Sri Lanka’s Carbon Credit Market Stalls amid Policy Uncertainty
By: Staff Writer
September 15, Colombo (LNW): Sri Lanka’s ambition to benefit from the global carbon market remains constrained by the absence of a functioning national carbon credit registry and uncertainty over the Government’s policy on carbon trading. While the country has drafted guidelines and begun constructing the necessary institutional infrastructure, projects seeking to monetise emission reductions continue to face questions over authorisation, tracking and the Government’s ultimate approach.
Kumudini Vidyalankara, Director of Environment Planning and Economics at the Ministry of Environment, disclosed the situation during a recent webinar hosted by the Sri Lanka Energy Managers Association (SLEMA). She said the carbon registry was being developed, but its completion depended on clarifying the new Government’s policy and obtaining acceptance for several outstanding mechanisms.
“The carbon registry is in the process of being developed,” Vidyalankara said, adding that the Ministry had already drafted a carbon trading policy and prepared implementation guidelines. The draft policy and guidelines remain under consideration, while construction of the registry is underway.
The institutional delay is significant because carbon credits are not merely environmental certificates. They represent emission reductions that can be traded, transferred or used to support corporate climate claims. Without a credible registry, Sri Lanka risks losing oversight of projects, credit transfers and the environmental claims attached to them.
The policy uncertainty also follows a decision taken by the previous Government in September 2024, when it approved and published a “positive” list of project areas considered for trading under Article 6 of the Paris Agreement. The list included limits on the share of emission reductions that could be credited from certain sectors, including renewable energy projects. Depending on the project category, the applicable caps were reportedly set at either 50% or 25%.
Those restrictions raise important questions for renewable energy developers and investors. If a project cannot credit all of its eligible emission reductions, its potential carbon-market revenue may be reduced. In an industry already facing financing, tariff and project-development challenges, uncertainty over future carbon income could further complicate investment decisions.
Vidyalankara said the Ministry was working to complete the policy and guidelines before finalising the registry. However, she stressed that certain mechanisms still required clarification and Government acceptance.
The delay comes as international climate-finance mechanisms increasingly place importance on transparent accounting and national authorisation. Article 6 transactions, particularly those involving international mitigation purposes or Nationally Determined Contributions (NDCs), require countries to maintain confidence that emission reductions are not counted more than once.
The United Nations Development Programme (UNDP) has urged Sri Lanka to urgently operationalise and regularise its policy position on carbon trading. The call highlights the growing concern that the country could miss opportunities in an expanding market while its regulatory architecture remains incomplete.
Sri Lanka therefore faces a dual challenge: developing a market that can attract investment and ensuring that carbon credits genuinely represent additional, verifiable emission reductions. Until the policy is settled and the registry becomes operational, the country’s carbon-market ambitions remain largely on paper.
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