Carbon Markets

Carbon markets are trading schemes that provide financial incentives for climate change mitigation. In these schemes, greenhouse gas emission reductions and/or removals are quantified into carbon credits that can be bought and sold, with the aim of transitioning economies to net zero by mid-century.

The supply of carbon credits may come from private or government initiatives that follow the methodologies, rules and procedures of a carbon standard or crediting program.

Carbon markets have the potential to generate substantial private investments for climate action, paving the way for a just energy transition, the protection and restoration of forests, and increased resilience to the impacts of climate change.

Many developing countries are now assessing how to strategically engage in carbon markets as a source of much needed finance to implement their Nationally Determined Contributions.

However, government decision makers face difficulties navigating the complexities of carbon markets and their potential risks. While there are various initiatives that offer support to countries, these are often pre-packaged and defined according to donor or buyer priorities. They lack the flexibility to adapt to local needs and circumstances.

Under the Climate Promise, and through its network of country offices, UNDP provides strategic holistic support to developing country governments, helping them produce high-integrity carbon credits and matching them with high-quality buyers thereby raising the bar on integrity across the board.

For UNDP, the high-integrity of carbon markets goes beyond carbon accounting and includes social and environmental safeguards to ensure that carbon market initiatives do no-harm and promote overall positive sustainable development impacts.

To ensure the credibility and effectiveness of carbon markets, UNDP is actively collaborating with global initiatives, focusing on establishing robust principles and guidelines that ensure high integrity across all types of carbon markets.

This includes engagement with the United Nations Framework Convention on Climate Change (UNFCCC) Secretariat, working on Article 6 and the two voluntary carbon market integrity initiatives, the Integrity Council for Voluntary Carbon Markets (IC-VCM) to enhance the supply side, and the Voluntary Carbon Markets Integrity Initiative (VCMI) to address the demand side, aiming to bolster transparency and accountability in these critical financial mechanisms.