Carbon Markets Project

About the Carbon Markets Project

The 1997 Kyoto Protocol to the United Nations Framework Convention on Climate Change (UNFCCC) introduced the concept of carbon credit, with the objective of creating a mechanism by which the emission of greenhouse gases into the atmosphere could be reduced. The Paris Agreement included carbon mechanisms as a crucial component in the initiative to mitigate carbon emissions in international and domestic supply chains.

From a private international law (PIL) perspective, the variety of participants or actors potentially involved in a single carbon market transaction, as well as the origins and nature of the relevant carbon projects, may challenge the application of traditional connecting factors, as there may be a number of connecting factors to a number of jurisdictions, all of which may differ at each of the different stages of the lifecycle of a carbon credit.

Throughout the lifecycle of carbon credits and among a wide network of parties located in different jurisdictions, private international law questions arise, for instance, from the origins of the relevant carbon project, the issuance of the credit, the matter of revocations, retirement, and the different commercial transactions that may take place.

The nature of carbon markets raises specific public policy considerations, which may affect PIL considerations. Although transactions in the voluntary carbon market are mostly based on contractual and other relationships which are regulated by private law (which currently exist in some jurisdictions) and rules of PIL (which are currently mostly lacking), these markets serve a broader public purpose, and potentially engage important national interests such as local environmental concerns, or in some cases competing claims over land rights.

Several other aspects of the carbon markets may raise certain challenges to PIL. For example, the digital or online certification of units, the tokenisation of units, the revocation of units and the matter of authorisation under Article 6 of the Paris Agreement, and the extent to which units are potentially subject to cross-border securities transactions and insolvency proceedings add further complexities to the PIL issues arising in this context.

Work on a holistic PIL framework for the carbon markets is essential for advancing international efforts to mitigate climate change and achieve the goals of the Paris Agreement and the United Nations Sustainable Development Goals.

Mandate
  • Exploratory Stage (2024-2025)

In March 2024, the Council on General Affairs and Policy of the HCCH (CGAP) adopted Conclusion and Decisions (C&D) No 18 and No 19:

18. CGAP mandated the PB, in partnership with relevant subject-matter experts, and subject to available resources, to monitor developments of the PIL aspects of carbon markets. The PB will report to CGAP 2025, including proposals for next steps.

19. CGAP mandated the PB to cooperate and coordinate with the Secretariats of UNCITRAL, UNIDROIT, the United Nations Framework Convention on Climate Change (UNFCCC) and other relevant international organisations on their projects in relation to carbon credits, subject to available resources. CGAP welcomed the cooperation and coordination between the PB, and the Secretariats of UNCITRAL, UNFCCC, and UNIDROIT on this topic [...].

Following on these mandates, the PB has provided input to the section on “Issues of Applicable Law” of the draft report of the UNCITRAL/UNIDROIT Study on the Legal Nature of Verified Carbon Credits Issued by Independent Carbon Standard Setters. The PB also participates as an institutional Observer on behalf of the HCCH on the UNIDROIT Working Group on the Legal Nature of Verified Carbon Credits (UNIDROIT WG on VCCs).

In light of discussions during the second session of the UNIDROIT WG on VCCs in April 2024, the PB accepted an invitation from the UNIDROIT Secretariat to form an informal subgroup of experts to provide input to an applicable law provision in the draft UNIDROIT Principles on the Legal Nature of Verified Carbon Credits. The informal subgroup met twice in 2024. The subject-matter experts sitting for the PB submitted a Preliminary Report concerning the Inclusion of an Applicable Law Provision in the draft UNIDROIT Principles, which was also annexed to Preliminary Document No 6 of November 2024.

  • Experts' Group (2025)

In March 2025, CGAP “mandated the establishment of an Experts’ Group (EG) to study the PIL issues arising from carbon markets, as described in Prel. Doc. No 6 of November 2024, with an initial focus on the possible inclusion of an applicable law provision in the draft UNIDROIT Principles on Verified Carbon Credits.”

CGAP also mandated the PB to continue cooperating and coordinating with the Secretariats of UNCITRAL, UNIDROIT, the UNFCCC and other relevant international organisations on their projects, subject to available resources.

Key documents of the Carbon Markets Project