How Carbon Markets Can Deliver to the Front Lines of the Climate Crisis

Nations across the Global South are facing a searing dilemma, and the choices they make will impact us all.

As the destructive power of climate change causes ever-greater damage, we must reduce the pollution that’s causing it. At the same time, these developing countries need to grow their economies—a process that for decades in the Global North meant pouring climate pollution into the atmosphere. It’s imperative that we find ways for emerging economies to grow without adding a lot more pollution, and that takes deep pockets.

The money to get this done resides mostly in the private sector. Carbon markets—a much debated but indispensable tool for financing climate solutions—are one key to unlocking the funds.

They work like this: Companies buy carbon credits, which provide funds for specific activities, like producing clean energy or protecting forests that absorb carbon emissions. If the markets are designed right, and follow principles for high integrity carbon credits, they deliver funding to those on the front lines of the climate crisis.

In Guyana, where local leaders call forests the “lifeblood” of their communities, funds from carbon credits are visibly benefiting communities. They’re helping to repair wharves to get kids to school, supporting disabled village members, and creating new local jobs through village ecotourism. All 242 of the country’s Indigenous villages are benefiting.

In Ghana, another nation readying itself to sell high quality carbon credits to support forest conservation and sustainable development, community leaders see the value as well. They have called carbon markets important for smallholder farmers, building resilience, and reducing carbon pollution.

The good news is that carbon markets are growing and maturing. Here are three reasons why.

Carbon markets can help fill the climate finance funding gap. Despite repeated pledges of financial support from high-polluting nations, they haven’t delivered what they promised. And even if they did, it wouldn’t be nearly enough to support the urgent action that’s needed. That makes carbon markets a critical source of financing.

They would unleash billions to build renewable energy, conserve forests, and other necessary investments.Of course, carbon markets must be in addition to financial pledges made by governments, not a replacement for them.

Carbon markets can help us close the emissions gap faster. We’ve made progress on clean energy, but we’re nowhere near achieving the climate goals that scientists say are necessary. Carbon markets can help by lowering the cost of emission reductions—by investing in developing countries—and speed up the pace of action. International carbon trading could achieve about 40% more emissions reductions compared to nations acting without this global cooperation.

Carbon markets help the most vulnerable places. In many countries across the tropics, proceeds from carbon markets promote forest-friendly economies and sustainable development. That’s good for communities that are often the most vulnerable to climate impacts.

Let’s not sugarcoat it: Markets have not always been well designed. Low carbon prices have shortchanged those trying to make progress. And there have been human rights abuses. We can’t ignore these problems, or everyone loses.

But after years of hard work, the markets are establishing improved guidance for projects and programs that benefit people and the climate. New provisions will ensure markets work with and for Indigenous peoples and local communities. Market reforms are also tracking with the long-standing efforts of leading countries, like Costa Rica and Ghana, to align with the U.N.’s Paris Agreement.

Realizing the potential of carbon markets

So yes, carbon markets have huge potential, but what’s needed to realize it?

First, we need to find more ways for markets to use private and public funding. They’re already on a path to conserving forests with support from the LEAF Coalition, a public-private initiative. Carbon markets will soon be supporting countries’ clean energy transitions through initiatives like the Energy Transition Accelerator. We need more innovative ideas like these.

Second, more companies must act to reduce their own climate pollution while also investing in high quality carbon credits. And their carbon credit purchases should be priced fairly and benefit people most impacted by the climate crisis.

Finally, the environmental community should vocally support companies that take these steps and adhere to best practices—especially those on the forefront of climate action. If companies see support from environmental groups and beyond, more are likely to join this effort.

Climate change won’t wait for us to win a consensus for bolder action. And we can’t afford to ignore any tool that will lead to faster progress. Carbon markets can provide billions of dollars towards climate solutions and support equitable and just economic development. Now is the time to act.

Krupp is the president of the Environmental Defense Fund