Image Credit: “Concept of sustainable development,” available at Yahoo Images (11/08/2024).
Carbon markets offer the potential to drive economic growth and mobilize funds for sustainable development in the world’s most vulnerable economies. For least-developed countries (LDCs), these markets provide an opportunity to engage in global climate initiatives, though the benefits remain uncertain. While LDCs could gain from technology transfer, community development, and education, the actual impact of carbon markets is unclear. Stronger systems and clearer frameworks are needed to ensure LDCs can fully benefit.
LDCs have significant untapped potential in sectors like forestry and agriculture, which could generate substantial carbon credits. If fully utilized, these sectors could offset as much as 70% of the CO2 emissions from the global aviation industry in 2019, or about 2% of global emissions. However, realizing this potential depends on viable carbon prices, such as those seen in the European Union Emissions Trading System, and accessible, well-structured projects like those under the Kyoto Protocol’s Clean Development Mechanism.
Currently, LDCs use only about 2% of their land-based mitigation potential. Experts argue that a carbon price of at least $100 per ton is necessary to make these investments worthwhile. LDCs may leave 97% of their mitigation potential untapped by 2050 without a price increase. Higher carbon prices are essential to unlocking this potential and reducing environmental footprints.
In addition to land-based projects, renewable energy offers another avenue for LDCs to meet local electricity needs and improve access to energy. Expanding renewable energy infrastructure can foster economic development and reduce reliance on fossil fuels. Carbon markets can help raise the necessary funds, enabling LDCs to modernize their energy sectors, promote sustainable growth, and contribute to global climate goals.
UNCTAD has identified critical priorities for LDCs and their development partners. First, strengthening domestic frameworks is crucial. LDCs must build regulatory capacity to support carbon market participation, implement effective monitoring and reporting systems, and ensure local communities benefit from carbon projects. This will create a transparent market environment that encourages investment.
Second, expanding international partnerships is vital. LDCs must collaborate with other countries to lower costs and improve their position in the global market. Creating regional institutions to support carbon credit systems can boost competitiveness and reduce transaction costs. South-South cooperation, which involves sharing resources and knowledge among developing nations, will also strengthen LDCs’ capacity to compete in the carbon market. Additionally, LDCs must advocate for more supportive frameworks in global climate agreements.
Finally, prioritizing capacity-building is essential. Development partners must provide resources to help LDCs integrate carbon market policies with broader economic goals. Financial support and technical assistance are necessary to build the expertise and infrastructure for successful participation. It is also crucial to distinguish carbon finance, which supports carbon mitigation projects, from general climate financing to ensure greater accountability in the allocation of funds.
Carbon markets can significantly contribute to LDC development, but barriers such as technical expertise gaps, high transaction costs, and limited access to international markets must be addressed. By strengthening domestic frameworks, expanding international partnerships, and prioritizing capacity-building, LDCs can unlock their climate potential, attract financial resources, and drive economic modernization while contributing to global climate action. With these efforts, the benefits of carbon markets can be shared more equitably, fostering sustainable development and improving livelihoods in the world’s most vulnerable nations.
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