The evolution of global carbon markets is underway but are they ready to scale? At a recent event organised by ZERO13 with the involvement of CMS, Financial Markets Insights and Green Bond Corporation in London, financial markets climate experts gathered to explore the future of carbon trading, Paris Agreement Article 6 frameworks, climate finance developments and the role of technology in transforming fragmented carbon market infrastructure and systems.
Despite progress, challenges in governance, technology adoption and market clarity still hinder carbon markets from reaching their full potential. The panelists with audience participation explored these challenges and the potential solutions which address this with moderation by Hirander Misra, CEO of ZERO13. The panel was comprised of Chris Ostrowski, Founder and CEO, SODA; Professor Lisa Wilson, Global Head of Strategic Partnerships, Green Bond Corporation; Simon Puleston Jones, Founder & Managing Director, Emral Carbon; Audrey GOLDSTEIN, Director, Carbon Markets Development, Standard Chartered; and Alex Hitchcock, Director, EY-Parthenon. So, what are the barriers – and the solutions – that could unlock carbon markets to more effectively support global climate goals?
Fragmentation and the Article 6 opportunity
The panel began by discussing Article 6 of the Paris Agreement, which introduces two key pathways:
- Article 6.2 allows countries to exchange emissions reductions and removals through bilateral, country to country agreements using InternationallyTransferred Mitigation Outcomes (ITMOs).it also covers the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA).
- Article 6.4 sets the stage for a centralised UN-backed framework to harmonise voluntary markets, enabling countries to trade reductions in carbon emissions in a manner that goes beyond zero-sum offsetting.
While these frameworks show promise, implementation remains slow. Many countries lack regulation or capacity to engage effectively in carbon trading, leaving projects stuck at the starting line. One panellist stressed that “most countries need to learn to walk before they can run.”
However, there’s reason for optimism. As one expert noted:
“No market was born overnight. The carbon market has made leaps and bounds in just a few years—aviation schemes are starting, frameworks are taking shape. It needs time to mature.”
The consensus? Article 6 is a significant milestone but not a silver bullet. National regulation, bilateral partnerships and voluntary markets must work in tandem.
Manual markets in a digital age: technology to the rescue?
A recurring theme was the lack of digitalisation in carbon markets. Despite rapid technological advancements, many carbon transactions still rely on spreadsheets and WhatsApp – a shocking revelation for markets worth billions.
Technology isn’t the barrier, but adoption is. Many registries lack APIs, and interoperability, leaving markets fragmented. “Imagine,” a panellist quipped, “financial markets functioning without Bloomberg or Reuters – that’s where carbon markets are today.”
Technology such as Digital Measurement, Reporting and Verification (DMRV) tools that enable real-time tracking of carbon projects are also essential tools to support market integrity and value. One panellist shared an example where digital traceability (provenance) for a climate project attracted a three-times price premium for associated credits.
The solution? Governance and data standards. A unified digital backbone connecting registries, markets and verification tools is essential to drive interoperability, transparency and trust.
Industries under pressure: shipping and energy in focus
The shipping industry emerged as a prime case study of market pressure and decarbonisation challenges. Under the EU ETS, shipping firms that fail to surrender allowances are liable to an excess emissions penalty of 100 Euros per tonne of CO2 and are still liable for surrender of the required allowances. Failure to comply for two or more consecutive periods may result in the ships of the company being banned from trading in the EU. Yet pathways to scale solutions remain unclear.
The panel emphasised that industries must transition to cleaner fuels, invest in technology and leverage carbon markets as a backstop for unavoidable emissions. One speaker called for a transformation:
“We need to turn ships into the Teslas of the seas. But the industry isn’t yet equipped for that leap.”
In Africa, the energy paradox adds another layer of complexity. Countries like the Democratic Republic of Congo rely on renewable energy, meaning their grids lack carbon intensity—a prerequisite for traditional carbon projects. The result? Africa risks being locked out of carbon finance flows that could fund critical infrastructure.
The solution? Synergistic public and private market financing mechanisms operating in tandem as opposed to siloes in a manner which also addresses risk versus return adequately to incentivise those who put in the finance.
Redefining additionality: Turning barriers into opportunity
The conversation around “additionality” sparked debate. Traditionally, carbon credits are awarded only for activities that would not happen under “business as usual.” While this principle ensures environmental integrity, it often stifles profitable, impactful solutions.
One speaker challenged the notion:
“Why can’t we reward profitable activities that also reduce emissions? Financial and environmental outcomes don’t have to be mutually exclusive.”
The panel called for a broader, pragmatic view of additionality—one that includes financial and social benefits, particularly in developing economies.
Unlocking capital: The role of financial markets
Scaling carbon markets requires unlocking traditional capital flows. Innovative financial instruments—such as sovereign green bonds and structured products backed by carbon assets—can mobilise the trillions needed for climate action.
However, institutional investors remain hesitant, citing market fragmentation and a lack of standardisation. One speaker summarised the issue:
“We assume corporates and investors understand carbon markets, but they don’t. We need to speak their language, create familiar instruments and make carbon an asset, not a cost.”
The solution? Better aligning the carbon markets with financial markets through innovative financial tools and trading instruments.
What’s next?
The panel concluded with a clear message: carbon markets are on the cusp of transformation, but fragmentation, technology adoption and inconsistent standards are challenges to scaling, specifically:
- Greater technology adoption to enable real-time tracking, traceability and transparency
- Standardised methodologies to improve market integrity and fungibility
- Financial innovation to unlock capital flows into emerging markets
- Redefining additionality to reward impactful solutions, regardless of profitability
While challenges persist, the outlook remains positive. As one panellist noted:
“The carbon market won’t mature overnight, but clear rules, technology and collaboration will get us there.”
The future of carbon markets lies in breaking down silos – between technologies, industries and nations, to drive a unified, transparent and scalable system for global climate action.
