Carbon Markets and the Cost of Emissions: Who Really Pays?

Picture Earth as a massive ship listing in increasingly turbulent seas. For centuries, industrialized nations have pumped greenhouse gases into our atmosphere—like water flooding the lower decks—by burning coal, oil, and gas on an enormous scale. Today, that accumulation of carbon is triggering more violent storms, melting icecaps, and rising sea levels. In 2015, the Paris Agreement was a global alert, calling for us to patch the leaks by aiming for net-zero emissions by 2050. But stopping new leaks alone will not suffice for a ship that is already half-submerged; we also need to bail out the water that has pooled below deck.

The question of who should bear the burden of climate action and its costs is deeply fraught, and one proposed solution is the creation of carbon markets. In such markets, companies and governments (and sometimes individuals) can purchase “carbon credits” to offset their emissions. Each credit represents one ton of CO₂ that has either been prevented from entering the atmosphere—by protecting threatened forests, for instance—or removed from it altogether via reforestation or agroforestry. If implemented fairly and with transparency, these markets could direct funds from heavy emitters to essential climate solutions. Yet, without the right checks and balances, they can also become little more than a license for polluters to claim green credentials while continuing to emit unchecked.

A helpful metaphor for understanding the injustice at the heart of climate change is a birthday cake, one that represents the planet’s finite store of natural resources—forests, minerals, fresh water, and fertile land that fuel economic growth. Historically, wealthy nations like the United States, the United Kingdom, and Germany devoured most of this “cake,” using it to build their industrial might. In many cases, they drew not only on their own resources but also on those in their colonies and spheres of influence. Meanwhile, many developing nations were left with crumbs, coming to the table late or not at all. Now that the entire planet faces a climate emergency, those who consumed the largest slices of cake first are insisting everyone go on a strict diet, even though poorer regions never had a fair shot at economic development in the fossil-fueled age.

This unfairness is not just theoretical. Since 1850, the United States alone has emitted over 509 gigatonnes of CO₂—about 20% of global historical emissions—amassing tremendous wealth in the process. Major European powers share in this historical responsibility; Germany and the UK, for instance, account for roughly 4% and 3% of total emissions, respectively, not including what they emitted overseas under colonial rule. Social movements and negotiators from the Global South have long argued that these nations owe compensation or reparations for climate-related damages—disasters, droughts, floods, and other destabilizing events—that disproportionately harm poorer countries with minimal historical emissions. Many in the Global South view this as a moral debt: those who profited by depleting resources and polluting the Earth should pay more to fix the resulting crisis.

Furthermore, the question of fairness extends beyond international boundaries. Within individual nations—whether they are classified as developed or developing—there are massive class inequalities that influence both emission levels and political power. High-income segments of society tend to have disproportionately large carbon footprints, thanks to higher levels of consumption, frequent air travel, and energy-intensive lifestyles. They also wield greater sway over production and national policies. Put simply, they are more responsible for excess emissions, and thus should shoulder a higher share of the costs for addressing climate change and compensating those already suffering its impacts.

Carbon markets, as originally conceived, aim to confront some of this injustice by obliging polluters to fund climate-positive projects. In practice, these projects often fall into two categories. The first is emission avoidance, such as protecting forests under threat of logging or conversion to farmland through programs like REDD+ (Reducing Emissions from Deforestation and Forest Degradation). The second is emission removal, which includes efforts like reforestation, agroforestry, or restoring wetlands to actively pull CO₂ out of the atmosphere. The hope is that as a manufacturing firm in Europe or a tech company in the United States pays for these credits, money flows directly to communities and ecosystems that contribute significantly to global climate stability.

Yet, these well-intentioned ideas often run into challenges. One major pitfall is “additionality”—the requirement that a project must only happen because carbon credit funding makes it possible. If a forest was never truly threatened or would have been protected anyway, the resulting credits are effectively meaningless. Verification is another stumbling block. Many organizations that certify carbon credits are paid by the very companies seeking certification, a glaring conflict of interest that can inflate claims and devalue trust. A high-profile study in 2023 showed that many rainforest credits failed to deliver promised emissions reductions, sending both credit prices and public faith in the system plummeting.

These technical concerns mask a deeper tension between economic development and environmental conservation. For countries with large tracts of forest, conserving them may mean forgoing immediate financial gain—whether from logging, mining, or agriculture. If these countries are simultaneously expected to curb development in order to halt global emissions, they rightly argue that wealthier nations must bear more of the costs, since they profited most from burning fossil fuels in the first place. This is where climate justice and environmental reparations converge. Nations and classes that have caused the majority of the emissions—historically and presently—must pay more to protect the planet’s remaining natural resources.

A fairer path forward includes several key steps. First, wealthier nations need to commit significantly larger sums to financing sustainable infrastructure, clean energy, and climate-resilient projects in lower-income countries. Second, carbon markets must become more transparent and credible, using remote sensing technologies like satellites and drones to confirm that avoided deforestation and reforestation projects are truly delivering on their carbon-storing promises. Third, community-led initiatives should be prioritized, as local and Indigenous peoples possess deep knowledge of land stewardship. They often manage territories that are vital carbon sinks and biodiversity hotspots, yet historically they have seen little direct benefit from carbon finance schemes.

It is also crucial to remember that even the highest-quality offsets cannot replace meaningful, immediate cuts to fossil fuel use. Industrialized and emerging economies alike must transition to cleaner energy systems. But historically high-emitting nations—and the wealthier classes within all nations—have a distinct responsibility to lead this shift. They ate the biggest slices of the “cake” and have accumulated the most resources to make the transition possible. Now they must act, not only out of moral responsibility but also out of urgent self-interest, because the climate crisis spares no one in the end.

As individual citizens and consumers, we all have roles to play in shaping a more equitable climate agenda. Supporting companies with transparent carbon-offset programs, voting for policymakers who propose rigorous climate legislation, and championing local community-led projects are steps that add up. Above all, we must acknowledge the massive historical imbalance that frames the climate crisis. Only by confronting who caused it, and who still stands to lose the most from inaction, can we chart a fair and realistic course to keep our collective ship afloat.

Carbon markets, under the right conditions, offer a partial but critical solution—one that can bridge some of the global divides left by centuries of exploitation. Yet they must be designed with honesty, equity, and accountability at their core. With the clock ticking and our planet’s capacity to withstand further warming uncertain, the time for half measures is over. In the end, the fate of the ship, the cake, and every passenger on board depends on our willingness to share both the burden and the responsibility for charting a new path forward.