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New rules on carbon trading will unlock billions in carbon market spending

Trading platforms are already lining up to capitalize on new rules providing greater clarity on carbon market accounting, pricing, and allocation following the close of the United Nations' most recent climate summit.

It's no surprise that energy trading marketplaces like S&P Global Platts voluntary carbon markets are angling for a slice of the market. A new report from the company estimated that voluntary carbon markets were currently valued at $1 billion and would rise to $15 billion or more by 2030, according to the Taskforce on Scaling the Voluntary Carbon Markets.

"Sunday's adoption of Article 6 has opened the door for billions of dollars of investment to flood into the Voluntary Carbon Markets over the next several years," said Paula VanLaningham, the head of carbon pricing at S&P Global Platts. "Crucially, Sunday's agreement around Article 6 creates a system that will avoid the potential double-counting of offset emissions between countries, which will help lend much-needed credibility to the emissions markets in coming years."

Other moves made by regulators at the international summit in Glasgow last week should also help smooth the adoption of voluntary carbon offsets, VanLanginham said.

Chiefly, the decision to limit the number of older credits that can be claimed in national targets, should help filter out some bad accounting and offset standards that have muddied the waters on how effective these markets could be.

Limiting the transfer of older credits will also help drive up the price of carbon offsetting and encourage businesses and nations to pursue direct emissions reductions rather than emissions offsets.

Under the new system, developing economies that produce most of the credits on the carbon market also have more choice in which offsets they sell and which they can use to meet their own national targets.

"While there is a lot of work to be done to ensure that the Voluntary Carbon Markets are able to play the role they need to play to meet the objectives of the Paris Climate Agreement, the adoption of Article 6 – long one of the most contentious, unsolved complications of the Treaty – ensures that there is a confirmed role for the market moving forward," VanLaningham said. "This unlocks the potential for a heavy, and much needed increase in green financing for climate projects that can make a real difference in the fight against global heating."

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