UN body calls for carbon market reforms to boost development in least-developed countries

GENEVA

Carbon markets hold untapped potential for supporting sustainable growth in least-developed countries (LDCs), according to a new report from the UN Conference on Trade and Development (UNCTAD) released on Monday.

The report underlined that while carbon markets offer a promising avenue for climate action, they have so far provided only modest financial returns for LDCs, who require stronger regulatory frameworks and partnerships to benefit fully.

LDCs face challenges in accessing carbon markets due to limited infrastructure and institutional capacity, it said.

Only six of them - Bangladesh, Cambodia, the Democratic Republic of the Congo, Malawi, Uganda, and Zambia - currently account for over 75% of all carbon credits issued in voluntary markets and 80% of credits under the Kyoto Protocol’s Clean Development Mechanism (CDM).

Despite these efforts, revenue from carbon credits remains low, covering only a fraction of the $1 trillion LDCs need annually to meet Sustainable Development Goals by 2030, according to the report.

The report said there is "significant" growth potential in sectors like forestry, agriculture, and renewable energy, which could help LDCs mitigate emissions on a global scale. However, realizing this potential requires higher carbon prices, as current prices leave nearly all mitigation opportunities underutilized.

"This potential could equal 70% of the CO2 emissions from the global aviation industry in 2019, or about 2% of total global emissions," it said. "However, realizing this potential depends on having viable carbon prices and accessible projects."

It noted that a carbon price of $100 per ton is needed to make investments in land-based projects worthwhile.


"Currently, LDCs are only utilizing about 2% of this potential. Without significant increases in carbon prices, approximately 97% of their mitigation potential could go untapped by 2050," it said and added: "Therefore, a higher carbon price is essential for unlocking land-based mitigation projects."

UNCTAD also urged LDCs and their partners to prioritize three key actions: strengthening domestic regulations, enhancing international cooperation, and building capacity.

By addressing these gaps, LDCs can unlock economic opportunities through carbon markets while advancing global climate goals, it said.


Rolf Traeger, UNCTAD chief of LDC section policy analysis and research branch, told a press briefing in Geneva that greenwashing is a "major problem" that has undermined the credibility of carbon markets.


Traeger said there have been many accusations of companies and projects making claims about emissions reductions or climate benefits that do not match reality.

"The problem of this is that these repeated accusations of greenwashing have taken away the credibility of carbon markets, which largely explain both the falling carbon prices in international markets, but also the falling interests of international investors," he said.