World leaders at the COP29 climate conference in Baku reached a groundbreaking agreement to establish rules for a global carbon credit trading system. This deal, finalized after a decade of negotiations, promises to channel billions of dollars into projects aimed at reducing greenhouse gas emissions. By creating a structured market, countries and companies can invest in initiatives like reforestation and renewable energy, earning carbon credits for every metric ton of emissions reduced or absorbed.
The agreement centers on ensuring the credibility and transparency of the system, a crucial step to making carbon trading a reliable tool in combating climate change. While the conference initially agreed to launch a centralized U.N.-regulated trading system next year, much of the debate revolved around creating a separate bilateral framework for direct country-to-country transactions. These discussions focused on establishing a registry to track trades, sharing information on deals, and resolving issues when projects fail.
A compromise was struck between the European Union and the United States, two key players with opposing priorities. The EU pushed for strict U.N. oversight and public transparency, while the U.S. advocated for flexibility and autonomy in bilateral deals. The final agreement allows countries to issue credits through separate registries without necessarily receiving U.N. endorsement, with support provided for nations unable to establish their own systems.
This new framework builds on existing bilateral trading, which began earlier this year when Switzerland purchased credits from Thailand. While these initial transactions remain limited, the clear guidelines established in Baku are expected to significantly increase deal activity. The framework balances the need for integrity and transparency with flexibility, ensuring broader participation in the market.
Experts predict that this U.N.-backed market could grow to $250 billion annually by 2030, offsetting an additional 5 billion metric tons of carbon emissions each year. Advocates hail the COP29 agreement as a transformative step toward financing climate action and accelerating the global transition to a low-carbon future.
