On November 23 at the COP29 climate conference, countries reached an agreement on establishing a framework for a global carbon credit trading market. Proponents of this initiative assert that it could generate billions of dollars in funding for new projects aimed at combating global warming.
This agreement comes approximately ten years after international discussions began regarding the creation of such a market, and it was crucial to focus on ensuring the system's credibility to reliably achieve reductions in greenhouse gas emissions that contribute to climate change.
Carbon credits are generated through initiatives like planting trees or constructing wind farms in economically disadvantaged nations, which earn one credit for each metric ton of carbon emissions they reduce or absorb from the atmosphere. Countries and corporations can purchase these credits to advance their climate objectives.
After reaching the initial agreement early in the two-week conference—which allows for a centralized UN trading system to be established as early as next year—negotiators dedicated much of the remaining time in Azerbaijan to refining the particulars of a distinct bilateral system enabling direct trading between countries.
Key details that need to be finalized include the structure of a registry to monitor credits, the extent of information that countries should disclose about their transactions, and the procedures to follow when projects do not proceed as planned. The European Union was a prominent advocate for stricter UN oversight and increased transparency in inter-nation trading, while the United States pushed for greater autonomy in the agreements made.
Prior to finalizing the deal, the COP29 presidency released a draft that suggested allowing some nations to issue carbon credits through a separate registry system without it being regarded as a formal UN endorsement.
The conclusive document represents a compromise; the EU succeeded in securing registry services for nations that lack the resources to establish their own systems for issuing and tracking credits, while the US ensured that merely recording a transaction in such a registry would not be interpreted as a UN endorsement of the credits.
By agreeing that the registry would not assess the quality of a credit or endorse its issuers, the EU notably "made significant concessions to accommodate the US," according to Pedro Barata, who monitored the negotiations for the non-profit Environmental Defense Fund. He remarked, “It’s still a viable international trading system... even if some people will say it has no teeth.”
While the establishment of a global carbon credit market was a primary objective of the discussions in Baku, bilateral trading commenced in January, with Switzerland purchasing credits from Thailand. Additionally, numerous other countries have executed agreements to exchange credits. However, these deals are still relatively limited, and finding the appropriate balance between a clear set of rules that promote integrity and transparency and enabling nations to actively engage is essential to encouraging increased trading activity.
IETA, a business organization advocating for an expanded carbon credit trading system, has estimated that a UN-supported market could be valued at $250 billion annually by the year 2030, potentially offsetting an additional 5 billion metric tons of carbon emissions each year.
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