Reflections: Future of carbon markets and climate finance transformation

The overarching message? Collaboration is non-negotiable. No single country, industry, or financial institution can address sustainability challenges in isolation. The economic divide between the Global North and South in accessing climate finance must be addressed through equitable policies, scalable technology solutions, and improved governance.

Carbon markets at a crossroads: Scaling with integrity

Carbon markets, while continuing to evolve, continue to face significant hurdles with respect to transparency, credibility and scalability. Article 6 of the Paris Agreement – finally ratified at COP29 – presents a framework for international cooperation, yet many countries still lack the necessary regulations, infrastructure and technological capabilities to engage effectively. At the same time, not all major economies have signed up to the Paris Agreement, with the US having withdrawn (again) on 20 January, following the change in Administration.

Following COP29, a survey conducted by ZERO13 found that 88% of respondents emphasised the need for greater transparency, reduced fragmentation, and equitable funding in voluntary carbon markets with many respondents highlighting the growing importance of blockchain, AI and IoT in enhancing transparency and increasing system interoperability. 

A lack of industry standards – and standardisation – with respect to carbon credit verification, pricing mechanisms and regulatory frameworks inhibits liquidity and impacts investor confidence. Technology is increasingly being seen as the missing link in overcoming these barriers. 

Digital Measurement, Reporting, and Verification (DMRV) tools are now being integrated into carbon credit issuance, making credits traceable and verifiable in real time. Blockchain- backed carbon registries and AI-driven sustainability analytics will redefine how carbon credits are assessed and traded.

Closing the climate finance gap: Need for innovative investment models

There remains an urgent need to address the $4.2 billion annual climate funding gap. Despite climate finance commitments from governments and corporations, this significant funding gap remains—particularly for developing economies in the Global South. Traditional capital markets may perceive climate investments in the Global South as high-risk, resulting in the inequitable distribution of funding between the Global North and South.

To close this gap, financial markets must consider more innovative investment models such as:

• Blended finance models combining public and private sector investment to de-risk projects.
• Carbon credit tokenization to create new investment vehicles and increase liquidity
• Green bonds and impact-driven financial instruments aligning investor returns with measurable environmental and social outcomes.

To drive fairer distribution of benefits, more equitable, benefit-sharing frameworks are needed such as Community Development Funds and participatory project development programs that help redirect a fairer share of carbon credit revenues to local populations.  These frameworks foster economic growth and environmental progress, addressing disparities and scaling climate solutions for the benefit of all stakeholders.

Leveraging emerging technologies to build trust and confidence

The adoption and increasing integration of AI, blockchain and quantum computing technologies is a critical factor in revolutionising carbon markets and climate-first sustainability initiatives:

• AI-powered sustainability analytics enhance real-time emissions tracking and underpin predictive modeling strategies.
• Blockchain-backed carbon credit verification strengthens transparency, mitigating double counting and greenwashing.
• Quantum computing‘s ability to process vast climate datasets has the potential to unlock new efficiencies in climate modeling, risk assessment and financial forecasting.

At Davos, one session in particular “Climate Scale Up Deal Day” showcased how Google and EY use blockchain to tackle carbon credit verification challenges. The message is  clear—technology will play a defining role in ensuring the credibility and efficiency of global carbon markets.

From debate to action: Role and influence of global forums

COP29 in November 2024, and the more recent annual World Economic Forum in Davos, both highlighted the urgency of shifting the climate action dial from talk into tangible actions.  These global gatherings increasingly serve as catalysts for bridging policy gaps and mobilising capital investment; at Davos in particular there was a lot of discussion around the intersection of AI, blockchain, and quantum computing technologies as a key driver in transforming carbon markets and climate projects, particularly with respect to greater project validation, verification and transparency – in turn supporting more effective and equitable capital allocation.

Breaking down barriers:  Call for collaboration and unified action

The overarching reflection? Climate sustainability and carbon markets are at an inflection point and we must shift from debate to meaningful action to meet sustainability targets and goals.  While technology, regulatory and policy harmonisation and greater rigour around climate project verification and validation are key drivers of change, collaboration is critical and non-negotiable. No single country, industry, corporation, business or financial institution can tackle sustainability challenges in isolation. 

Collaboration and harmonisation—across policies, markets, and technologies – are essential to addressing climate finance disparities in inequalities. With the right frameworks in place and a commitment to collaboration, we will begin to see more meaningful outcomes and impacts with respect to addressing the climate crisis and making economic progress in developed and developing countries. The economic divide between the Global North and South in accessing climate finance must be addressed through equitable policies, scalable technology solutions, and improved governance. By embracing digital solutions, financial innovation and cross-sector collaboration, we can transition from fragmented and inconsistent mechanisms to a unified, trusted, and impactful climate finance system.