Introduction
On 12 December 2015, the Paris Agreement was adopted. This Agreement was established to clarify and operationalize the commitments outlined in the United Nations Framework Convention on Climate Change (UNFCCC). One of its main aims is to hold “the increase in the global average temperature to well below 2°C above pre-industrial levels” and pursue efforts “to limit the temperature increase to 1.5°C above pre-industrial levels.” Another aim of the Paris Agreement is to make finance flows consistent with a pathway towards low greenhouse gas emissions and climate-resilient development. This clearly shows that climate finance is a key enabler of climate action and to achieving the goals of the UNFCCC and the Paris Agreement.
Considering the financial obligations of countries under Article 2.1 (C) and Article 9 of the Paris Agreement, parties agreed during COP 15 in Copenhagen to mobilize $100 Billion per year by the year 2020 to address the needs of developing countries in respect of climate action. In 2024, a new goal of $300 Billion, the New Collective Quantified Goal (NCQG), was agreed upon by countries despite the climate finance needs of developing countries assessed at $3 Trillion.
Carbon markets offer significant advantages by enabling countries to monetize emission reductions, attract climate finance, and support sustainable development. However, developing countries often face barriers, including insufficient legal infrastructure, lack of technical expertise, and concerns over maintaining environmental integrity. To thrive in these markets, countries need robust climate change laws, transparent registries, and strong governance mechanisms. While carbon markets may present challenges such as regulatory complexity or limited access for smaller actors, the benefits, such as increased transparency, capacity building, and market access outweigh the disadvantages. Several stakeholders have concerns about the risks associated with carbon markets which include the following: nondelivery risk, reversal risk, price risk, counterparty risk, reputational risks, invalidation risk, and political risk.
Investment platforms, both regional and national, can play a vital role in facilitating carbon market participation, especially for developing countries. These platforms bring together stakeholders, standardize procedures, and provide technical assistance, thereby enhancing readiness, reducing transaction costs, derisking the market, providing financial support and strengthening collaboration.
This paper examines the relationship between investment platforms and carbon markets in the context of climate action and the objectives of the Paris Agreement.
Overview of Carbon Markets
Generally, the carbon market allows countries, individuals or organizations to trade emission permits or credits to meet their carbon reduction goals. Carbon Credits or Emission reduction units (hereinafter referred to as carbon credits) are tradeable tangible instruments obtained from activities or projects whose outcome reduces or removes GHG emissions from the atmosphere. These credits are measured in tons of carbon dioxide equivalent (tCO2e). The carbon market allows for the trading of carbon credits which can be considered a source of financing for achieving the goals of the Paris Agreement.
Carbon markets can be categorized into two main parts which are compliance markets and voluntary markets. Compliance Markets are those that are mandated by regulations established by governments or multi-government bodies that control the supply of credits. E.g. Article 6 mechanism, Cap-and-trade, Emission Trading Systems (ETS). On the other hand, Voluntary Carbon Markets (VCM) are where businesses or individuals offset their GHG emissions voluntarily. They are regulated by bodies such as the Integrity Council for the Voluntary Carbon Market (ICVCM), Voluntary Carbon Market Initiative (VCMI), International Emissions Trading Association (IETA), Carbon Credit Registries (Verra, Gold Standards), among others.
Summary of Carbon Trading Process
First, the carbon credits are generated through projects (e.g., reforestation projects, renewable energy). They are then validated ex-ante and verified ex-post by independent international verifiers who verify the credits. These verifiers establish specific standards/methodologies and maintain a registry– this helps track all the projects operating under a given standard, how many credits they’ve been issued, who bought and retired them etc.). Examples: Verified Carbon Standards (Verra), Gold Standard, American Carbon Registry and Climate Action Reserve. The verified units are then sold to offset carbon footprints or GHG emissions. Another important aspect of this market is Corresponding Adjustment (CA) and double counting. It is critical to avoid double counting so that global emission reductions or removals are not overestimated. CA is an accounting mechanism set to avoid double counting. The selling party does not offset its NDC/ GHG inventory with the generated credits. It is the buying party that performs the offset. One challenge associated with the carbon market is the issue of double counting. Double counting can be categorized into the following: double issuance (issuance of more than one unit for the same emission reduction or removal project); double claiming (same emission reduction or removal is counted by the buyer country and at the same time by the seller country); and double use (the same unit is used twice).
As explained above, examples of compliance carbon markets include Article 6 of the Paris Agreement and Emission Trading Schemes (ETS).
