An opportunity for climate action
Carbon markets mobilise funds for climate action projects. As the head of several such projects at GIZ, Sven Egbers explains how this works.
In February 2026, Kenya established a National Carbon Registry – one of the first in Africa. Developed with GIZ support, the registry tracks climate action projects that are being implemented in the country and where emissions are being reduced. Other African countries already have such registries, including Ghana, or are in the process of setting them up.
In doing so, they create a key prerequisite for the international trade in emissions reductions. The Paris Agreement allows countries to sell emissions reductions to other nations. Each country can decide for itself what it sells. But it may no longer count these reductions towards its own climate target. The registry shows where emissions are being prevented and which are being sold abroad.
Great potential in developing countries
This trade is attractive to many countries in the Global South. Here, the potential for climate action is great, but these countries lack the resources to develop it. The idea is that by selling emissions reductions, countries generate revenue whilst at the same time restructuring their economies towards sustainability.
Increasingly, this is no longer a question of basic, low-cost measures. In many places, solar and wind power are now viable even without the need for additional revenue and these reductions are usually required by countries to meet their own climate targets. Of particular interest for international trade are more ambitious projects that would not be feasible without additional funding – projects such as removing CO₂ from the atmosphere, reducing methane emissions from agriculture and waste, and climate-friendly cooling.
Industrialised countries, in turn, purchase these emissions reductions because they help them to meet their climate targets. But this does not exempt them from the requirement to significantly reduce emissions within their own countries.
How carbon markets work
In emissions trading, verified emissions reductions or CO₂ removals are assigned a financial value. The prospect of a revenue stream helps them to finance climate-friendly projects. In both cases, climate action becomes an economic factor, since more money – including private capital – flows into climate action.
Companies have been voluntarily purchasing credits for many years, in part to help finance climate action in other countries. However, trade between states as set out in the Paris Agreement is still embryonic. Switzerland was one of the first countries to conclude bilateral agreements, specifically with Thailand and Ghana. These agreements set out the framework, while quantities and prices are agreed in purchase contracts for individual projects.
Japan, Singapore, Sweden, Norway and others have also already concluded such agreements or are currently in negotiations. The most important thing is that they comply with the requirements of the Paris Climate Agreement: reductions must be real, additional and independently verified. In spring 2026, the EU also decided that from 2036 onwards it would count a limited number of high-quality international credits towards its 2040 climate target.
Moving forward step by step
This is separate from CO₂ pricing within a single country or group of countries, for which there are two instruments: the CO₂ tax, for which the state sets a fixed price per tonne, and emissions trading. The World Bank counts 87 such instruments worldwide, including 40 emissions trading schemes. Together they cover just under 30 per cent of global greenhouse gas emissions. There are now emissions trading schemes for example in the EU, China, South Korea, Japan and New Zealand. Emerging economies such as Brazil and India are also establishing their own schemes.
An emissions trading scheme sets a cap on emissions that comes down over time. Emissions allowances are issued within this limit, either free of charge or by auction. A company that emits fewer emissions than the number of allowances it holds can sell the surplus. Those that emit more must purchase additional allowances. This creates a price for CO2 and an incentive to reduce emissions where it is most cost-effective to do so.
In the long term, the vision is that the various instruments could become more closely integrated, ultimately leading to a CO2 price that is as standardised as possible. For the time being, carbon markets are evolving step by step, with some countries introducing emissions trading and others finding ways to cooperate. The key thing is that these steps result in additional climate action. And this calls for reliable rules, transparent results and institutions that monitor compliance.
GIZ’s contribution
At GIZ, we support partners across 36 countries in establishing carbon markets, in some cases through regional alliances. This support follows them every step of the way – from the provision of training for experts in government departments and companies, to the establishment of rules and institutions and the implementation of specific projects. In Ethiopia, we advised the government on legislation relating to carbon markets. The law was passed in 2026. In southern Africa, we are helping countries to set up government programmes for energy-efficient air conditioning systems that can be financed through carbon markets.
However, good regulations alone do not attract investment into a country. That is why we also provide support in implementing projects. In Thailand, for example, 30,000 rice farmers are learning cultivation methods that save methane and water. In return, they receive money from the sale of emissions reductions.
We are committed to this because high-quality carbon markets represent a genuine opportunity for increased climate action. They can mobilise new funds, including private capital, and complement – though not replace – public climate finance. Quality is key. Emissions reductions must be real and additional and they must benefit local communities so that the markets remain credible. When this is achieved, climate action becomes a business from which all sides benefit.
