Japan has signed an agreement with Palau to allow Japanese companies to earn carbon credits by helping the Pacific Island nation cut greenhouse gas emissions.
In a statement, the Japanese government says both nations will set up a joint committee of representatives to operate a bilateral offset crediting mechanism, known as the Joint Crediting Mechanism.
Japan already has nine such bilateral agreements, aiming to bypass the lengthy screening process of the United Nations' Clean Development Mechanism, the world's main carbon offsetting scheme.
It has existing agreements with Mongolia, Bangladesh, Ethiopia, Indonesia, Kenya, the Maldives, Vietnam, Laos and Costa Rica.
Palau is among the small island nations in the Pacific that have been threatened by rising sea levels and are considered to be most at threat from the consequences of global warming.