Carbon Trading in Sri Lanka: Current Status, Challenges, and Path Forward

Imagine a bustling marketplace, not for spices or textiles but for carbon credits—an intangible commodity vital for the fight against climate change. This is the world of carbon trading, where every transaction reduces greenhouse gas emissions, bringing us closer to a sustainable future. For Sri Lanka, stepping into this marketplace isn’t just a necessity; it’s an opportunity to transform its carbon emissions landscape. But what exactly does carbon trading mean for this island nation, and how can it carve its niche in the global carbon economy?

The Backbone of Carbon Markets

Carbon markets enable countries and businesses to trade emission reductions—measured as carbon credits—ensuring that climate targets are met cost-effectively. Under the Paris Agreement’s Article 6, nations can collaborate on emission reduction initiatives. Here, Article 6.2 facilitates bilateral carbon trading, while Article 6.4 introduces a global mechanism similar to the Kyoto Protocol’s Clean Development Mechanism. Article 6.8, on the other hand, focuses on non-market approaches like technology transfer and capacity building.

While having a conversation with ministry of environment, they said Sri Lanka has pledged to cut greenhouse gas emissions by 14.5% by 2030, with 4% of this effort reliant on domestic resources and 10.5% on international support. This makes the country’s engagement with carbon markets not just strategic but essential for meeting its Nationally Determined Contributions (NDCs).

Positive Project Areas: A Step Toward Transformation

The ministry of environment further explained that, to pave the way for carbon trading, Sri Lanka has outlined specific “positive project areas” in key sectors. These projects represent high-impact initiatives that align with emission reduction goals while promoting sustainable development. Some notable examples include:

Electricity Sector:

Establishment of wind power plants and offshore wind farms.
Deployment of ground-mounted solar PV systems and energy storage facilities.

Emission reduction projections in Electricity (Power) Sector during the period of 2021-2030

Transport Sector:

Promotion of electric mobility and hybrid vehicles.
Development of low-carbon public transportation systems, such as Bus Rapid Transit (BRT) and improved railways.

Emission reduction projections (Transport Sector) during the period of 2021-2030

Forestry Sector:

Restoration of mangroves and terrestrial forests.
Agroforestry initiatives and reforestation for timber production.

Carbon Sequestration Capacity Projections (Forestry Sector) during the period of 2021-2030

Waste Sector:

Implementation of waste-to-energy projects and methane abatement technologies.
Promotion of recycling and optimization of waste collection systems.

Emission reduction projections (Waste Sector) during the period of 2021-2030

Agriculture Sector:

Introduction of innovative agricultural technologies to reduce methane emissions.
Management of livestock emissions coupled with energy conversion projects.

Emission Reduction Projections (Agriculture and Livestock) during the period of 2021-2030

These projects not only generate tradable carbon credits but also contribute to Sri Lanka’s broader sustainability goals, such as energy security and biodiversity conservation.

Current Progress and Foundations

Officials from the Ministry of Environment further stated that Sri Lanka’s carbon trading journey began with solar energy projects implemented under Article 6.2 of the Paris Agreement in partnership with Japan. Although these initiatives faced challenges, such as limited funding, they laid a foundation for future carbon market engagement. Additionally, the government, with support from the United Nations Development Program, has established a National Carbon Registry to ensure transparent tracking of carbon credits.

To foster market participation, the Ministry of Environment has identified six key sectors for carbon trading: electricity, transport, industry, waste, forestry, and agriculture. From wind farms to mangrove restoration, these initiatives offer immense potential to generate tradable credits while advancing sustainable development

Challenges on the Road Ahead

According to the Ministry of Environment, despite its proactive efforts in carbon trading, Sri Lanka faces significant barriers that hinder its progress. These include,

Policy Gaps: The absence of a comprehensive regulatory framework for carbon trading limits investor confidence.
Infrastructure Deficiencies: A lack of advanced monitoring and reporting systems hampers efficient credit verification.
Limited Private Sector Involvement: The long timelines and complex approval processes discourage private investors.
Knowledge Gaps: Insufficient expertise in local carbon market mechanisms restricts participation

Charting a Path Forward

Sri Lanka’s ambition to be a competitive player in the carbon market calls for bold steps:

Strengthen Policy Frameworks: Establish clear guidelines and streamline approval processes to attract investors.
Build Infrastructure: Leverage digital monitoring, reporting, and verification (MRV) tools for robust data management.
Enhance Capacity Building: Conduct workshops and training for stakeholders to deepen understanding of carbon markets.
Foster International Collaborations: Explore bilateral agreements and multilateral partnerships to secure technical and financial support

A Vision for the Future

Sri Lanka’s carbon trading potential is more than a story of challenges; it’s a testament to its commitment to sustainability. By addressing barriers and leveraging opportunities, the country can become a leader in the global carbon market, contributing significantly to global climate goals.

As Sri Lanka moves toward a carbon-neutral future by 2050, its journey in carbon trading exemplifies the spirit of innovation and collaboration essential for combating climate change. The question now is not whether Sri Lanka can make a difference, but how quickly it can transform challenges into opportunities.

References:

https://env.gov.lk/web/index.php/en/publications/other-publication

https://www.worldbank.org/en/news/feature/2022/05/17/what-you-need-to-know-about-article-6-of-the-paris-agreement

https://climatepromise.undp.org/what-we-do/where-we-work/sri-lanka#:~:text=Sri%20Lanka%20committed%20to%20reduce,of%20its%20coal%20power%20plants.

https://env.gov.lk/web/index.php/en/divisions/environment-planning-economicsdivision

https://perspectives.cc/wp-content/uploads/2024/01/CFI23_0701_Guidebook_V4_231124__web_.pdf

https://www.climatechange.lk/CarbonNetZero2050.pdf

https://www.env.gov.lk/web/index.php/en/sri-lanka-climate-fund#clean-development-mechanism-cdm

https://env.gov.lk/web/images/pdf/policies/NDCs_of_Sri_Lanka-2021.pdf

https://unfccc.int/sites/default/files/resource/WorkshopArticle6_Infra.pdf

Graphics/ Charts:

https://env.gov.lk/web/images/pdf/policies/NDCs_of_Sri_Lanka-2021.pdf