First, it binds the two largest CO2 emitters in the developing world to a common stance at upcoming international negotiations on climate change in Copenhagen, firming up the coalition of poor countries that will square off against industrialized nations.
The five-year pact also points the way toward joint efforts to cut growth in CO2 emissions that the two Asian giants have pledged to make, while resisting fixed targets for such emissions reductions.
Under the agreement, India and China will work together to increase energy efficiency, boost the use of renewable energy sources, develop "clean coal" technology, and improve afforestation techniques. (Read about China's green leap forward here.)
This "takes cooperation on climate change between the two countries to a new high," said Xie Zhenhua, China's top climate change negotiator, at the signing ceremony.
"This is very positive," says Yang Fuqian, a climate change expert with the Worldwide Fund for Nature in Beijing. The agreement could also benefit other developing countries, he suggests, if China and India combine their know-how to build and export cheap but reliable wind turbines, for example.
Signing the agreement, Indian Environment Minister Jairam Ramesh said there "is no difference between the Indian and Chinese negotiating positions" in the run-up to December's climate-change summit in Copenhagen, aimed at setting new greenhouse gas emission targets under the Kyoto Protocol.
Earlier reports had suggested that India might break ranks with other developing nations at the talks.
"This makes the Group of 77 [the Third World negotiating group at the United Nations] much stronger," says Dr. Yang. "They see the two big countries standing with them and their voice will be stronger."
Less than six weeks before the Copenhagen meeting, talks to set new CO2 emission reduction targets for industrialized countries after 2013 – when limits agreed at Kyoto expire – are still stalemated.
Developing nations insist that the Kyoto Protocol, which spares them the same sort of legal obligation to set targets that bind wealthy nations, is still the best approach to curb global warming. China and India argue that their development needs make fixed targets impossible, but both have both pledged to reduce their "energy intensity" – the amount of energy they use per unit of economic output. Wednesday's pact outlines some of the steps they intend to take toward that goal.
A number of industrialized countries, including the US, are proposing that instead of an internationally binding treaty, such as Kyoto, each country should set and commit to its own goals for CO2 emission reduction.