COP26 agreement on carbon markets is a welcome boost for market integrity

CARBON markets recently received a long-awaited boost at Glasgow. Towards the close of the 2021 United Nations Climate Change Conference (COP26), more than 100 negotiators hammered out an agreement on a broad framework to enable governments and companies to enter bilateral deals to swap and trade carbon credits, which are seen as essential in the race towards net-zero emissions.

The development - after some 6 years of negotiations - is significant for a number of reasons. One, it introduces a set of standards in the current sprawl of carbon trading markets. Two, it paves the way for United Nations (UN) certification of credits, which would inject much needed credibility into markets. Three, it reflects a strong consensus on the need for carbon offsets, and a transparent pricing mechanism that should elicit confidence.

There are currently 2 types of carbon markets: a compliance-driven cap-and-trade market, and a voluntary market which allows businesses, governments and even individuals to offset emissions through the purchase of carbon credits. The voluntary markets in particular have been described as a "wild west" where methodologies and the provenance of carbon credits were seen as questionable, creating a landscape ripe for greenwashing.