For years, global climate negotiators have been trying to craft a carbon market that encourages a green transition. Europe has relied on carbon markets -- through cap and trade systems -- to navigate their decarbonization and cushion the economic transition. At the ongoing COP, making carbon markets work is one of the main focuses, albeit one of the most controversial, too. The talks are centered on two main tracks, Bloomberg reports: 1) carbon credits, or permits emitters buy in the amount of the greenhouse gases (GHGs) they send into the atmosphere; and 2) carbon offsets, which are things an emitter can buy to reduce their carbon footprint, like an airline planting trees to offset its emissions.

Last week, youth activists and green groups called out carbon markets as a false solution. However, leaders like Jeanne d'Arc Mujawamariya, Rwanda's environment minister, countered that the markets are essential for poorer and developing countries who see a dual environmental and economic opportunity -- to go green and attract investment -- that will help them through a transition they couldn't otherwise afford.

Why This Matters

Carbon markets, in theory, balance out global carbon. The system is meant to produce a one-to-one-ratio of emission and capture. A carbon market could both create a system for wealthier countries to fund renewable energy projects globally, and protect forestland and other ecosystems. An agreement could lead to $1 trillion in new investments.

But creating a market without loopholes can be a challenge. A closer look at a carbon market in California found that the system created "ghost credits that didn't preserve additional carbon in forests but did allow polluters to emit far more CO2," a ProPublica investigation reported. And even with the best rules, a carbon market can't replace domestic policies that cut emissions without an intermediary system.

Carbon Market Negotiations at COP

Global carbon trading has existed in some form since the Kyoto Protocol was established in 1997. Now, 24 years later, the quarter century of emissions credits are part of this year's challenge. Countries including Brazil and China want their credits from that system to carry over.

"You can negotiate ambition, but you don't negotiate about cheating," Gilles Dufrasne, policy officer at the international non-profit Carbon Market Watch told the BBC.

Another sticking point is double counting credits. Brazil, for example, wants a carbon credit purchased by another country that protects the Amazon to count toward its own emissions reduction target and the purchasing country's.

The draft proposals for a carbon market released at the end of last week gave a clearer picture of the distance between where countries stand on both carbon accounting and how funds get spent.

"We need to have a clear predictable finance flow for adaptation and this is the only way that we can have it," Tanguy Gahouma-Bekale, Chair of the African Group of Negotiators on Climate Change, told Bloomberg.