The Future of Carbon Trade: COP29 Commitments and Implications for Global Markets
Authors: Uday, Kartik and Suhani
(Research and Development Dept.)
Introduction
Every year, the United Nations organizes ‘The annual Conference of Parties’ (COP) which serves as a crucial platform for global cooperation and action on climate change. This year, COP29, hosted by Azerbaijan from November 11 to 22 in Baku, focused on advancing the Paris Agreement targets and promoting a comprehensive energy transition. The summit emphasized the urgency of addressing climate change and reminded the critical need to "invest today to save tomorrow." The conference's key areas of focus include climate finance, adaptation and resilience strategies, and cooperative climate action under Article 6 of the Paris Agreement. COP29’s goals highlighted the shared global responsibility to accelerate action in combating climate change.
Objectives of COP29
● Climate Finance: Establishing a robust financial framework for climate mitigation, adaptation, and resilience. A renewed focus on the $100 billion annual pledge to support developing nations will be central. COP29 aims to develop new financial mechanisms that prioritize equitable distribution, ensure accountability, and unlock private sector investments to scale up climate action in vulnerable regions.
● Mitigation and Adaptation: Introducing innovative strategies to curb greenhouse gas emissions while adapting to the inevitable impacts of climate change. COP29 will emphasize enhancing regional collaboration, deploying nature-based solutions, and scaling climate-smart infrastructure to strengthen resilience against extreme weather events and other climate-related risks.
● Article 6: Article 6 of the Paris Agreement addresses international cooperation for reducing greenhouse gas emissions through mechanisms like carbon trading and credits. COP29 will aim to resolve contentious discussions surrounding its implementation, such as ensuring transparency, accountability, and equitable access to carbon markets. A significant focus will be on creating a framework for a global carbon market that enables both developed and developing nations to trade emissions credits while maintaining environmental integrity. Additionally, COP29 will discuss measures to prevent double counting of emissions reductions and provide guidance on how revenues from carbon trading can support climate adaptation in vulnerable countries. By fostering international collaboration under Article 6, COP29 seeks to encourage innovation and investment in low-carbon technologies while ensuring a fair and inclusive transition for all.
● Technology Transfer: Promoting the exchange of eco-friendly technologies to strengthen global mitigation efforts. COP29 will aim to eliminate barriers to technology access, foster public-private partnerships, and incentivize research and development in clean energy and sustainable practices to accelerate global adoption.
● Global Stocktake: Assessing collective progress toward Paris Agreement targets and identifying areas for improvement. The stocktake will provide an opportunity to evaluate emissions gaps, highlight best practices, and create actionable roadmaps for countries to achieve more ambitious climate goals, ensuring accountability at all levels.
Implications for Global Markets
COP29 has become famous as the “Finance COP” as the primary theme was to adopt more firm carbon pricing mechanisms. As climate policies evolve, businesses and economies face both challenges and opportunities. COP29’s outcomes could significantly impact global markets across sectors:
1.Global Trade
With the rise of carbon border adjustment mechanisms (CBAMs), trade dynamics may shift as countries adopt stricter environmental standards. Low-carbon production methods will gain a competitive edge, while high-carbon industries in developing regions may face increased costs or reduced market share. Additionally, there could be new market opportunities for countries that innovate with sustainable products and processes.
2.Financial Systems
Financial institutions will need to integrate climate risk assessments into their portfolios. Transparency in emissions disclosures and the growth of green bonds and ESG investments will shape global financial systems. Investors will increasingly prioritize green assets, driving capital toward low-carbon industries.
3.Key Industries
● Energy Sector: The transition from fossil fuels to renewables will accelerate, with greater investment in carbon capture and storage (CCS), green hydrogen, and battery storage technologies.
Unlike traditional sources, which can produce a steady output of energy, renewable sources are dependent on natural conditions that fluctuate over time. To address this intermittent nature of renewable energy, innovations in battery storage systems enable large-scale energy storage to provide a reliable power supply even when solar or wind energy production is low. This will improve the stability of renewable energy grids and reduce reliance on fossil fuel-powered backup systems.
● Transportation & Shipping: Policies could drive innovation in electric vehicles, hydrogen-powered aviation, and green shipping technologies.
