incentives to go beyond current regulatory requirements where they fall short. For example, there are estimated to be millions of orphaned oil and gas wells in the United States, the abandoned legacy of fossil fuel development. Carbon finance is paying to cap wells, stopping them from leaking methane into the atmosphere. Carbon markets also support the use of low-GWP foam and refrigerants, accelerating the transition where policies alone are not adequate. In doing so, carbon markets are driving awareness of the problems, refining solutions and showing policy makers where intervention may be needed.

10) Carbon markets offer models for the world to learn from.

On transparency, measurement, reporting and verification, carbon markets have already developed important strategies to help guide other climate actions, including corporate carbon action and implementation of Article 6 of the Paris Agreement.  All major registries have publicly available data about projects, methodologies, and emissions reduced or avoided, built on approaches subjected to public comment and peer review. Carbon markets have decades of experience for other strategies to build upon.