At COP29 in Baku, Azerbaijan, nations finalized rules for a global carbon credit trading system aimed at accelerating investments in projects that combat climate change.
The agreement, a culmination of nearly a decade of negotiations, establishes a framework for trading credits generated by emissions-reduction initiatives like renewable energy projects or afforestation.
These credits, representing one metric ton of carbon dioxide reduced or removed, can be bought by countries and companies to meet climate targets.
The conference achieved two key outcomes. First, it paved the way for a UN-administered centralized trading system expected to begin in 2024. Second, it set guidelines for bilateral credit trades between nations, resolving long-standing disputes over transparency and oversight.
The European Union advocated for stringent reporting requirements, while the United States pushed for flexibility in bilateral agreements. The final compromise allows countries without their own registries to use UN-supported systems while ensuring that such registrations do not automatically imply UN endorsement of credit quality.
While bilateral trading has already commenced, including an inaugural deal between Switzerland and Thailand earlier this year, the newly agreed rules are expected to boost activity. Market analysts anticipate that the UN-backed system could mobilize $250 billion annually by 2030, offsetting up to five billion metric tons of carbon dioxide emissions each year.
The agreement represents a significant step toward international cooperation on climate finance, though concerns remain about ensuring the credibility of traded credits and avoiding greenwashing. Future efforts will likely focus on improving the system's integrity while expanding its reach.
The deal underscores the global commitment to leveraging market mechanisms to tackle climate change and foster investment in sustainable solutions.
