I had the opportunity to attend a World Bank event at COP29 in Baku, where a particularly insightful discussion unfolded. In an era where climate change is at the forefront of political and commercial agendas globally, it was enlightening to hear Bhutan’s Prime Minister, Tshering Tobgay, shed light on a critical issue: the weak and unclear demand for carbon credits, which is stalling the entire market. "As long as demand remains weak and ambiguous, efforts to reduce emissions through the voluntary carbon credit market will fall short". He noted that the poor quality of demand undermines the quality of supply, raising concerns about potential greenwashing. His message was clear: "it’s not enough to keep changing supply regulations; we need to fix demand".
Bhutan's Example: A Carbon-Neutral Country
Known for being the world’s first carbon-neutral nation, Bhutan is a powerful example of an economy built on ecological values, even while remaining economically vulnerable. Tobgay reminded us that while Bhutan's GDP is only $2.5 billion, its natural resources are valued at over $15 billion. However, the nation receives little compensation for managing its natural heritage and sequestering CO₂: the current market system doesn’t afford Bhutan’s carbon credits a fair price.
At COP28, Bhutan launched a $50 million Climate Fund aimed at supporting mitigation, adaptation, and development projects. Yet, today, the fund remains empty. Tobgay emphasized that this issue transcends Bhutan's borders and is a global concern. If we can't support climate funds like Bhutan’s, the risk is that vulnerable countries will continue to bear the brunt of climate change without adequate support.
How Governments Can Stimulate Demand
Weak demand isn’t only a supply quality issue. Mark Kenber, executive director of the Voluntary Carbon Markets Integrity (VCMI), pointed out that many buyers are hesitant to invest in carbon credits due to concerns over project quality and potential greenwashing. He added that while some governments, like Singapore’s, allow companies to use carbon credits as part of their compliance obligations, many, especially in Europe, are still reluctant to follow suit.
This example is instructive: creating trust in the carbon credit market means governments must step in to establish clear standards that enable the use of credits within compliance systems, balancing regulatory compliance with the need to support the market.
Conclusion: The Path to Sustainability Lies in Demand
Tobgay’s words are a reminder for all participants in this global challenge: applied capitalism in green initiatives cannot be achieved through obsessive supply regulations alone. We need to stimulate real, strong, and qualified demand. Only then will we have a transparent and valuable carbon credit market, providing countries like Bhutan with the incentive to continue leading in carbon neutrality despite their modest economic footprint.
It’s time to look beyond supply rules and build a system that truly rewards those making a difference, fostering a demand that recognizes and values the efforts of nations and businesses on the front lines of the climate crisis.
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