Today is Monday, October 16, 2023.
The concept of carbon credit was introduced by the Kyoto Protocol in 1997. Then, the 2015 Paris Agreement reinforced carbon trading as key for globally reducing greenhouse gas emissions into the atmosphere.
While the development of an international market is encouraged, legislative action has, to date, been limited to regional level. And while compliance carbon markets (CCM) - such as "cap-and-trade"- for specific regulated sectors are developed, demand for carbon credits from entities that are not under an obligation to participate in carbon markets has also grown. These are called voluntary carbon credits (VCC) typically “constituted outside of any regulatory or compliance framework" and traded at the the voluntary carbon markets (VCM).
As you may recall, demanded by ISDA and Paraguay, Unidroit and the World Bank Group (WBG) established a Working Group (WG) 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”.
The 1st Session of the WG was held last week, with the main topic was a deliberative document and structure for discussions.
The relationship between VCM and CCM is part of the document.
Many countries are active in both markets. “In contrast to the regulated CCMs, VCMs currently do not involve government regulatory authorities, are often unsupervised, and legal requirements across jurisdictions are far from consistent”.
On the other hand, increasing convergence between VCMs and CCMs is observed. Quoted Colombia, where VCCs produced in the country are accepted as alternative means of complying with the country’s carbon requirements. And subject to adjustments, due to the country’s commitments under the Paris Agreement.
“Building a private law framework on the basis of strict distinctions between VCCs and CCCs may potentially increase, rather than decrease, market fragmentation, especially given the current lack of regulated CCMs in many of the developing economies trying to adhere to Article 6 of the Paris Agreement”.
Click at the image below to read the 86-pages document.
Quite a lot of useful references to be taken into account and monitored by our lawyers.
Main deliverable of the project is titled “Content of the Future Document”. Initial topic are:
(1) Definition of “carbon credit": Offsets? Emission allowances? Results-based climate finance?
(2) Legal nature of Voluntary Carbon Credits: Bundles of contractual rights? Intangible property? Digital assets?
2nd Session of the WG is planned for early 2024. According to Unidroit, "the composition of the WG is still an open process and additional members and observers may be added in due course."
