Authors: Virginia Furness, Kate Abnett and Simon Jessop

BAKU (Reuters) – Countries reached an agreement on rules for buying and selling carbon credits on the global market at the COP29 climate conference on Saturday that supporters say will mobilize billions of dollars for recent projects to facilitate fight global warming.

The agreement, reached about a decade after international talks on market design began, hinged on how to ensure the credibility of the system so that it could credibly lead to reductions in greenhouse gas emissions that cause climate change.

Carbon credits are created through projects such as planting trees or building wind farms in a poorer country, which receive one credit for every metric ton of emissions they reduce or suck out of the atmosphere. Countries and companies can buy these credits to facilitate meet their climate goals.

After reaching an agreement at the start of the two-week conference that would enable the U.N. centralized trading system to launch as early as next year, negotiators spent most of their time in Azerbaijan trying to work out the details of a separate bilateral system for countries to trade directly.

Details that had to be worked out included the structure of the registry to track loans, as well as how much information countries should share about their agreements and what should happen when projects fail.

Among the strongest voices was the European Union, calling for stricter UN oversight and greater transparency in trade between nations, while the United States sought greater autonomy over the agreements reached.

The COP29 Presidency published a draft agreement ahead of the agreement, which proposed allowing some countries to issue carbon credits through a separate registry system, which does not amount to UN endorsement.

The final text was a compromise after the EU secured registry services for countries that could not afford to set up their own registries to issue and track loans, while the US ensured that merely registering a transaction on such a registry did not qualify for UN approval of loans.

By agreeing that the registry would not determine credit quality or support issuers, the EU “has done everything in its power to align with the United States,” said Pedro Barata, who has been following talks on the nonprofit Environmental Defense Fund.

“It’s still a viable international trade system… even if some say it has no teeth.”

While the main topic of talks in Baku was strengthening the global carbon credit market, bilateral trade began in January when Switzerland bought credits from Thailand, and dozens of other countries have already concluded credit transfer agreements.

However, these agreements remain narrow and striking the right balance on a clear set of rules that ensures integrity and transparency without limiting countries’ ability to participate should result in a revitalized deal flow.

IETA, a business group supporting the expansion of the carbon credit trade, says the U.N.-backed market will be worth $250 billion a year by 2030 and could be expected to offset an additional 5 billion metric tons of carbon dioxide emissions annually.