WB: COP29 in Baku clarified rules for cross-border carbon credit trading

The Independent High-Level Expert Group on Climate Finance estimates that by 2030, there will need to be a global investment of USD 6.3 to 6.7 trillion per year to support decarbonization, build resilience to rising impacts of climate change (including extreme weather), and protect nature and biodiversity, Report informs referring to the World Bank.

Around USD 2.4 trillion of this must go toward emerging markets and developing economies other than China. Meeting this increased investment requires additional financial resources from governments (USD 800–900 billion), businesses (USD 1–1.18 trillion), and other international or multilateral sources (USD 490–610 billion). For governments, mobilizing additional revenue through effective taxation and strategic public finance management will be key to creating the fiscal space necessary to meet broader development priorities.

While carbon pricing helps generate public revenue, carbon credit markets can mobilize private capital and channel public finance. Carbon credit markets have an important role in raising private capital. They have the potential to act as a vehicle to channel private capital to development projects that reduce or remove emissions from the atmosphere.

This includes, for example, planting new forests and promoting technology adoption in low-income countries, such as the use of clean cookstoves. For example, an estimated USD 14 billion was raised in Q1–Q3 of 2024 toward developing new carbon credit projects globally, with the highest share dedicated to nature-based removal projects.

The recent agreement on international carbon markets at the 2024 Conference of the Parties of the United Nations Framework Convention on Climate Change (COP29) in Baku, Azerbaijan, could help advance market participation and has the potential to stimulate greater investment flows to low-income countries. This agreement provides clarity on the rules for cross-border transfers of carbon credits under Article 6 of the Paris Agreement. With the agreement in place, focus will transition to operationalization, which will require building countries' capacities-from setting up institutional and regulatory frameworks to deploying market infrastructure, such as registries.

The confirmation of UN-administered carbon markets has opened an alternative avenue for market participation, which is significant given the increased scrutiny over the integrity of voluntary carbon markets in recent years.

At COP29, the final rules for Articles 6.2 and 6.4 of the Paris Agreement were approved, providing legal and operational certainty for international carbon credit trading. Specifically, procedures for the authorization of Internationally Transferred Mitigation Outcomes (ITMOs) and the application of corresponding adjustments after the first transfer were agreed upon.

Key standards for the new Paris Agreement Crediting Mechanism (PACM), including carbon removal methodologies and projects, were also approved. In February 2025, a temporary PACM registry was approved, allowing for the issuance and accounting of credits until the full launch of the system.

The future supply of carbon credits will be generated by the transition of Clean Development Mechanism (CDM) projects to the PACM, which currently number approximately 1,500, as well as by over 1,000 new initiatives demonstrating wide geographic diversity, including increased participation from sub-Saharan Africa.