Article 6 of the Paris Agreement
Article 6 of the Paris Agreement provides for international cooperation to achieve emission reduction targets. It is categorized into Market approaches and non-market approaches. Market approaches include Article 6.2 and Article 6.4. Article 6 paragraph 2 of the Paris Agreement: It allows countries to engage in cooperative approaches and transfer internationally transferred mitigation outcomes (ITMOs) to meet their Nationally Determined Contributions (NDCs). The image below shows global cooperative approaches under Article 6.2 of the Paris Agreement. Africa has only 7 host countries (Ethiopia, Ghana, Kenya, Malawi, Morocco, Senegal, Tunisia). This shows that more capacity building is required on the continent to accelerate carbon market participation.
1.1 Existing Global Article 6.2 Cooperative Approaches (Source UNDP)
Article 6 paragraph 4: It enables the generation and trading of carbon credits from emission reduction projects through the Paris Agreement Crediting Mechanism (PACM) with the goal of reducing GHG emissions and promoting sustainable development. With the PACM, the host party can issue two different kinds of ERs, which are Mitigation Contribution Units (MCUs) and Authorized Article 6.4 ERs. In the case of MCUs, the host country includes the ERs in its NDC calculation because these have not been authorized. Whereas, authorized Art.6.4 ERs are authorized by the host country for use towards NDCS or Other International Mitigation Purposes (OIMP); e.g. Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
Corresponding adjustment will be applied to Authorized Article 6.4 ERs and not to MCUs. A key feature of market approaches is that there is the application of an accounting tool, known as corresponding adjustment, to avoid double counting.
Article 6 paragraph 8: This is a non-market approach where there is cooperation to promote mitigation and adaptation without the trading of emission removals or reductions. The cooperation can be through finance, technology transfer, and capacity building. A key feature of non-market approaches is that there is no corresponding adjustment. There is a UNFCCC operated Non-Market Approach (NMA) Platform1 which serves as record and exchange information on NMAs. Each non-market approach is identified voluntarily by participating Parties, involves more than one participating Party and does not involve the transfer of mitigation outcomes. There are support providers listed on the platform who offer financial assistance, technology development and transfer, and/or capacity-building for non-market approaches. They include United Nations bodies, multilateral and bilateral donors, public sector entities, private sector organizations and non-governmental organizations. Examples of current service provides are African Development Bank (Adaptation Benefits Mechanism), United Nations Climate Technology Centre and Network (CTCN), UNCDF (Local Climate Adaptive Living Facility (LoCAL), among others. International Financial Institutions (IFIs) and Multilateral Climate Funds (MCFs) can register as service providers and use its readiness program to build capacity as well as collaborate with CTCN to provide technical assistance.
Share of Proceeds for Adaptation (SOPA) Share of Proceeds was imposed on parties participating in compliance carbon markets under the UNFCCC system was 2012 during CMP 8/COP18. A share of proceeds to assist developing countries vulnerable to climate change was set at 2% of Certified Emission Reductions (CERs) issued for project activities. The Adaptation Fund was (still is) augmented by a 2% levy while the least developed countries were exempt from this share of proceeds. In 2021, this Share of Proceeds was applied to Article 6.4 Mechanism and increased to 5%. At COP 29, Small Island Developing States (SIDS) were exempt from paying the share of proceeds unless they opted to contribute voluntarily. Currently, there has been no mandatory SOPA levied on Article 6.2 of the Paris Agreement. Parties engaging in Article 6.2 decide between each other the percentage of SOPA to be paid and its destination account or what it should be used for. For example, Ghana in its 1 https://unfccc.int/process-and-meetings/the-paris-agreement/cooperative-implementation/Article-6- 8/nma-platform/main/non-market-approaches
Environmental Protection
Act 2025 (Act 1124) has established a Mitigation Fund where a Corresponding Adjustment Fee (CAF) will be paid to. CAF is defined, in Section 155 of the Act, as the cost applied to a mitigation activity implemented in the country to create ITMOs on the Ghana Carbon Registry or any other Registry under international crediting standard to compensate for the opportunity and marginal costs associated with transfers and reporting of ITMOs. The Mitigation Fund aims to finance and support cooperative approaches, investments, and activities that enhance mitigation outcomes, scale up new initiatives, and facilitate carbon market operations. For Kenya’s Climate Change Act provides national and county governments shall, in compliance with international obligation, undertake best practices regarding the share of proceeds and cancellation rates for overall mitigation in global emissions (OMGE). Currently, the voluntary carbon market does not have a defined rule imposing the payment of share of proceeds. There are some bodies established to regulate the voluntary carbon market. The ICVCM as part of its Continuous Improvement Work Progress (to align the VCM with the Paris Agreement) is looking into Share of Proceeds for Adaptation (SOPA). Writers have suggested that VCM SOPA may be paid in cash or as credits, either via the VCM standards registry or directly to beneficiaries, such as the Adaptation Fund. This creates an opportunity for IFIs and MDBs to strategically support countries actively participating in Article 6.2 to use SOPA as a cofinancing tool to attract more finance for climate adaptation in developing countries. MCFs, other than the Adaptation Fund, could also strategically make a proposal to the ICVCM or VCMI regarding its inclusion as a destination account of the VCM SOPA.
