Fragmented carbon markets, especially voluntary offsets, lack the credibility and scale needed to drive global decarbonisation. A proposal for an opt-in, unified global compliance carbon market could reduce emissions cost-effectively while channelling finance to lower-income countries.
Editor's note: This episode of VoxDevTalks is available on Spotify and Apple Podcasts.
Carbon markets are expanding rapidly around the world, but they remain fragmented, unevenly regulated, and – particularly in the voluntary space – lack credibility. In this episode of VoxDevTalks, Robin Burgess and Rohini Pande discuss their draft proposal for a unified carbon market, explaining why today’s patchwork of systems may be insufficient for the scale and speed of decarbonisation required, and outlining how a single, opt-in global compliance market could work in practice.
The conversation begins by clarifying what a carbon market is meant to do.
“The purpose of a carbon market, and we are going to be talking specifically about compliance carbon markets, is to have a mechanism to ensure that the total emissions of the set of players who are in the market is kept below a certain cap”. Pande
In this model, firms can trade “the right to emit a certain amount of carbon”. The promise is that, by allowing trading, the market finds the least-cost path to reaching the cap.
Burgess points to the strongest existing proof of concept: the EU Emissions Trading System. He argues the evidence is “pretty overwhelming” that trading has lowered emissions significantly within covered sectors: “some saying up to 50% lower than had there not been a carbon market”. The implication is that carbon markets can work at scale when rules are clear, enforcement is credible, and the system is designed around a binding cap.
Why existing carbon markets fall short
Despite the EU ETS, multiple national and regional schemes, and a vast voluntary market, a crucial gap remains in global carbon markets. Pande draws a sharp distinction between compliance systems and voluntary offsets. While compliance markets can reduce emissions for covered sectors, the voluntary carbon market – often used for forestry, cookstoves, and other project-based credits – has structural weaknesses that prevent it from delivering the scale the climate challenge demands.
A key issue is that the voluntary market is not truly a unified market with a single price. Pande describes it as “a set of bilateral trades” where buyers negotiate “some bespoke price” for each product. More fundamentally, it is not connected to any binding emissions limit: “There is no emission cap in this market”. Demand is largely reputational – driven by firms wanting to appear climate-responsible or individuals seeking to compensate for flying – rather than being anchored to an economy-wide decarbonisation pathway.
The consequence is fragile trust. Pande notes weak regulation, inconsistent standards, and poor transparency – conditions that allow wildly different prices for similar claims.
What ‘high integrity’ really requires
Integrity isn’t a branding exercise: the system must treat all emissions and all reductions under the same enforceable rules. The proposal argues that scaling climate finance and emissions reductions requires moving beyond offsets as a special category. Instead, forests and renewables should enter the same system as industry through political jurisdictions, with a single tradable instrument.
In Pande’s framing, a forested jurisdiction would participate by defining a baseline trajectory – how much forest it would have lost – and then being able to profit by reducing deforestation and selling permits. Crucially, this is not offsetting against a separate cap; it is participation in one shared cap.
“So that would then be a market that doesn't have offsets and permits. It would have a single product or permits. Everyone will enter through jurisdictions and be held to the same rules”. Pande
Burgess adds that the goal is to retain what voluntary markets attempted – international trade in nature-based and renewable-based reductions – while fixing the credibility problem through standardisation and verifiable measurement. Without that, he argues, the market simply cannot function.
Why a unified global carbon market is needed
The case for going global rests on two realities. First, climate physics does not care where emissions are cut. Pande puts it plainly: “It doesn't matter where these greenhouse gas emissions come from”. Second, the world faces a shortage of climate finance. With limited funds available, the rational approach is to buy the cheapest abatement first – and much of that is in lower-income countries, both for renewables deployment and nature-based solutions.
Pande argues that a unified market can channel financing efficiently from richer jurisdictions with higher abatement costs to poorer jurisdictions with lower-cost opportunities:
“You need to be transferring money from rich countries to lower income countries, and a unified global carbon market can let you do that”. Pande
Burgess echoes the urgency, noting that even if all current national pledges were met, warming targets would still be missed. The central aim is “bending the curve” of global emissions now, creating space for innovation to lower costs later.
“It’s imperative that we start to bend now, rather than to wait”. Burgess
How the opt-in compliance market would work
A central ‘pillar’ of the proposal is an opt-in compliance market. Participation is voluntary – but once a jurisdiction opts in, it commits to the common rules and to a global emissions cap that declines over time. Burgess emphasises the logic: if a market is not compliance-based, it cannot guarantee a shrinking cap.
“Because if it's not a compliance market, you can't have a cap that reduces basically”. Burgess
Pande walks through the mechanics: a regulator sets a total emissions limit (a cap), issues permits equal to that cap, and requires that covered participants hold permits matching their emissions. Trading then allows flexibility – those with cheaper abatement reduce emissions and sell permits, while those with higher costs buy permits. This is how markets exploit differences in costs to reduce emissions at minimum expense.
The proposal’s key move is to bring renewables and nature-based sectors in as full participants rather than as offset providers that sit outside the cap. Pande warns that offsets without a cap can undermine the system by effectively expanding allowable emissions:
“Where's the cap on that that just effectively increases the amount from 100 to 110”. Pande
To avoid this, the market must “see the full emissions profile of all market players… and then have the entire cap move down over time”.
The institution designed to make trust scalable
The second pillar is a new institution called Marvin – named after the robot in The Hitchhiker’s Guide to the Galaxy. In this proposal, Marvin is “a centralised, independent institution” responsible for measurement, reporting, verification, accounting standards, and risk management – especially for renewables and nature-based projects where uncertainty and buyer risk have historically undermined confidence.
Marvin differs from existing voluntary registries in two important ways:
- Independence and centralisation reduce conflicts of interest that arise when the same entities verifying credits benefit from selling them.
- Marvin takes risk seriously as a contract design problem.
Pande argues that credibility depends on “how to price risk and how to write contracts that let you price risk”. If payments occur upfront but performance is assessed later – particularly around additionality – buyers need protection. Marvin would define the contracts and liability structures so that if promised outcomes do not materialise, sellers face enforceable consequences:
“If additionality is not sustained, you are now liable to pay back the buyer”. Pande
Growth, climate finance, and political feasibility
A recurring theme is development. Both guests argue the unified market could mobilise investment for emerging and developing economies by lowering the cost of capital and creating a new revenue stream tied to verified emissions reductions. Burgess stresses that proceeds are controlled by jurisdictions and can fund broader priorities – education, health, infrastructure – while still operating within a falling global cap. It is not simply altruism; it is mutual benefit:
“It's advantageous to the country that is buying that project because it's getting a cheaper abatement technology than is available in its own political jurisdiction, and for the country that's selling, it's getting a source of finance that would not have existed without the market”. Burgess
On feasibility, the guests acknowledge not everyone will opt in immediately – particularly petro-states and the US. But they see momentum elsewhere. Pande highlights a COP30 political signal: President Lula’s announcement of an “open coalition for compliance carbon markets”, with multiple major jurisdictions expressing interest. Burgess argues that a “sandbox approach” could help early adopters build interoperable systems now, rather than creating incompatible registries that cannot trade later.
The episode ends with a note of urgency and cautious optimism. The world is not yet bending the global emissions curve, but the speakers believe a credible, unified compliance market – paired with robust measurement and risk management – could accelerate emissions reductions and unlock the finance needed for a rapid transition.
“You can't just hope for the best is one way of describing it. You need to actually do everything you can now on as many fronts as possible that will have impact on that global emissions curve”. Burgess