Carbon markets at COP30

The task facing the 30th Conference of the Parties (COP30) is to secure a decline in global emissions, something that has eluded this body’s previous meetings. Brazil, host of this year’s U.N. climate change conference in Belém (November 10-21), is proposing a voluntary coalition of countries for integrating carbon market initiatives. What makes this a promising move is that it is a market-oriented approach—long favored by economists—to curbing emissions. But for meaningful results, major emitting nations must embrace this initiative and go further. To curb carbon emission and global warming, resulting from this huge “market failure,” there also needs to be agreements that are binding, that is, non-voluntary, at least at sub-regional levels.

In the highly politicized world of climate policy, carbon pricing and carbon markets offer an economically rigorous way forward. Economists, rightly, view the absence of a price for greenhouse gases (GHGs) as a root cause of runaway global warming. If so understood, it should be politically palatable to correct this market failure using market instruments. The pricing can be done either by levying a tax on the carbon content of businesses, as is  the case in Singapore and the province of British Columbia, or by capping emissions in an emission trading system (ETS), as in China and the European Union. Either way, carbon pricing generates revenue, adding to its political and economic appeal.

The significance of the current proposal from Brazil’s Ministry of Finance is that if the price and coverage are eventually substantial enough, the scheme would help cut emissions, as evidence from the EU suggests. But this is also the moment of truth. Some 55 national jurisdictions already price carbon either through a tax or ETS. But only 28% of GHG emissions are covered by them. Moreover, one estimate of the (emissions-weighted) average carbon price is $19/tonCO2e in 2025, which by one estimate some one-tenth of the price needed to align with the Paris Agreement goals. The lack of clarity and ambition in carbon markets is why fossil fuel use and emissions are still rising globally.

The proposal would promote unilateral tax and trade mechanisms worldwide but add a multilateral umbrella to harmonize standards and systems in global carbon markets. Uniform reporting, protocols for carbon accounting and transparency would enhance credibility and comparability, laying the groundwork for integrating different national or regional systems into a unified approach to pricing carbon.

Voluntary mechanisms for environmental protection can have a valuable role, but the experience is mixed, especially as businesses resist the cost of carbon pricing. One way forward is to add a degree of regulation while keeping the feature of free choice. This could be done by encouraging the voluntary participation of regional groupings such as the EU, ASEAN in Southeast Asia, Mercosur in Latin America in the global coalition, in addition to China and India, and eventually the U.S., as the three largest emitters—and Brazil. The regional groups could use the harmonized framework, terminology, and protocols drawn up by COP30.

The additionality, however, would be that the groups themselves would aim for binding agreements among their country members. Implementing a tiered global carbon floor price—which is what the International Monetary Fund has proposed—could ensure alignment and differential treatment for distinct income groups. Such group action also reduces country concerns over losing competitiveness vis-a-vis neighbors.

Meanwhile, for this direction to have traction, public support for carbon pricing, including from the business community, is vital. Recall that some $15 trillion was raised in a year to fight COVID-19 on the back of public support for solving the problem. A similarly strong response is needed for climate change. Furthermore, bottom-up financing by society can be just as important as top-down multilateral and government funding. After all, in transformational ventures such as the internet or AI, there were no global or government financing plans, but billions of dollars flowed in.

The last two COP presidencies, Azerbaijan in 2024 and the United Arab Emirates in 2023, were conflicted in phasing out fossil fuels. Brazil brings credibility in leading a carbon transition. In November 2024, a carbon market was signed into law in Brazil, enabling regulated emission trading. Furthermore, a decree was signed in October 2025 that allows projects that voluntarily seek international certification of credits that can be used in emission trading. The host’s commitment to carbon pricing and emission reduction is a good place to start. But especially in the divided global setting on the urgency of a climate solution, the mobilization of diverse parties to strengthen carbon markets will be key.

In a fractured climate economy, COP30 has the chance to lead worldwide climate action. That opportunity is best exercised in a market-oriented and economically sound venture to develop a global carbon market. One part of that direction relates to synchronizing standards, methodologies and incentives for carbon removal. The other essential part involves binding carbon regulation at least within regional country groups.