For instance, The UK government has committed to a "Jet Zero" strategy, which includes investments in hydrogen-powered aviation technologies and Companies like ZeroAvia are working on hydrogen fuel cell-powered aircraft, with successful test flights already conducted. We also saw a significant rise in the EV market as electric vehicles are becoming popular worldwide.[1]
● Agriculture and Land Use: Sustainable farming practices, agroforestry, and methane reduction strategies will reshape the agricultural sector.
In countries like Kenya and Rwanda, agroforestry is being promoted as part of sustainable development projects by the government.[2] Farmers plant trees alongside crops to enhance soil fertility, reduce erosion, and increase resilience to climate change. These projects are supported by organizations like The World Agroforestry Centre (ICRAF).
● Manufacturing and Industrial Sectors: High-emission industries like steel and cement will face increasing operational costs, necessitating green technologies and circular economy models.
Here is an example of a very well known steel industry, ArcelorMittal, which announced that it plans to reduce carbon emissions by 25% by 2030 and to achieve net-zero emissions by 2050.[3] To do this, they are investing in innovative green technologies like hydrogen-based steel production and working to develop circular economy models for steel recycling.
4. Implications for Investment Strategies and ESG Focus:
New investment strategies will increasingly favor companies that are proactive in their sustainability efforts. As a result, companies with sustainability practices and low-carbon footprints will attract more investors.The expansion of carbon pricing and emissions trading will drive innovation in clean technologies. Startups and established tech companies working on solutions like electric vehicles, energy storage, AI for energy optimization, and low-carbon building materials will likely attract investors and will see a rise in their growth.
Regional and Stakeholder Perspectives
The perspective of companies and their stakeholders is taken into account in the conference.
Global business as stakeholder
Large corporations not only influence global supply chains but also shape consumer demand and investment trends. At COP29, businesses will be expected to demonstrate leadership by implementing net-zero commitments and investing in sustainable practices. This includes setting science-based targets for reducing emissions, adopting circular economy models, and prioritizing renewable energy use in operations. Additionally, businesses will need to collaborate with suppliers, especially in emerging markets, to lower emissions across the value chain. Corporations that proactively adopt these measures can gain a competitive advantage, enhance brand reputation, and attract environmentally conscious investors and customers.
India as a regional stakeholder
India’s rapidly growing economy and industrial base make it both a major emitter and a critical player in global climate action. India is the third-largest emitter of CO2 in the world, after China and the United States, with around 7.3% of global carbon emissions as of 2021.[4] According to the Global Carbon Project, India’s emissions in 2021 were approximately 2.88 billion tons of CO2.[5]
At COP29, India is likely to advocate for stronger financial and technological support from developed nations to accelerate this transition. With an ambitious target of 500 GW of renewable energy capacity by 2030, India is also committed to reducing its carbon intensity by 45% from 2005 levels. Following are ways which India can include to reduce its carbon emission expanding its solar energy initiatives, such as the International Solar Alliance, and enhancing energy access in rural areas through decentralized renewable systems. Furthermore, India will emphasize the need for equitable global policies that balance development goals with climate.
Figure by https://theprakritistory.com/indias-commitments-on-carbon-emission-cut-during-the-cop26-climate-summit/
UNFCCC
The UNFCCC plays a central role in ensuring that all nations, irrespective of their economic status, have a voice in global climate discussions. At COP29, the organization will push for a renewed commitment from developed countries to fulfill their $100 billion annual pledge to support developing nations. The UNFCCC will also emphasize creating mechanisms that allow the efficient allocation of these funds to address the most urgent needs, such as adaptation and resilience. Beyond financing, the UNFCCC will work on fostering partnerships between governments, private sectors, and civil society to implement equitable and inclusive climate solutions. By ensuring accountability and transparency, the UNFCCC aims to bridge the gap between commitments and action.
