Opinion - Why carbon markets from COP29 could be the springboard climate tech startups need

The COP29 summit in Baku did more than finalise Article 6 of the Paris Agreement - it sent a signal to the world: carbon markets are here to stay, and they can serve to be the financial backbone for climate innovation. For climate tech startups, this is a lifeline. In a world where venture capital is cautious and green powder is sitting idle, carbon markets can unlock the project financing these startups desperately need while de-risking their business models for investors.

Let us not sugarcoat it - climate tech funding is in trouble. Despite the sector’s resilience compared to others, accessing capital remains a hurdle, particularly for growth-stage startups. Investors may talk about the urgency of climate action, but their wallets often stay closed, citing risks and unproven models. This is why the carbon market is such a big deal. With Article 6 now finalized, this serves as a window of opportunity for startups to monetise their emissions reductions through carbon credits, creating predictable cash flows that address precisely what investors are worried about: risk.

Turning emission reductions into revenue

Here is the big opportunity - a startup working on renewable energy, for example, can generate carbon credits by cutting emissions and sell these credits to companies needing offsets. This creates an immediate and reliable revenue stream. It’s not just about ticking ESG boxes anymore - these credits can directly fuel growth. Investors love predictable cash flows, and carbon credits can make even the most capital-intensive projects look attractive.

Carbon credits also open up new avenues for project financing. Instead of relying solely on equity funding, startups can use carbon credits to de-risk their operations and secure loans. Banks and financiers are far more likely to back projects when they see a steady inflow of revenue from a recognised market mechanism. This isn’t theory - it’s already happening in renewable energy and forestry sectors, and it’s time climate tech startups get on board.

The carbon market playbook: What needs to change

While COP29’s framework is a significant step, its success will depend on actionable measures by governments, investors, and startups.

Firstly, carbon markets must become accessible. The current process of registering projects, verifying emissions reductions, and trading credits is overly complex with consideration of its quality. Simplifying these steps with digital platforms and clear guidelines will allow more startups to tap into this opportunity.

Secondly, startups need to build their capacity in sustainability reporting. Robust reporting practices are critical for participating in carbon markets, meeting global ESG standards, and positioning themselves for international trade. Transparent reporting helps startups quantify their impact, align with global expectations, and attract project financing by showcasing their credibility to investors. Governments, industry bodies, and the climate ecosystem should step in to provide resources and training to build these capabilities.

Thirdly, targeted incentives are crucial for making climate tech investments more attractive. Tax breaks for carbon credit revenues, subsidies for projects, and public-private funds for project financing can lower risks and attract green powder currently sitting idle in venture funds.

Finally, collaboration across public and private sectors is essential. Governments, corporations, and investors must co-create mechanisms that align market incentives with climate goals. Partnerships can fast-track the integration of carbon credits into startup financial models, ensuring scale and impact.

India: The perfect test case

India is uniquely positioned to show the world how to make this work. With a thriving climate tech ecosystem and a rapidly expanding carbon market, the country is sitting on a dual opportunity. Startups here are already innovating in areas like renewable energy, sustainable agriculture, and electric mobility. What they need is the financial fuel to scale - and carbon markets can provide just that.

For instance, how about a startup revolutionising soil carbon sequestration in agriculture? By cutting emissions and generating carbon credits, it can not only make farming more sustainable but also create a new revenue stream to fund its operations. This isn’t just good for the startup; it’s good for the planet. And with the right support from the government and market players, such value-creation opportunities are to unfold across sectors and geographies.

The clock is ticking

The bottom line is that the finalisation of Article 6 is indeed a turning point, but its impact depends on what we do next. Climate tech startups must embrace carbon markets not as a side hustle but as a core part of their business strategies. Governments need to create enabling environments, from simplifying market access to offering financial incentives. Investors should recognize that carbon credits are a reliable way to de-risk investments and drive returns.

Moreover, startups must adopt sustainability reporting as a critical tool for accessing international trade and financing opportunities. The ability to transparently measure and communicate emissions reductions is no longer a choice - it’s an imperative.

COP29 has given us the tools to act, but tools are useless unless we use them. This is the moment for startups, policymakers, and investors to step up. The future of climate tech - and perhaps the planet - depends on it.

(Aman Gupta is an Associate Director at Sustain Labs Paris. He has worked in the domains of energy, climate and sustainability across private, government and not-for-profit sectors.)

(Views expressed in this opinion piece are those of the author)