The United Nations ended their annual climate change talks in Durban on Sunday in much the same way they have done for the past 17 years — after all-night sittings and amid a cloud of conspiracy theories, accusations, frayed tempers, backflips and compromise. Only this time they managed to go into a second day of overtime and pluck from apparent failure an agreement that is being hailed as the most significant since Berlin in 1995.

Those talks in Berlin did not result in a new treaty, and nor were those in Durban expected to. But Berlin did lay the groundwork for the Kyoto Protocol that was concluded just two years later. Similar expectations are now held for the Durban mandate, only this time all countries will be bound by the same legal form in a new treaty that will be concluded by 2015, and come into force by the end of the decade.

It is, as federal climate change minister Greg Combet described it, an historic agreement. It does not — as any climate change scientist, think tank and environmental NGO, the International Energy Agency, the UN, and many of the world’s leading corporates will tell you — set the world on course to reach its agreed goal to limit global warming to 2°. Or anywhere close.

That was never likely while the Tea Party holds sway in the US, and before China has had enough time to practise what it will preach: the introduction of emissions trading schemes. The level of ambition will need to be scaled up significantly, but the importance of this agreement is that it gives the world the half-a-chance of getting there that it didn’t have before, because the major emitters will now be in the same room, seeing eye to eye, saying this is what were going to do, what are you going to do? The biggest barrier to agreement, the question of which countries are bound and which are not, is now removed.

Another important part of the agreement is the formal recognition that current pledges are woefully inadequate, and need to be corrected. The fact that the world is not doing that now means that reaching the target will be more dramatic and costlier than it needed be, as the IEA has so dramatically pointed out. But the message to investors could not be clearer: the world is committed to de-carbonising the global economy. Be prepared. The carbon crunch will last a lot longer and have a far greater impact than the credit crunch.

Australia has emerged from these talks with more or less everything it came for. The continuation of the UN process, a roadmap to a treaty with legal enforcement, succour for the carbon markets, carbon capture in the CDM, and favourable accounting rules on forestry. Its tactics, though, did not win wide applause. At a crucial point in the negotiations, Australia had the choice of siding with the alliance of the EU, small island states and least developed countries for the more ambitious target, but chose instead to stand with Canada and the US, pushing for the weakest of the three legal options. It was a strategic decision that very nearly unraveled. Not that Australia had any real influence in the bargaining that took place on the plenary floor at 4am on the Sunday morning (read this account from The Guardian).

However, the government can be well pleased with the outcome, because it takes the political heat out of the carbon pricing policy that it was led to adopt by the two country independents and the Greens. Just two weeks ago, that was more easily painted as foolish — even if Australia sits in the middle ground on climate action — given the collapsing carbon price in Europe and on international markets, and the diminished expectations of COP 17.

But the Durban outcome will provide a shot in the arm for low-carbon technologies and the long-term future of the carbon market, and of carbon prices. China, which reinforced its commitment at Durban to have an economy-wide emissions trading scheme by 2015, will become a net buyer of credits from abatement projects, rather than a seller. It will have a dramatic impact on the dynamics of the market. The EU, with Denmark to take over the presidency at the end of the year, will have added incentive to increase its emission reduction targets, and there is a firm belief within many EU countries that greener investments can provide the shoots for an economic recovery.

Abyd Karmali, the head of carbon trading at Bank of America Merill Lynch says the accelerated timetable of reaching a new legally grounded global deal by 2015, with emission reduction targets covering a much broader set of countries, is like a “Viagra shot” for the flailing carbon markets over the medium term. “Furthermore, the agreement to include new market mechanisms, even if the details are yet to be decided, gives us confidence that negotiators recognise the importance of stimulating capital to seek out the lowest cost emission reductions first.”

Someone better tell Tony Abbott. The coalition’s stance against carbon markets and for a government-funded abatement fund may win approval from the Marxist “pluri-national” state of Bolivia, Cuba, a handful of NGO’s from the extreme left of the green spectrum, and a few destitute states in Africa, but it doesn’t have much truck anywhere else. If, as is envisaged by this roadmap, an agreement if forced by 2015, with ambitious targets, the Coalition’s Direct Action policy is untenable. Australia will come under increasing pressure to lift its abatement task, and without a market price on carbon, it will not have the means to do it.

The Climate Institute’s Erwin Jackson puts the outcome near the top of the four scenarios that he outlined at the start of the talks, somewhere between “progress” and “breakthrough”. It missed out on the higher accolade because there are still many details to be worked out on market mechanisms, and just who is signing up to the Kyoto Protocol extension.

UN Under-Secretary-General Achim Steiner says the outcomes of Durban provide a welcome boost for global climate action, and leaves the door open for the world to respond to climate change based on science and common sense rather than political expediency, even if delays are a high-risk strategy. “The (agreement) reflects the growing, and in some quarters unexpected, determination of countries to act collectively. This provides a clear signal and predictability to economic planners, businesses and investors about the future of low-carbon economies.”

China, still, holds the key. Now that it has committed to becoming part of a legally enforceable global treaty, how many businesses and investors will be willing to bet against it?

*This article first appeared on Climate Spectator