Conclusion
COP29 represents a pivotal moment in the fight against climate change. As nations came together in Baku, they prioritized applicable commitments to decrease carbon emissions, finance climate initiatives, and share clean energy technologies. The meeting highlighted the urgency of supporting vulnerable nations through equitable financial aid and technological collaboration. Policymakers should prioritize expanding carbon pricing, incentivizing green technologies, and enhancing international cooperation. Industries must adopt sustainable practices and innovate for a low-carbon future. By working collectively, COP29 can pave the way for a sustainable future, ensuring that the actions taken today safeguard the planet for generations to come.
Citations and references
Pivhal, U., Shiv, S., & Yadav, K., (2024). The Future of Carbon Trade: COP29 Commitments and Implications for Global Markets. New delhi. Available from:
What is COP29? (n.d.). https://cop29.az/en/conference/what-is-cop29
Wikipedia contributors. (2024, December 10). 2024 United Nations Climate Change Conference - Wikipedia. https://en.wikipedia.org/wiki/2024_United_Nations_Climate_Change_Conference
COP29 Presidency launches initiatives to focus global attention and
accelerate climate action. (n.d.).
COP29 Presidency Launches Initiatives to Focus Global Attention and Accelerate Climate Action
https://www.pwc.com/gx/en/issues/esg/cop29.html?WT.mc_id=GMO-CLM-CLM-FY25-NZT-COP29-T9-CI-XLOS-WBP-GMOS00051-EN-PSEGL-T1&gclid=EAIaIQobChMItOeSnLrtiQMVbaNmAh10iA4yEAAYASAAEgJgtvD_BwE&gclsrc=aw.ds
[4] Energy Tracker Asia. https://energytracker.asia/
United Nations. (n.d.). COP29: Investing in a livable planet for all | United Nations. https://www.un.org/en/climatechange/cop29
https://theprakritistory.com/indias-commitments-on-carbon-emission-cut-during-the-cop26-climate-summit/
[1] Hammond, G. P. (2021). The UK industrial decarbonisation strategy revisited. Proceedings of the Institution of Civil Engineers - Energy, 175(1), 30–44. https://doi.org/10.1680/jener.21.00056
[2] https://doi.org/10.1051/cagri/2018019
[3]Climate action | ArcelorMittal. (n.d.). https://corporate.arcelormittal.com/climate-action
[5]Global Carbon Atlas. (2023, December 5). Carbon Emissions - Global Carbon Atlas. https://globalcarbonatlas.org/emissions/carbon-emissions/
Citations and references
Pivhal, U., Shiv, S., & Yadav, K., (2024). The Future of Carbon Trade: COP29 Commitments and Implications for Global Markets. New delhi. Available from:
What is COP29? (n.d.). https://cop29.az/en/conference/what-is-cop29
Wikipedia contributors. (2024, December 10). 2024 United Nations Climate Change Conference - Wikipedia. https://en.wikipedia.org/wiki/2024_United_Nations_Climate_Change_Conference
COP29 Presidency launches initiatives to focus global attention and
accelerate climate action. (n.d.).
COP29 Presidency Launches Initiatives to Focus Global Attention and Accelerate Climate Action
https://www.pwc.com/gx/en/issues/esg/cop29.html?WT.mc_id=GMO-CLM-CLM-FY25-NZT-COP29-T9-CI-XLOS-WBP-GMOS00051-EN-PSEGL-T1&gclid=EAIaIQobChMItOeSnLrtiQMVbaNmAh10iA4yEAAYASAAEgJgtvD_BwE&gclsrc=aw.ds
[4] Energy Tracker Asia. https://energytracker.asia/
United Nations. (n.d.). COP29: Investing in a livable planet for all | United Nations. https://www.un.org/en/climatechange/cop29
https://theprakritistory.com/indias-commitments-on-carbon-emission-cut-during-the-cop26-climate-summit/
[1] Hammond, G. P. (2021). The UK industrial decarbonisation strategy revisited. Proceedings of the Institution of Civil Engineers - Energy, 175(1), 30–44. https://doi.org/10.1680/jener.21.00056
[2] https://doi.org/10.1051/cagri/2018019
[3]Climate action | ArcelorMittal. (n.d.). https://corporate.arcelormittal.com/climate-action
[5]Global Carbon Atlas. (2023, December 5). Carbon Emissions - Global Carbon Atlas. https://globalcarbonatlas.org/emissions/carbon-emissions/
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