Sri Lanka is yet to introduce a carbon credit registry mechanism – awaiting the existing Government's own policy on carbon trading – following the previous Government's decision to cap the share of emission reductions that can be credited across several sectors, including renewable energy projects, at 50% and 25%, according to Ministry of Environment Director of Environment Planning and Economics Kumudini Vidyalankara.
Vidyalankara, speaking at a recent webinar hosted by the Sri Lanka Energy Managers Association (SLEMA) said: “The carbon registry is in the process of being developed. The thing is that it is not very clear about what the new Government's policy on carbon trading is. They are working on that. In the future they will have to make a decision on that.”
She added that her ministry is also involved in the process, with the preparation of draft guidelines suited for the policy, and the construction of the carbon trade registry. “We are working on a carbon trading policy for Sri Lanka. We already drafted it, and the guideline has also been prepared; the draft is with us and the registry is being constructed.”
“Once we have the policy and implementation guidelines ready, we have to finish the registry. There are some mechanisms that we have to clarify, and receive acceptance from the Government. After that, we can develop the registry.”
In September 2024, the Government of Sri Lanka approved and published a 'positive' list of project areas that are considered for trading under Article 6 of the Paris Agreement. The positive list also included capping the share of emission reductions that can be credited for certain projects, including renewables; some of which were to see their emission reductions capped at 50% and others at 25%.
Responding to a question on whether a Sri Lankan project can sell carbon credits in voluntary markets outside Sri Lanka, and whether there are any restriction imposed by the Government in selling carbon credits internationally, Vidyalankara said: “No, because when it comes to voluntary carbon projects, they can sell their credits outside the country. The only thing is that the end-use of the carbon credit is for OIMP [Other International Mitigation Purposes] – which includes the CORSIA [Carbon Offsetting and Reduction Scheme for International Aviation] – or for NDCs [Nationally Determined Contributions]; then it again comes to the authorisation of the country of generation.”
However, she added that companies may utilise voluntary carbon project credits for the purpose of marketing, or because certain projects necessitate the need for utilising credits. “Without having that authorisation, then it is used for marketing purposes – because some companies need to become carbon neutral, for such purposes they can sell.”
Past President SLEMA Harsha Wickramasinghe, noting the activities of the unregulated voluntary carbon credit market, said that the lack of oversight poses an issue. “I have come across many people who have done this – but without the knowledge of the Minister of Environment or anyone. So the buyers are happy, the sellers are happy and the Government is unaware. So we have a problem there.”
Vidyalankara further expanded on the regulations implemented by Thailand, as a case study for Sri Lanka. “They have to report, even voluntary carbon projects, they have to report in the registration and how much they transferred, and other requirements. Even with the proposed carbon trading policy and guiding principles, we also make that kind of requirement. Still, the voluntary carbon market can freely operate, because the risk to the country's inventory is limited when credits are not used for NDC or OIMP purposes; however, without proper tracking, double-counting risks can still arise.”
The UNDP has urged Sri Lanka to urgently operationalise and regularise its policy position on carbon trading. The Government has reportedly blocked private-sector carbon credit sales and prohibited renewable energy developers from signing carbon credit agreements with third parties under standardised power purchase agreements.