Leaders at COP26 have reached a deal to standardize the international carbon trading market. Some estimate that the new UN-supervised marketplace could be worth as much as $100 billion.

What is the carbon marketplace?

The carbon marketplace is where carbon credits are purchased to offset emissions through environmental projects (such as reforestation). One carbon credit equals one metric ton of carbon.

Companies use offsets when they do not have the technology needed to reduce emissions. This way, they can still operate in an environmentally friendly way while working to achieve net-zero.

Now, with a global standard in place, many expect the carbon marketplace to expand rapidly. It has boomed this year alone, reaching $1 billion (up from $300 million in 2018).

Experts predict the global carbon market could reach $22 trillion by 2050.

How will the global carbon trading market work?

There are two parts to this new agreement:

• The creation of a central system that will be open to public and private sectors; and,
• A separate, bilateral system that will allow countries to trade credits.

While some critics feel the carbon credits offered will be for low-quality environmental projects – Dirk Forrister, Chief Executive of the International Emissions Trading Association, said the outcome was “solid and ambitious,” leaving it up to the private sector to “channel green investment using these new market structures and accelerate the race to net zero.”

Why is this new system an improvement?

COP26 decision creates a global approach to standards. It will be the first-time nations have a united standard to go by – which is a significant win.

• It can help make sure identical emissions reductions aren’t claimed by numerous countries or organizations.
• Countries can now ensure that their deals are subject to the same standards across the globe.
• Companies will have a more difficult time fudging their green credentials through imported credits.

“Article 6 provides the rules necessary for a robust, transparent, and accountable carbon market,” said Kelley Kozier, Vice President for Global Climate at the Environmental Defense Fund and a former negotiator.

In addition to an improved credit marketplace, at COP26, over 450 financial institutions – representing 45 different counties, with nearly $130 trillion in assets – committed to investing green.

Progress is being made.