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Unidroit and Brazil: Legal Nature of Voluntary Carbon Credits

Today is Tuesday, September 12, 2023.


Achieving consensus on the legal nature of voluntary carbon credits (“VCCs”) is key for the carbon markets to accelerate and develop. As such, Carbon Credit Markets has been advocating on this topic for a while.


In this article we refer to two initiatives: Unidroit and the Brazilian Initiative for the Voluntary Carbon Market (BRVCM).


Unidroit recently informed about its initiative, that we quoted last May in "The legal nature of carbon credits: what are you trading?"


Here their milestones:

(a) January 2022, the International Swaps and Derivatives Association (also mentioned by us in May 2023) recommended that Unidroit consider a project to analyse the legal nature of VCCs;

(b) May 2022, demand was reinforced by the Government of Paraguay;

(c) June 2022, VCCs Project was unanimously approved as high priority by Unidroit's Governing Council;

and (d) May 2023, together with the World Bank Group, the VCCs Working Group was formed, tasked with developing an international law instrument to provide guidance on the legal nature and other private law aspects of VCCs.


The following aspects were discussed:

(a) Key concepts;

(b) Main actors involved in the life cycle;

(c) Key considerations regarding the legal natures;

(d) Ownership;

(e) Transferability;

(f) Secured transactions and collateralisation;

(g) Retirement of carbon credits;

(h) Price;

(i) Accounting;

(j) Treatment in case of insolvency;

(k) Local market regulator oversight;

(l) Applicable law issues;

(m) Sector-specific carbon credits; and

(n) Relevant issues not to be included in the Project’s scope.


Click here for more information. News are expected soon, after key meetings last July and discussions with other organizations.


About the Brazilian initiative, in August 2023 a 25 pages white paper titled "How can the definition of the legal nature of offset credits in Brazil impact the scalability of the voluntary carbon market?" was launched by BRVCM.


Intangible assets, financial assets, commodities, securities?


Going straight to page 12 you read that BRVCM "... conducted a fact-based assessment comparing the potential implications from each of the four legal nature definitions, according to four key dimensions: (1) tradability of offset credits, (2) tax treatment, (3) accounting treatment, and (4) legal aspects."


Click at the image below (by BRVCM) to access the English version of the report.


As it is uncertain how these two initiatives will evolve or eventually converge, it is relevant to monitor both their developments.




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 CARBON CREDIT MARKETS

“Nothing in life is to be feared, it is only to be understood. Now is the time to understand more, so that we may fear less.”

“I am among those who think that science has great beauty”

Madame Marie Curie (1867 - 1934) Chemist & physicist. French, born Polish.

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