UNDP urges SL to regularise carbon markets to unlock private capital

Azusa Kubota

PIC BY NISAL BADUGE 

• UNDP Resident Representative Azusa Kubota stresses that high-level climate ambition must translate into a clear operational blueprint to secure investor confidence
• Call for policy predictability comes as government reportedly intervenes in blocking carbon credit trading by private sector 

By Nishel Ferando

The United Nations Development Programme (UNDP) has urged Sri Lanka to urgently operationalise and regularise its policy position on carbon trading, warning that private capital will only flow into markets that offer deep predictability and clear institutional structures.

Delivering the keynote address at Sri Lanka Climate Summit 2026, organised by the Ceylon Chamber of Commerce, UNDP Resident Representative in Sri Lanka Azusa Kubota stressed that while global private climate finance has surpassed the trillion-dollar mark, the domestic industries are waiting for definitive signals to tap into these funds.

“Ambition on paper is not enough; it must be backed up by implementation systems, financing instruments and institutional credibility,” she noted, pointing out that businesses require clear signals on where the macroeconomic landscape is heading and what sectors are expected to transition.

For the private sector to confidently engage in carbon markets, Kubota explained that the state must finalise a clear, highly technical operational blueprint. This framework must explicitly cover project authorisation, robust registry functions to track credit ownership securely, strict accounting rules to prevent the double-counting of emission reductions and transparent benefit-sharing models. 

She added that when the regulatory standards are ambiguous, licensing permits are slow or responsibilities are diffused across multiple government ministries, private capital naturally hesitates.

The government has already sent strong signals through its Nationally Determined Contributions (NDCs) 3.0, targeting a 20 percent greenhouse gas emission reduction by 2035, against a business-as-usual scenario and reaffirming the aspirations for carbon neutrality by 2050. While the corporate sector was actively engaged in designing these national targets, Kubota stressed that this engagement must now transition from mere consultation to active co-creation and accountable implementation. 

She noted that while 41 percent of NDCs globally identify private sector entry points, only 13 percent reflect active corporate engagement, a critical implementation gap that the local industries and policymakers must urgently bridge.

The economic urgency for unlocking these new financing channels is severe, as climate-related damage in the country already exceeds Rs.50 billion annually. Clarifying the state’s post-disaster recovery needs, which the recent Post-Disaster Needs Assessment estimated at over Rs.1,000 billion over three years, with half tied up in infrastructure alone, Kubota warned against the outdated reconstruction approaches. 

Rebuilding to yesterday’s standards simply reproduces tomorrow’s losses, she cautioned. Resilience-guided reconstruction is vital, as it directly protects corporate supply chains, lowers long-term operational costs and strengthens economic confidence.

Kubota’s call for policy predictability comes at a critical juncture, as recent state interventions have severely clouded investor confidence in the local carbon space. Despite the country signalling strong interest in Article 6 of the Paris Agreement, the government reportedly halted progress on establishing a national carbon credit trading system. 

Furthermore, a new clause introduced in the Standardised Power Purchase Agreements now prohibits the renewable energy developers from entering carbon credit sales agreements with third parties, effectively stripping the developers of their ownership rights over the credits they generate. 

The industry experts note that such restrictive actions contradict global climate finance trends and actively block significant foreign exchange revenue from entering the economy.

To bridge this trust gap and reverse hesitant private sector sentiment, Kubota emphasised that data reporting mechanisms must be utilised not as bureaucratic compliance exercises but as practical, market-making instruments that significantly reduce investment uncertainty. 

By establishing clear revenue models, rolling back restrictive policy overlaps and offering comprehensive derisking mechanisms alongside a coherent operational framework, the state can transform environmental compliance into a highly competitive economic advantage for Sri Lankan industries. 

“The private sector does not invest on the basis of ambition alone,” she reminded the stakeholders, urging a shift from concept to execution.