Can the Global South align the world’s carbon markets?

Carbon markets were supposed to put the tools of capitalism to work solving climate change. Attributing a cost to greenhouse gas emissions and making them tradeable would allow countries to develop, while working together to avoid planetary collapse.

Today, there are dozens of different markets, each with very different standards, procedures and pricing. Long-held ambitions to unify them globally remain unrealised.

Now, Brazil is chairing a new international body that is attempting to make the world’s disparate carbon markets understand one another: the Open Coalition on Compliance Carbon Markets (OCCCM). Launched in May, it has set out to align monitoring, accounting and integrity standards among carbon markets, while also balancing Global South diplomatic priorities against schemes long established elsewhere. It faces a steep challenge.

Catherine Wolfram, a professor of applied economics at the Massachusetts Institute of Technology (MIT) in the US, says having groups of countries discuss carbon pricing is a “huge step”. Wolfram has conducted research into these ideas as part of the Harvard-MIT Global Climate Policy Project, modelling what could happen if 21 countries and the European Union coordinate carbon prices. Published last year, its findings included a sevenfold increase in emissions cuts and an additional USD 185 billion in annual revenue.

However, previous attempts to establish such “climate clubs” have floundered. Global South countries fear the mechanism would be used as a ratchet by rich countries to introduce a flat global carbon price, which would be punitive for industry in the developing world. The lack of trusted cross-border emissions accounting is another obstacle.

Plans for the OCCCM were first announced last year in Brazil at COP30, the UN Framework Convention on Climate Change’s flagship annual summit. This week, a group of nations including Brazil and China agreed to accelerate the OCCCM’s development during the China Carbon Market Conference, which is taking place in the eastern city of Wuhan. Brazil also hopes to explore whether China could become a buyer of its carbon credits at the conference, with the goal of announcing a bilateral carbon market accord in time for COP31 this November.

The OCCCM’s ultimate success will depend on how well Brazilian diplomats can navigate the interests of a disparate group of members and some fiendishly difficult technical challenges.

Carbon market challenges

As of April this year, 87 carbon pricing policies were being implemented by governments worldwide, according to an annual review by the World Bank. These policies are split between carbon taxes levied on emitting companies, and cap-and-trade systems. The latter allows companies to trade so-called carbon credits with each other to offset emissions. Together, they currently cover nearly 30% of global emissions, and raised USD 107 billion in 2025.

Yet the differing priorities of developed and developing countries means these markets remain strikingly unequal: carbon costs about USD 68 per tonne in Europe and Central Asia but USD 4 in Latin America. The disparity risks companies simply offshoring their emissions to somewhere cheaper. It also prompted the European Union to introduce its Carbon Border Adjustment Mechanism (CBAM), which charges importers a levy equivalent to that paid by those within the EU Emissions Trading System.

With the OCCCM, Brazil is ultimately aiming to align how emissions are measured across different energy systems and economies. In Wuhan, Brazil will argue that once markets recognise each other’s rules, border adjustment mechanisms like the CBAM will become unnecessary.

The coalition’s terms of reference commit members to strengthen monitoring, reporting and verification, improve carbon accounting and explore high-integrity credits. They also stipulate the exploration of “options to promote long-term interoperability of regulated carbon markets”. In practice, that means integrating dozens of national systems: some that cap emissions; some that tax them; and some, like India’s new scheme, based on baselines and carbon credits.

The design of the OCCCM is pointedly not punitive. Unlike the EU’s CBAM, which the G77 bloc and China fear will stunt their industries, the OCCCM is not aiming for tariffs. Instead, it will focus on how emissions are measured, verified and accepted across borders.

Brazil’s two-year test

Brazil’s leadership here can be seen as a continuation of its COP presidency, and an ambition to be a global leader on climate action. But its own carbon market, the Brazilian Emissions Trading System (SBCE), is still being designed. Trading is not expected until 2030. Critics say this is undermining Brazil’s aim to lead a carbon markets revolution.

