LDCs can leverage on carbon markets to drive development – UNCTAD
Benjamin Orisemeke
UN Trade and Development (UNCTAD) have stated that least developed countries (LDCs) can use carbon market projects to support their development, if managed well.
In the Least Developed Report 2024 launched on Tuesday, UNCTAD said it would also enable LDCs to countries to contribute to global net-zero goals and climate action
Carbon markets are platforms where carbon credits – permits to offset a specific amount of carbon emissions – are bought and sold. By participating in these markets, selling countries can earn revenue and contribute to climate action by offsetting the emissions of buyers.
Despite being among the first to join carbon markets, LDCs currently have limited influence due to the small size of their economies and challenges in infrastructure, technology and institutional capacity.
“Investing in areas like tracking and reporting require upfront investment but could greatly increase their participation and benefits,” UNCTAD said in the report.
With highly concentrated market activities, LDCs face unique challenges in accessing global carbon markets due to their smaller economies and difficulties in attracting foreign investment.
While LDCs participate in carbon markets, the financial returns are modest compared to larger sources of funding like development aid, foreign direct investment and remittances.
In 2023, the market value of carbon credits from LDCs was about $403 million, which is only about 1% of total bilateral development aid.
“With LDCs needing $1 trillion annually to achieve the Sustainable Development Goals by 2030, carbon markets alone cannot close this funding gap but can provide additional financial support at best,” it further said.
The report noted that LDCs have significant untapped potential for climate action in sectors like forestry and agriculture, which offer promising opportunities for generating carbon credits.
“This potential could equal 70% of the CO2 emissions from the global aviation industry in 2019, or about 2% of total global emissions. However, realizing this potential depends on having viable carbon prices and accessible projects.
“To make investments in land-based projects worthwhile, a carbon price of $100 per ton is needed. Currently, LDCs are only utilizing about 2% of this potential. Without significant increases in carbon prices, approximately 97% of their mitigation potential could go untapped by 2050. Therefore, a higher carbon price is essential for unlocking land-based mitigation projects.
“Additionally, LDCs have substantial opportunities for expanding renewable energy to meet local electricity needs and improve energy access. Carbon markets can help raise part of the necessary funds, providing a promising pathway to harness renewable resources, promote sustainable growth and modernize their economies,” the UN body added.
By addressing existing barriers and implementing targeted reforms, the report pointed out, LDCs can unlock their significant climate potential, create financial opportunities and upgrade their economies, while contributing to global climate action.
The report urged LDCs and their development partners to focus on enhancing the benefits of carbon markets for least developed countries by strengthen domestic framework, build regulatory capacity, implementing effective monitoring and reporting systems and ensuring that local communities benefit from carbon projects.
“Create regional institutions to lower costs and improve market positioning, leverage South-South cooperation and advocate for supportive frameworks in global climate agreements.
“Ensure development partners provide resources to help LDCs integrate carbon market policies with broader economic transformation goals. Additionally, it’s necessary to distinguish carbon finance from climate financing to enhance accountability,” the report said.
