Thursday, 12 September 2024.
The document DRAFT UNIDROIT PRINCIPLES ON THE LEGAL NATURE OF VERIFIED CARBON CREDITS was on the agenda of the most recent meeting of the Working Group in charge of this important topic.
Like we have been posting since early 2023, this Working Group was jointly created by UNIDROIT and the World Bank, demanded by ISDA and Paraguay, with the task to develop “an international law instrument to provide guidance on the legal nature and other private law aspects of the voluntary carbon credits”.
“Where previously the market was niche, with only a small number of voluntary buyers and a limited compliance use, now estimates are that the market could reach a value of $50billion to $100billion by 2028. With that growth has arisen the requirement to ensure the global marketplace operates with integrity, on the supply side and on the demand side, but also to ensure the issues of private law are clear to enable the market to thrive and drive necessary finance towards projects that reduce or remove emissions.” indicates the document.
Currently, each crediting program that issues transactable units of one ton of CO2-equivalent has its own set of rules and terms of business and may be a government, the United Nations or a private entity.
According to the draft, verified carbon credits (VCC) include CERs (Certified Emission Reduction) issued under the CDM (Clean Development Mechanism), Article 6.4 ERs (Carbon Credits) and also units issued by independent crediting programs (ICCP). Examples of such ICCPs include Verra, Gold Standard, ACR, CAR, Puro Earth a.o.
There is also CORSIA (Carbon Offsetting and Reduction Scheme for International Aviation) a global market-based measure developed by the International Civil Aviation Organization (ICAO) to help the aviation industry manage its carbon emissions.
These proposed 12 Principles aim to reduce legal uncertainty for all market participants - including advisors, lawyers and courts - of all types of VCC transactions.
VCCs represent an important tool for providing finance upstream to projects in respect of the associated environmental and social benefits.
The Principles will also help to scale the Voluntary Carbon Markets (VCM) alongside the compliance (regulated) markets, some of which already permit certain ICCP project-based units to be used for compliance purposes.
Below you can download the 37 pages draft document (in English) and read the specifics of each of the 12 Principles: Scope; Definitions; General Principles; Creation, Reversal, Revocation, Transfer and Retirement of a VCC; Registry; Custody; Security; Insolvency.
Important to have in mind that it is still a draft and some parts might change. Principle Insolvency, for example, is still blank, while Principle Security indicates: “A VCC can be the subject of security rights”.
Based in Rome, UNIDROIT is the International Institute for the Unification of Private Law created in 1926 as part of the League of Nations, later the United Nations (UN).
Below you have links to all our updates on this important topic:
