LISBON, Portugal, Nov 11 2025 (IPS) - I have been working on climate policy since the late 1990s. I was in the room when Europe’s early carbon market discussions were shaping the architecture that would eventually underpin the Kyoto Protocol.
That framework—built around international cooperation and market-based mechanisms—was born at a time when climate change was understood as a global problem requiring global solutions. For all its flaws, it carried an underlying logic: collective action was indispensable, and market-based tools could harness efficiency and scale.
Today, the mood has shifted. Public budgets are shrinking, geopolitical tensions are rising, and climate impacts are accelerating. Yet in the midst of this urgency, we are witnessing a troubling rise in what can only be called irrationality: a willingness to hold two or three contradictory ideas at once, even when the stakes are so high.
Take, for example, the persistent claim that carbon “offsetting” is no longer possible under the Paris Agreement. The argument goes like this: because countries now have emissions caps under Paris, offsetting somehow ceases to exist. But that is a fundamental misunderstanding. The very logic of cap-and-trade—whether under the EU Emissions Trading System or international markets—rests on offsetting, i.e. compensating emissions reductions elsewhere rather than reducing at home.
Offsetting is perfectly possible and even desirable, from an economic perspective, within a capped environment. The problem has never been with the principle. It has been with the credibility of particular credits, the uneven quality of oversight, and the lack of transparency in certain corners of the market.
These challenges are real. But the rational response is not to walk away from these challenges. It is to double down on the hard work: strengthen guidance and regulation, demand better data, increase transparency, expose bad behavior, and install integrity across the value chain. High-integrity markets are not easy, but they are possible—and they are already delivering results.
What’s more, evidence shows that international cooperation on carbon markets reduces costs in every 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 markets. Policymakers readily admit that public coffers are stretched thin, that development aid budgets are shrinking, and that climate is often being downgraded as a priority in national spending. Yet, in almost the same breath, some suggest that international mitigation can and should be financed primarily through public money rather than carbon markets.
Where is this money supposed to come from?
The data are stark: the world needs $8.4 trillion in climate finance annually by 2030, yet just $1.3 trillion was provided in 2021–2022. That leaves a $7.1 trillion gap today, still projected at nearly $4 trillion in 2030 even under business-as-usual scenarios. Magical thinking does not decommission coal plants, stop deforestation, or scale carbon removal.
Private finance is not just helpful, it is essential. External private finance for climate remains around $30 billion per year today. By 2030, that must rise to between $450 and $500 billion annually—an increase of 15 to 18 times.
There is no plausible pathway to close the gap without mobilizing capital at this scale, and high-integrity carbon markets are one of the few tools available right now that can channel such flows directly into mitigation.
What is needed is not purity, but pragmatism. We need the full suite of solutions—a portfolio approach for climate policy. Deep emissions cuts must continue at home. Rapid removals are essential to balance the carbon budget. And massive flows of capital to a wide range of solutions must scale together.
None of these tools alone will solve the climate crisis. There are no silver bullets. But rejecting viable tools because they are imperfect guarantees failure. Delay, not imperfection, is the greater risk.
Of course, criticism plays an essential role. Constructive critique strengthens systems, exposes weaknesses, and pushes for improvement. But when critique tips into absolutism—when markets are dismissed outright, or international cooperation is brushed aside in favor of isolation—it becomes self-defeating. At a time when geopolitical instability makes cooperation harder, walking away from available mechanisms is the height of irrationality.
I do not claim to have the full prescription for restoring rationality to climate policy. But I do know this: cynicism is not a strategy, and delay is not an option. Markets, when well-governed, remain one of the fastest ways to mobilize capital at scale for climate action. Public finance, though limited, must be directed strategically.
And international cooperation, however unfashionable, is indispensable. The future will not be won by choosing one path and discarding the others. It will be won by using every tool in the toolbox—and refusing to let irrationality steer us toward inaction.
Pedro Barata is Associate Vice President, Environmental Defense Fund
IPS UN Bureau
