Climate finance and international coordination on carbon markets were core areas of discussion at the first UN Climate Week of 2025 in Panama City on 19–23 May. Panama Climate Week gave a platform to outline concrete steps toward implementing the New Collective Quantified Goal (NCQG), established at COP29 in Baku last November. This goal aims to triple annual climate finance for developing countries to USD 300 billion, and to scale total public and private climate finance to at least USD 1.3 trillion per year by 2035.
Coordinated action is essential. For example, lessons from the Clean Development Mechanism1 — the first global carbon credit scheme of its kind — can inform future efforts, while expanding technical assistance will help countries participate more effectively in international carbon markets. Equally important is aligning a country’s Nationally Determined Contributions (NDCs) and National Adaptation Plans (NAPs) with broader investment strategies. This alignment enables better coordination across government ministries and fosters meaningful engagement with the private sector.
Carbon markets and implementation of Article 6 of the Paris Agreement were the focus of multiple sessions in Panama Climate Week – notably cooperative approaches under Article 6.2 and 6.4. These approaches can channel funding for projects aimed at mitigating the effects of climate change and create revenues that can support broader sustainability goals. For example, compliance carbon markets have raised over USD 373 billion in revenues since 2007, and almost USD 70 billion in 2024.2 Moreover, over half of these funds has been directed for financing climate and nature-related programmes.3
What are carbon markets?
Carbon markets are trading systems where carbon units or credits are auctioned, sold and bought. Companies can use carbon credits to comply with a regulation in the case of a compliance market or to compensate their GHG emissions under a voluntary scheme.
One carbon unit or credit is equal to 1 ton of CO2e reduced or removed from the atmosphere.
Compliance markets are established and regulated by mandatory national, subnational or international level. The Authority sets quantity restrictions on GHG emissions for individual liable emitters and allows trading of emissions allowances/permits between the emitters to meet their caps. Examples of compliance markets include the EU Emissions Trading Scheme and California’s cap-and-trade system.
Voluntary markets are decentralised markets where private actors voluntarily buy and sell carbon credits that represent removals or reductions of their GHG emissions in the atmosphere.4
Article 6 and carbon markets⁵⁶⁷
Article 6 of the Paris Agreement sets out alternatives for international cooperation to meet climate goals and unlock finance to support developing countries. Article 6 also enables the participation from the private sector, subnational governments and other stakeholders to channel finance towards NDC targets.
Articles 6.2 and 6.4 relate to market-based mechanisms and provide rules for trading carbon credits from GHG emissions reductions internationally.
- Article 6.2 – lays out the accounting rules for cooperative approaches where Parties establish bilateral agreements for achieving their NDC; and also sets the basis for the trade of Mitigation Outcomes (MOs). These MOs can be transferred from a Host country to another country as an Internationally Transferred Mitigation Outcome (ITMO) and authorised for use towards their NDC goals.
- Article 6.4 – establishes the Paris Agreement Crediting Mechanism (PACM) as a new UNFCCC mechanism that can be used to trade high-integrity carbon credits (A6.4 ERs) at the national or international level.
What are the key challenges for scaling up carbon markets?
- Reducing uncertainty and raising integrity by ensuring that carbon credits indeed deliver ambitious, real, additional and verified GHG emissions reductions or removals.
- Setting out clear and transparent processes to avoid double counting of GHG emissions reductions or removals.
- Developing standards and methodologies for measuring GHG emissions reductions including how to estimate baseline emissions and accounting for carbon leakage – these standards have been agreed under the PACM.
- Embedding robust social and environmental safeguards – especially related to the protection and benefit of Indigenous Peoples and Local Communities (IPLCs).
Through a long process to review and agree the rules for operationalising such mechanisms, the UN Subsidiary Body has now adopted several guidelines and processes around the Paris Agreement Crediting Mechanism (PACM) under Article 6.4, to guide how to measure impact on GHG emissions reductions and to ensure that carbon credits issued under the PACM are ambitious, real, additional, and verifiable. The processes adopted also provide more clarity on roles and responsibilities for Parties to the Paris Agreement and other organisations, including spaces for capacity building to help countries build the systems they need to take part in the mechanism.8
These technical elements aim to provide certainty to scale-up a major source of financing for emerging economies. For instance, in Latin America, 12 out of 17 countries have explicitly included Article 6 cooperative approaches as a tool for achieving their Nationally Determined Contribution (NDC) goals.9 Although each country will define how and when they will participate, there is a general expectation that Article 6 offers significant potential for scaling up climate finance. Countries such as Chile and Panama have already begun developing national institutional arrangements and undertaking technical assessments to decide their approach for engaging in Article 6.
Robust data will, as ever, be a basic element for transparency in GHG emissions reporting and environmental integrity for carbon markets operating under Article 6. However, many countries in Latin America face common challenges for implementing solid Monitoring, Reporting and Verification (MRV) systems, including, lack of technical skills and knowledge, lack of adequate technological systems and infrastructure and limited human resources. As such, capacity building and collaboration across Parties and stakeholders can be a unique enabler facilitating the uptake and implementation of Article 6, with regional and global collaboration platforms and networks becoming increasingly relevant. An example of this is the Carbon Pricing in the Americas (CPA) platform, a Pan-American initiative (which the Carbon Trust is a partner to) that brings together national and subnational governments seeking to promote carbon pricing as a central policy for ambitious climate action and green recovery post COVID-19.
It is important to get this right. Article 6 provides an important window for harnessing untapped mitigation opportunities – especially those that require significant investment, not least for energy transition. This has brought the attention of a broader array of stakeholders to carbon markets. At UN Climate Week, Honduras announced that it no longer plans to develop coal fired power plants – meaning that no country in Latin America has additional coal-based energy developments in the pipeline. Maintaining energy provision and access will require investment in other energy sources instead, notably renewable energy sources. Institutional investors and the private branches of multilateral development banks (MDBs) are showing more interest in market-based mechanisms to help achieve this. IDB Invest, for instance, has expressed their interest in using them to support countries to phase out coal.
The road to COP30 will require substantial work and collaboration for a successful outcome. The discussions and progress made at the first UN Climate Week this May indicate a positive outlook – notably through the engagement from countries and interest from other stakeholders in participating and collaborating in high-integrity carbon markets. It is critical that similar progress is achieved at the discussions at SB62 meetings in Bonn this month and in the future UN Climate Week over the next few months.
1 The Clean Development Mechanism | UNFCCC
2 Emissions Trading Worldwide: ICAP Status Report 2025
3 World Bank State and Trends of Carbon Pricing 2024
4 Integrity Council for the Voluntary Carbon Market
6 Article 6 of the Paris Agreement | UNFCCC
7 SPAR6C Article 6 Fact Sheets: Key Concepts and Background | SPAR6C
8 Key Rules Agreed for Credible Climate Project Crediting under UN Carbon Market | UNFCCC
