Hesham Eissa: COP 29 Reviving the global carbon market again

The Climate Change Conference held in Azerbaijan this year undoubtedly took place amidst complex political, climatic, and economic challenges. Regional conflicts, the outcomes of the U.S. elections, and the simultaneous G20 summit all influenced not only the presence and participation of leaders and officials but also shaped the negotiation processes and the outcomes of the conference.

On the other hand, this conference clearly highlighted the determination of developing countries to prioritize climate finance in the negotiations. They pushed not only for it to remain a top agenda item but also for achieving specific and binding outcomes that hold developed countries accountable for fulfilling their financing commitments under Article 9 of the Paris Agreement. The prolonged failure, spanning nearly nine years, to deliver the $100 billion pledged in Paris poses a significant challenge—not only because this amount falls short of the aspirations of developing countries but also due to the pressing need for a larger sum and well-defined implementation mechanisms.

The complexities surrounding the implementation of Article 6 of the Paris Agreement, which focuses on carbon markets, were another key area of focus. Developing countries strongly emphasized the need to establish clear and specific frameworks for activating carbon markets, viewing them as a critical component in addressing the challenges of climate finance.

Overall, a significant gap emerged between the positions of developed and developing countries regarding climate finance. Estimates indicate that the costed needs outlined in the nationally determined contributions (NDCs) of developing countries range from USD 5.1 to 6.8 trillion by 2030, or USD 455 to 584 billion annually. Additionally, adaptation finance requirements are projected at USD 215 to 387 billion annually until 2030. This highlights the concerning disparity between actual climate finance flows and the needs, particularly in addressing adaptation challenges faced by developing countries.

In summary, the most critical issues addressed at this conference, as previously mentioned, pertain to Articles 6 and 9 of the Paris Agreement, which focus on carbon markets and climate finance. Below are the key findings in this context:

Carbon markets ( Article 6)

The resolution addressed the activation of Article 6 of the Paris Agreement, enabling the trading of emissions between countries and entities through carbon markets. It welcomed the annual reports of the supervisory body overseeing the mechanism established under paragraph 4 of Article 6 for the years 2023 and 2024 and acknowledged its efforts to implement the mechanism in line with its mandates. This paves the way for establishing unified global frameworks for measurement, auditing, and monitoring systems, similar to those under the Clean Development Mechanism.

The unaddressed question here is whether this decision, particularly following the development of its modalities and procedures, will have an impact on the mechanisms proposed for implementing the Carbon Border Adjustment Mechanism (CBAM).

The decisions of COP29 are expected to have a nuanced impact on the implementation of the EU’s Carbon Border Adjustment Mechanism (CBAM). This year’s conference in Baku has brought CBAM to the forefront of discussions due to its significant implications for global trade and climate goals. Developing nations, particularly the BASIC group (Brazil, South Africa, India, and China), have voiced concerns that CBAM disproportionately burdens their economies, potentially undermining the principle of Common But Differentiated Responsibilities (CBDR) in the Paris Agreement. These countries advocate for a global approach that supports equitable decarbonization without compromising economic growth in developing regions

CBAM OBLIGATIONS AND SOLUTIONS

While the EU has defended CBAM as essential for preventing carbon leakage and advancing climate goals, debates at COP29 emphasized the economic strain it imposes on exporters in the Global South, particularly in energy-intensive sectors like steel, aluminum, and cement. However, COP29 discussions largely avoided formally placing unilateral trade measures like CBAM on the agenda, despite efforts from China and other nations

Overall, while COP29 has highlighted opposition to CBAM, it has not directly altered its implementation timeline or structure. These discussions could influence future negotiations, possibly pushing for enhanced financial and technological support for developing nations or adjustments in the mechanism to ensure fairer trade practices