Wolfram says Brazil’s credibility ultimately rests on delivery at home: “I think it needs a functioning market.” She points to October’s presidential election: if the incumbent president, Luiz Inácio Lula da Silva, does not win, the SBCE could be suspended or dismantled.

President Lula of Brazil, between appointments at COP30 in 2025. His country’s own carbon market is still being designed and trading is not expected until 2030 (Image: Kiara Worth / UN Climate Change, CC BY NC SA)

“Brazil has always been a great player in climate negotiations,” says Júlia Cruz, Brazil’s national secretary for the green economy, decarbonisation and bioindustry. “We want to ensure we continue to contribute to the climate debate with a vision of economic development and – especially in the case of the [OCCCM] – as a formulator of technical standards.”

A fix for fragmented markets

Last year’s Harvard-MIT report proposed minimum carbon prices that would be graduated by a country’s income, with support for poorer nations and, eventually, joint border measures. But it remains unclear whether it will be possible to gather consensus around such ambitious measures.

The declaration adopted at COP30 does not contain any numbers at all. According to Florentine Koppenborg, an environmental and climate policy academic at Germany’s Technical University of Munich, this indicates “Brazil did not have the power to get all the countries on board with this idea initially.”

Cruz opts to describe a broader perspective: “Harmonising – or eventually revising or abandoning – border adjustment mechanisms is a long-term endeavour, but one of fundamental importance for our exports.”

Who really calls the shots?

While China and the European Commission will serve as OCCCM co-chairs underneath Brazil, these formal roles may underplay their ultimate influence. “The EU is one of the most advanced policymakers in this area,” notes Milan Elkerbout, director of the International Climate Policy Initiative in Washington DC. “Its experience makes it very well placed to lead on this topic.”

Some experts fear this outsized influence could lead to the European Union trying to dictate proceedings. “I really hope that the EU is not trying to export their own rules,” says Koppenborg. “Strategically, it would be very unwise if the European Union tried to export their own system using a Global South label.”

Its influence, however, stops short of control. The coalition’s agreements are “not a body of international law”, says Elkerbout; the EU “will really try to influence what the open coalition says about anything [regarding] monitoring, reporting and verification, and interoperability, but it’s not like it can impose it”.

Brazil, meanwhile, aims to shape “the international technical standards for measuring and controlling emissions, so that the comparative advantages of our industry … are recognised internationally,” Cruz says.

Forest fires in Trairão, northern Brazil. Deforestation and land use change are among the main sources of greenhouse gas emissions in the country (Image: Marizilda Cruppe / Amazônia Real, CC BY NC ND)

The EUR 500 million pledged by the EU under its trade deal with India to help decarbonise steel and aluminium – two target sectors of the CBAM – is “exactly the kind of north-to-south climate finance in support of industrial decarbonisation that we think something like the coalition could systematise,” says Wolfram.

The empty chair in Washington

The most conspicuous absence is the United States, which has endorsed neither the declaration nor the coalition. This is even though seven of the countries that signed the declaration account for more than two-thirds of US goods exports, according to an analysis by the US policy think-tank the Niskanen Center, published in December. It means the US could end up being heavily penalised for not participating.

Wolfram calls this absence clarifying: it proves the need for “processes in addition to the COP and the UN Framework Convention on Climate Change … a group of like-minded countries and not all 190-plus signatories”. That said, if the US came back, she adds, it would be “transformative to the momentum of the coalition”.

The trend for border measures is growing regardless. Britain’s levy takes effect in January 2027; Australia and Canada are developing their own systems. Türkiye is already discussing a carbon border adjustment for its emissions trading scheme, Wolfram notes. Without coordination, the Harvard-MIT group warns, the world faces “a fragmented patchwork of border carbon adjustments and compliance standards that complicates trade relations”.

Ultimately, Koppenborg says, the OCCCM will only be considered a success if it can convert words into action: “This would be a failure if, after two years, they are still just sharing experiences.”