Emission Trading Schemes (ETS)
An ETS, also known as cap and trade, is a system where GHG emissions are regulated through tradable permits. It sets a cap on the total GHG emissions allowed. Entities within the ETS must hold an emission unit (allowance) for each tonne of GHG they emit, but they can trade these units. The total number of emission units corresponds to the cap size. The carbon price is determined by the balance between demand (total emissions) and supply (available emission units). After setting the cap, the government allocates tradable permits to companies, either for free (based on past emissions or performance standards) or through auctions. The government also decides which sectors and GHGs are included, with power and industrial sectors being the most common. Carbon dioxide (CO2) is typically covered, along with other GHGs like methane (CH4), nitrous oxide (N2O), and synthetic gases (SF6, HFCs, and PFCs). As of 2024, there were a total of 38 ETS in force with the European Union ETS being the oldest and the largest in terms of trading volume and value. The EU ETS has generated a total of $206 billion since its inception with $42 billion generated in 2024.
Role of investment platforms in advancing carbon markets in developing countries.
Investment Platforms (are defined by the G20 Reference Framework for Effective Country Platforms (CPs) (2020) as voluntary, government-led mechanisms to encourage collaboration among development partners, based on shared goals. The framework outlines non-binding principles for CPs: CPs should support sustainable development and align with national policies; they must be tailored to each country’s needs and legal context; CPs aim to engage a broad range of development partners voluntarily; Collaboration is promoted through information sharing, best practices, and implementation of key standards; and ongoing monitoring helps draw lessons and improve the platforms over time. Examples of successful platforms for climate action include Bangladesh’s Climate and Development Platform, South Africa’s Just Energy Investment Plan, and Brazil’s Climate and Ecological Transformation Investment Platform. Over the years, developing countries have been limited in their quest for mobilizing finance for climate action due to cost of capital, fiscal space constraints, and increasing debt servicing. Investment platforms can play a transformative role in supporting carbon markets by facilitating strategic networks, enhancing capacity building, and enabling the derisking of carbon market systems. First, investment platforms can help bring together key carbon market networks such as the Climate Market Club of the World Bank, the MDB Working Group on Article 6, and the Africa Carbon Market Initiative to accelerate mitigation efforts of countries. By providing streamlined access to these groups, investment platforms enable collaboration, knowledge sharing, and the development of common principles and modalities under frameworks like Article 6.2 of the Paris Agreement.
These platforms can also channel resources into capacity-building efforts, leveraging programs and partnerships, such as with CTCN, to provide essential technologies and tools that help developing countries become Article 6 ready. This support not only strengthens countries’ abilities to participate in carbon markets but also benefits the implementation of broader climate finance initiatives.
Furthermore, they can help address the key risks inherent in carbon markets by offering financial instruments like loans and guarantees. These tools help to mitigate counterparty and non-delivery risks on the demand side, while also mobilizing much-needed finance for credit-generating projects in developing countries on the supply side. For instance, an MDB may lend to project developers for carbon markets, and the loan is repaid from the sale of generated credits. In these ways, investment platforms serve as catalysts for scaling up and stabilizing carbon markets, driving greater participation and impact in global climate action.
Conclusion
In conclusion, the evolution of investment platforms for carbon markets, from fragmented registries to integrated regional or national systems, represents a significant advancement in global climate finance. These platforms have moved beyond being simple transactional spaces, emerging as critical infrastructure that upholds the environmental and financial integrity of the Paris Agreement. By centralizing coordination and preventing double counting of credits, investment platforms ensure transparency and credibility in carbon trading. Their role as sophisticated de-risking mechanisms transforms carbon markets into stable environments, particularly suited to the specific needs of developing countries. By streamlining disparate projects into organized pipelines and providing the necessary technical and legal support, they lower entry barriers for local developers and offer assurance to international investors. Ultimately, these platforms not only accelerate climate finance but also help distribute it equitably, positioning developing economies as credible and secure leaders in climate mitigation efforts.