The end of 2024 has been a sprint to progress regulations and voluntary frameworks that will have a significant impact on carbon markets. From emissions reduction standards that will facilitate international airline emissions reductions to country- and global-level compliance markets and voluntary quality standards, the foundations for global carbon markets to scale are being established at an accelerating pace. As scientists around the world continue to sound the alarm that our collective climate action is insufficient to avoid the worst effects of global warming, there’s no time to lose in advancing both rapid emissions abatement and the scaling of carbon markets as a transitional tool toward a sustainable net zero future.

Brazil approves national compliance market for carbon emissions

In mid-November, the Brazilian National Congress approved a compliance market for the country that would impose emissions limits on heavy emitters and have the ability to trade carbon credits to meet regulatory requirements. Brazil’s President Lula subsequently approved the market for implementation in mid-December. Next year’s COP30 host country is now positioned to join a growing list of states, countries, and regional jurisdictions, including the European Union, China, Australia, New Zealand, California, and Washington, among many others, that have embraced carbon markets as a means for regulating greenhouse gas emissions and a valuable source of additional financing. Brazil’s pending compliance market is particularly important given the vast natural capital wealth and critical ecosystems contained within the country’s borders. 

IC-VCM approves new REDD+ methodologies

The Integrity Council for the Voluntary Carbon Market (IC-VCM) approved three methodologies aimed at reducing emissions from deforestation and forest degradation (REDD+) according to its Core Carbon Principles (CCPs). The approved methodologies include Verra’s VM0048 and the Jurisdictional and Nested REDD+ Framework as well as the Architecture for REDD+ Transactions (ART). The IC-VCM decision comes after years of media criticism targeting REDD+ project integrity focused on project baselines and substantiation of forest threats—criticisms that had a negative effect on broader VCM demand and pricing. The CCP-approved methodologies incorporate regional and remote-sensed data in an effort to improve baseline integrity and could lead to improved confidence in and expanded private financial support for these critical forest protection measures and the VCM as a whole. 

In mid-December, the IC-VCM approved Verra’s VM0047 afforestation, reforestation, and revegetation protocol against its Core Carbon Principles. This decision signals a mark of quality and integrity for these instrumental projects that restore degraded land and can promote biodiversity and social benefits in addition to valuable carbon sequestration. These IC-VCM decisions follow CCP approvals earlier in the year for certain landfill gas and ozone-depleting substance methodologies as well the decision not to approve renewable energy methodologies. We expect the IC-VCM to finalize its review of improved forest management and afforestation, restoration, and revegetation protocols next year.

Article 6 rulemaking finalized

Adding to November’s breakneck carbon markets news cycle, the International Civil Aviation Organization (ICAO) approved four additional standards under its Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), the regulatory mechanism for global aviation emissions. Verra, the Gold Standard, Climate Action Reserve, and the Global Carbon Council join the American Carbon Registry and ART as fully approved for CORSIA Phase 1 and could support an important expansion of future carbon credit demand as the scheme shifts from voluntary to mandatory for ICAO member states beginning in 2027. For credits to be eligible, they must adhere to Article 6 standards to avoid double-counting with national climate goals.

Rounding out November, and nine years after the Paris Agreement was negotiated, the rules for Article 6—intended to govern international carbon credit transfers—have been established. Article 6 rulemaking may be one of the most tangible wins coming out of another contentious COP that saw widespread disagreement on a range of issues, including climate finance transfers from more-developed to less-developed countries to support clean energy transitions, global stocktake planning, and statements concerning moving global economies away from fossil fuels. 

Clarity on Article 6 provisions sends a clear message that carbon markets fueled by private finance will play a key role in facilitating global ambition to counter climate change. Article 6.4 will establish a centralized UN-supervised compliance carbon market that will include standardization and validation of carbon credit projects, ensuring transparency, environmental integrity, and adherence to robust monitoring, reporting, and verification standards. The new global market is intended to replace the clean development mechanism that was initially established under the 1997 Kyoto Protocol and has faced significant criticism regarding projects that lack additionality—one of the cornerstones of high-integrity carbon markets. The rules and accepted standards for the new market will be established, and the market operationalized, in the coming years.

Article 6.2 establishes rules for bilateral and multilateral trading of Internationally Transferred Mitigation Outcomes, or country approvals to trade carbon credits and avoid double-counting of emissions reductions with host and recipient country nationally determined contributions (national climate goals under the Paris Agreement). Such cross-border trading can enable countries to meet their climate targets through international collaborations, reducing costs and promoting more efficient implementation of climate plans. A growing number of bilateral country agreements had already been established prior to this year’s COP, where progress could support a further scale-up of international carbon trading.

Future outlook for carbon market regulations and private finance

From the voluntary to country- and international-level climate rulemaking, the regulatory landscape for global carbon markets continues to take shape. Increasing clarity on the practices, protocols, and mechanisms to support high-quality and high-integrity global carbon markets is critical to mobilizing private finance at scale to support global climate objectives. Article 6 and CORSIA represent important progress toward global compliance mechanisms, and we expect increased alignment short of full convergence between compliance and critical voluntary carbon markets as integrity and quality standards align further. As 2024 comes to a close, these supportive trends and solidifying enabling conditions for all carbon markets should continue into next year and beyond.