The Legal Character of Voluntary Carbon Credits: A Way Forward

As the world strives to meet ambitious targets under the Paris Agreement, the role of carbon markets, especially the voluntary carbon market, has emerged as a significant catalyst for potential investments in climate action.

New technologies and methodologies for carbon reduction and removal like direct air capture, biochar, and enhanced weathering are expanding the scope of projects eligible for carbon credits. While many of these solutions promise carbon reductions with a high degree of permanence, they are nascent and require significant capital. We believe that the voluntary carbon market can potentially be the catalyst to crowd in financing for climate action.

At the same time, given the urgency of the Paris Agreement targets, significant investments in near-term abatement solutions are also required. These are offered by nature-based solutions such as afforestation, reforestation, and revegetation projects. However, many of these projects have limited viability without climate finance. Carbon markets can help bridge the financing gap for both nature-based and technologybased climate solutions.

However, the growth and potential of the carbon markets are tethered closely to the clarity and robustness of their governing frameworks and standards, including the underlying legal framework. Without legal clarity, carbon markets (taken as a whole) face fragmentation, inefficiency, and diminished trust among participants, undercutting their strength as a tool for driving climate action. In this paper, we aim to raise awareness of how clarity as to the legal character of voluntary carbon credits can enable the scaling of the voluntary carbon market and climate finance.

We explore some of the underlying legal principles and recent case law applicable in Singapore. In light of these, we argue that clarity on the legal characterisation of voluntary carbon credits is not only desirable but necessary.

More needs to be done by the regulators in each jurisdiction to clarify the legal character of voluntary carbon credits. We hope that the Singapore Government will articulate a position and provide further guidance on this issue.


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