Carbon Market Updates to Expect at COP28 This Week

More than 195 nations will meet in Dubai this week for the annual United Nations Climate Change Conference, known as COP28.

The United Arab Emirates is hosting this year’s two-week summit, scheduled to run from November 30 to December 12. While complex political topics will dominate the agenda at COP28, technical discussions will also provide a sense of progress toward a global carbon market, according to KraneShares.

Carbon markets will be a featured topic in the negotiations, though with a lower political profile than at previous COPs. The focus on carbon markets has shifted to technical implementation since Article 6 of the Paris Agreement was approved at a high level in 2021, according to KraneShares.

The Article 6 Supervisory Body has been meeting all year to draft rules that will govern how the UN will assess and approve methodologies for calculating emissions reductions from projects that generate carbon credits, per KraneShares. If COP gives its consent, the first methodologies could be signed off by the UN next year.

Carbon Market Updates

There is relatively little in the COP28 agenda that directly impacts compliance cap-and-trade markets. However, progress in developing Article 6 rules has led to several countries setting up their own mandatory market systems.

According to KraneShares, a regulated carbon credit market has started in Indonesia. Meanwhile, Malaysia, Vietnam, Brazil, and Japan are also working to set up nationwide compliance markets.

The new markets set up trading in carbon offset credits. That is in contrast to cap-and-trade allowances like RGGI, California, and the EU ETS. The new markets allow companies to invest in projects or buy credits from eligible projects and retire them. Conversely, cap-and-trade allowances enable buying permits from a supply pool, per KraneShares.

Investors can get access to the California Carbon Allowances cap-and-trade carbon allowance program via the KraneShares California Carbon Allowance ETF (KCCA). Meanwhile, the KraneShares European Carbon Allowance Strategy ETF (KEUA) provides exposure to the European Union Allowances program.

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