LISBON, Portugal, Nov 11 (IPS) – I have been working on climate policy since the late 1990s. I was in the room when early European carbon market discussions shaped the architecture that would ultimately underpin the Kyoto Protocol.
That framework – built around international cooperation and market-based mechanisms – emerged at a time when climate change was understood as a global problem that required global solutions. For all its shortcomings, there was an underlying logic: collective action was indispensable, and market-based instruments could leverage efficiency and scale.
Today the mood has changed. Government budgets are shrinking, geopolitical tensions are increasing and the consequences for the climate are increasing. But amid this urgency, we are witnessing a disturbing emergence of what can only be called irrationality: the willingness to entertain two or three contradictory ideas at once, even when the stakes are so high.
Take, for example, the persistent claim that carbon offsets are no longer possible under the Paris Agreement. The argument goes like this: because countries now have emissions caps under Paris, compensation somehow ceases to exist. But that is a fundamental misunderstanding. The logic of cap-and-trade – whether under the EU emissions trading system or in international markets – relies on offsetting, that is, offsetting emissions reductions elsewhere rather than reducing them at home.
Within a capped environment, compensation is perfectly possible and even desirable from an economic perspective. The problem has never been about the principle. It has to do with the credibility of certain credits, the uneven quality of supervision and the lack of transparency in certain corners of the market.
These challenges are real. But the rational answer is not to run away from these challenges. It’s a redoubling of the hard work: strengthening guidance and regulations, demanding better data, increasing transparency, calling out bad behavior and installing integrity throughout the value chain. High integrity markets are not easy, but they are possible – and they are already delivering results.
Moreover, evidence shows that international cooperation in carbon markets reduces costs each modeled region compared to countries acting alone, with potential savings of as much as $250 billion by 2030. Walking away from these benefits would be an act of self-sabotage.
The irrationality extends beyond the markets. Policymakers readily admit that public coffers are under pressure, development aid budgets are shrinking and climate is often relegated to a priority in national spending. Yet, in almost the same breath, some suggest that international mitigation can and should be financed primarily with public money rather than carbon markets.
Where should this money come from?
The data is stark: the world needs it $8.4 trillion in annual climate financing by 2030, while only $1.3 trillion was provided in the period 2021-2022. That leaves a $7.1 trillion gap today, still projected to close to $4 trillion by 2030, even under business-as-usual scenarios. Magical thinking doesn’t dismantle coal-fired power plants, stop deforestation, or scale up carbon removal.
Private financing is not only useful, but also essential. External private financing for the climate continues $30 billion per year today. By 2030, this should rise to between $450 and $500 billion annually – an increase of fifteen to eighteen times.
There is no plausible way to close the gap without mobilizing capital on this scale, and high-integrity carbon markets are one of the few tools currently available that can channel such flows directly into mitigation.
What is needed is not purity, but pragmatism. We need the full package of solutions: a portfolio approach to climate policy. Deep emission reductions must continue domestically. Rapid removals are essential to balance the carbon budget. And massive capital flows into a wide range of solutions must be scaled together.
None of these instruments alone will solve the climate crisis. Silver bullets do not exist. But rejecting viable instruments because they are imperfect guarantees failure. Delay, not imperfection, is the greatest risk.
Of course, criticism plays an essential role. Constructive criticism strengthens systems, exposes weaknesses and urges improvement. But when the criticism turns to absolutism – when markets are rejected outright, or international cooperation is cast aside in favor of isolation – it becomes self-defeating. At a time when geopolitical instability makes cooperation more difficult, walking away from available mechanisms is the height of irrationality.
I don’t claim to have the complete recipe for restoring the rationality of climate policy. But I do know this: cynicism is not a strategy, and delay is not an option. Markets, when properly governed, remain one of the fastest ways to mobilize capital for climate action at scale. Public finances, even if limited, must be managed strategically.
And international cooperation, no matter how old-fashioned, is indispensable. The future is not won by choosing one path and rejecting the other. It will be won by using every tool in the toolbox – and refusing to let irrationality lead us into inaction.
Pedro Barata is Associate Vice President of the Environmental Defense Fund
IPS UN Office
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