Rasim Huseynov Managing Editor of Seamless Trade from Baku COP29
The 29th Conference of the Parties (COP29) in Baku has started on a positive note for proponents of market-based mechanisms under Article 6 of the Paris Climate Agreement. Initial discussions highlighted a strong convergence of opinions around centralised market conventions, underscoring the UN's role in establishing globally consistent carbon markets. However, progress on non-market approaches under Article 6 has been slower, revealing the unique challenges that developing countries continue to face.
European Union Climate Chief Wopke Hoekstra likely felt some relief as the Carbon Border Adjustment Mechanism (CBAM) was left off the official climate agenda, despite pressures from China, Brazil, and South Africa. Nevertheless, tensions around CBAM remain, although there is hope that emerging collaborative mechanisms will help avert conflict and steer carbon markets and tax innovations onto a more cooperative path.
In this context, influential voices—including the Organisation for Economic Co-operation and Development (OECD), International Monetary Fund (IMF), and World Trade Organisation (WTO)—have advocated for the inclusion of developing countries' interests in climate taxation models. This advocacy was prominently featured at the "Carbon Pricing as an Enabler for Investments, Innovations, and Economic Growth" event, held yesterday at the Trade and Investment Pavilion.
Carbon Markets as Drivers of Investment, Innovation, and Economic Growth
The Trade Pavilion’s launch event brought a renewed sense of optimism, spotlighting carbon markets as drivers for investment, innovation, and economic growth. This collaborative effort, organised by the Climate Leadership Council (CLC), International Chamber of Commerce (ICC), and WTO, underscored carbon pricing’s potential to incentivise green transition efforts. WTO Director-General Dr. Ngozi Okonjo-Iweala took a proactive stance, encouraging public-sector collaboration to establish shared conventions and principles for carbon markets. Her remarks emphasised the need for collective action to support the green transition, reduce inter-state disputes, and protect economic interests of developing countries during this transition.
Carbon markets present complex challenges, particularly around integrity and efficiency. With three principal designs—cap-and-trade, performance standard-based markets (similar to cap-and-trade but with predetermined performance benchmarks), and project-based credit trading (e.g., Clean Development Mechanism under the Kyoto Protocol or Sustainable Development Mechanism under the Paris Agreement)—each model has distinct strengths and limitations. Systems like the EU Emissions Trading System (EU ETS) and the UK Emissions Trading Scheme (UK ETS) showcase the advantages of cap-and-trade but also expose areas of complexity, including credit over-allocation, windfall profits, industry-specific challenges, and fraud concerns. Moving forward, the focus will be on harmonising these systems, including cap definitions, emissions allowances, carbon leakage prevention, and conventions supporting both project-based and cap-and-trade systems.
Public and Private Sector Support for Climate Mitigation Goals
Participants at the event reaffirmed their commitment to climate mitigation, showcasing unity between global public and private organisations. Canada’s Minister of Environment, Steven Guilbeault, highlighted Canada’s cap-and-trade system as a successful model, noting its adjustments to compensate economic losses incurred by industries affected by the green transition. Guilbeault underscored that cap-and-trade remains the most efficient mechanism for reducing emissions in a financially sustainable way.
IMF Deputy Director Ruud de Mooij emphasised that carbon pricing not only reduces carbon pollution but also raises revenue. He recommended allocating 30% of the revenue generated to support parties adversely affected by the green transition.
Jo Tyndall of the OECD promoted "Inclusive Carbon Mitigation," supporting voluntary carbon markets while emphasising the importance of interoperability across national policies. She noted that peer learning and transparency are essential, with integrity as a core value.
EU’s Leadership in Carbon Markets and Future Plans
Berthold Goeke, Director-General for Climate Action at the German Federal Ministry for Economic Affairs and Climate Action (BMWK), described the EU’s Emission Trading System as a "success story." However, he acknowledged that carbon leakage remains an issue, prompting the development of CBAM, which is based on the polluter-pays principle. Goeke introduced the International Climate Initiative, co-led by Brazil and Turkey, and noted that the EU Climate Club, comprising 43 member countries, would explore coordinated approaches, define green standards for industries such as steel and cement, and facilitate development through “global matchmaking” with an emphasis on inclusivity.
The Role of Trade Policy in Climate Change
Dr. Ngozi Okonjo-Iweala stressed that trade policy is indispensable in combating climate change, as it reshapes the competitive landscape. Addressing CBAM-related concerns, Dr. Okonjo-Iweala highlighted WTO’s efforts to ease tensions around CBAM. She expressed optimism over the progress made by Jean-Marie Paugam, WTO Deputy Director-General, in establishing carbon standards for the steel industry and advancing a collaborative approach to carbon standards. "Part of the revenue must go towards helping developing countries," she asserted, advocating for an approach that fosters equivalency and mutual recognition among countries.
Global Perspectives on Climate Crisis Solutions
His Excellency, President of Finland, Alexander Stubb, contextualized the climate crisis within the broader history of global power dynamics, noting the shift from a unipolar world to a multipolar balance of power. President Stubb emphasized that a “world of rules” is essential to prevent chaos, calling for regulatory frameworks that respect regional needs. He highlighted the importance of setting ambitious targets, securing financing, and fostering technological innovation, underscoring that a shared commitment to empowering developing countries is crucial for these efforts to succeed.
In the photo standing from left to right: HE Mr. Alexander Stubb, President of Finland, Dr. Ngozi Okonjo-Iweala, Director-General of the World Trade Organisation, Mr. John W.H. Denton AO, Secretary General, ICC, Ms. Tuuli Kaskinen, CEO, Climate Leadership Council
Conclusion
The event offers a hopeful outlook that, while global financial and trade organisations were originally established within a post-Bretton Woods, neo-liberal framework, they are evolving to address the unique and pressing demands of today’s climate crisis. This generational shift toward a more inclusive multilateral architecture can benefit all nations, facilitating a fair and safe transition to a sustainable future. By helping to untangle complex issues like carbon markets and fostering collaborative solutions to contentious conflicts, these institutions are laying the groundwork for a positive way forward. This framework not only amplifies the voices of developing countries but also creates organised, lawful avenues for them to contribute to and benefit from the green transition. Ultimately, COP29’s focus on multilateral cooperation offers a promising path toward a world where global development and environmental protection are harmoniously aligned.
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