Carbon Markets – Trade, Climate, and Net Zero Pathways: Scenarios and Implications for Developing Countries and Climate-Resilient Development

The document provides an overview of three types of carbon markets: compliance-based, voluntary, and multilateral-based (Article 6 of the Paris Agreement). It highlights the growth of government-led markets, which generated $104 billion in 2023, while noting the severe integrity crisis and subsequent investment decline in voluntary carbon markets. The author discusses how countries manage competitiveness through tools like free allowances and output-based pricing, and details the emerging landscape of Article 6 bilateral agreements. For developing countries, the report identifies a tension between the need for climate finance and the risks of 'greenwashing' and fiscal instability.

• Government-led mandatory carbon markets have seen significant growth, with total revenues exceeding $100 billion for the first time in 2023, reaching a total of $104 billion.
• Current carbon prices are generally considered too low to meet the goals of the Paris Climate Agreement; the OECD estimates that 58% of the approximately 40 billion tonnes of greenhouse gas emissions covered by market measures were unpriced.
• Voluntary carbon markets have faced a crisis of confidence due to 'greenwashing' and lack of integrity, with an investigation finding that over 90% of credits from Verra, the world's largest certifier, were 'worthless'. This led to a drop in investments of over 60% since 2023 and a price decrease of more than 70% to $3.50/tCO2e.
• Article 6 of the Paris Agreement establishes three mechanisms for international cooperation: decentralized bilateral agreements (Article 6.2), a centralized UN-supervised mechanism (Article 6.4), and non-market cooperation (Article 6.8). To date, roughly 140 pre-feasibility project agreements for bilateral cooperation have been signed.
• To mitigate the competitiveness risks for energy-intensive, trade-exposed sectors, governments employ various strategies: the EU has used free allocation of allowance permits and the Carbon Border Adjustment Mechanism (CBAM), while Canada and China utilize output-based pricing systems.
• Developing countries are increasingly adopting carbon markets, with Uruguay currently holding the world's highest carbon price at $154/tCO2e. However, these countries face significant fiscal pressures, including sovereign debt servicing that rose from $99 billion annually before COVID to over $136 billion in 2023.

APA

Vaughan, S. (2024). Carbon Markets – Trade, Climate, and Net Zero Pathways: Scenarios and Implications for Developing Countries and Climate-Resilient Development. Forum on Trade, Environment, & the SDGs. https://lyrical-cormorant.files.svdcdn.com/production/assets/images/Publications/TESS-Briefing-Note-Carbon-Markets-Net-Zero.pdf?dm=1729155973

Chicago

Vaughan, Scott. Carbon Markets – Trade, Climate, and Net Zero Pathways: Scenarios and Implications for Developing Countries and Climate-Resilient Development. Forum on Trade, Environment, & the SDGs, 2024. https://lyrical-cormorant.files.svdcdn.com/production/assets/images/Publications/TESS-Briefing-Note-Carbon-Markets-Net-Zero.pdf?dm=1729155973.

Wikipedia

{{cite report |last1=Vaughan |first1=Scott |title=Carbon Markets – Trade, Climate, and Net Zero Pathways: Scenarios and Implications for Developing Countries and Climate-Resilient Development |publisher=Forum on Trade, Environment, & the SDGs |date=October 2024 |url=https://lyrical-cormorant.files.svdcdn.com/production/assets/images/Publications/TESS-Briefing-Note-Carbon-Markets-Net-Zero.pdf?dm=1729155973 |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{vaughan2024carbon, author = {Vaughan, Scott}, title = {{Carbon Markets – Trade, Climate, and Net Zero Pathways: Scenarios and Implications for Developing Countries and Climate-Resilient Development}}, institution = {Forum on Trade, Environment, \& the SDGs}, year = {2024}, month = oct, url = {https://lyrical-cormorant.files.svdcdn.com/production/assets/images/Publications/TESS-Briefing-Note-Carbon-Markets-Net-Zero.pdf?dm=1729155973}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }