After failed talks in Azerbaijan at COP29, members did agree, however, to a carbon credit trading market. But it has such broad rules, the system may mean little improvement in emissions – or even higher emissions by buyers.

It had been nearly a decade since such a global carbon trading market was first proposed by the international community in Article 6 of the 2015 Paris Agreement.

The final text, agreed to late on November 23 and dubbed the Paris Agreement Trading Mechanism, was a compromise in the end. Attendees agreed to rules on how countries can create, trade and register credits. Trading could start as soon as next year.

Carbon credit trading means that a more-emitting country such as Japan or Germany or a company can buy a one-tonne CO2 credit from a poorer location where, for example, trees have been planted or a wind farm built. It helps transfer wealth to the developing world and in theory cuts emissions.

In practice, the nascent market has proved hard to track and verify, and vulnerable to fraud. The market was worth more than $2bn in 2022. But its market value has since more than halved amid a lack of clarity and structure.

Kevin Conrad, the leader of the delegation for a group of heavily forested countries, such as Bolivia and Democratic Republic of Congo, told the Financial Times after the deal was truck: “Properly regulated, markets can become a force for good, and start to reverse the market failures causing environmental and atmospheric destruction”.

With the hope that the market would be hammered out, preliminary deals have already been signed. Trafigura, the commodity trader, announced what it called a pilot carbon deal to help Mozambique develop climate restoration projects.

Norway has set aside $740mn for the carbon trading market and signed deals with Benin, Jordan, Senegal and Zambia.

Indeed, some delegates and observers view the COP29 agreement as a final chance to forge a successful carbon trading market.

“International carbon markets have crashed twice in two decades. This was due to an erosion of credibility. At Baku, the ‘operationalisation’ of international carbon trading under Paris can prevent a third meltdown that could be fatal,” Axel Michaelowa, of the University of Zurich, told the Guardian.

“They are a powerful tool to accelerate the diffusion of low-carbon technology around the world. The Paris carbon market is now ready to roll out in 2025. It can accelerate mitigation and thus help close the gaping emissions gap that separates us from achieving the 1.5C target,” said Michaelowa.

But there are still concerns. At COP28 in Dubai, it became clear that a lot of African forest had been sold off in carbon trade deals to a start-up company run by a member of the Dubai royal family, said the Guardian. The revelation raised fears of a scramble for the continent’s resources, in this case those that help limit emissions.

A study in Nature Communications published in mid-November analysed 2,347 carbon mitigation projects, or one-fifth of the credit volume issued globally to date, or almost 1bn tonnes of CO₂e. The researchers found that less than 16% of the carbon credits issued to the investigated projects constituted real emission reductions. “Carbon crediting mechanisms need to be reformed fundamentally to meaningfully contribute to climate change mitigation,” they said.

“The available evidence suggests that many carbon credits are not backed by any actual emission reductions,” Dr Lambert Schneider, a co-author and a senior researcher at the Oeko-Institut in Berlin, told the Guardian. “These problems would undermine the Paris Agreement if they spilled into the official UN system. If these quality issues continue under Article 6, this could undermine our efforts to achieve our climate targets. It is critical that we fix the integrity issue of the market,” he said.

“If these credits are used by buyers to emit more, this would result in more carbon added to the atmosphere. And the potential for issuing such credits is very large,” he concluded.

“The new rules are a start, but the risk of abuse still remains alive and well,” Injy Johnstone, research fellow at the University of Oxford, told the newspaper. “We have to learn the lessons of past mistakes and watch for new ones this system could create, otherwise we risk the Paris Agreement becoming a market failure,” she noted.

However, the rules contain several serious flaws that years of debate have failed to fix. It means the system may essentially give countries and companies permission to keep polluting, argued the University of Melbourne’s Kate Dooley after the deal was struck in The Conversation. The deal is seriously flawed, she said.

There could be double counting. Indigenous communities might, for example, lose access to land planted with trees. The carbon stored in trees may not be sequestered for as long as the emissions from a coal company in the developed world stay in the atmosphere, she said. Wildfire and drought may interfere with carbon storage in forests.

“[Australia] could also set a precedent by establishing a framework that treats carbon removals as a complement – not a substitute – for emissions reduction,” she suggested.