CNUDMI - A-CN.9-1216-Add. 1

United Nations A/CN.9/1216/Add.1

General Assembly

Distr.: General 3 July 2025

English only

V.25-10975 (E) 040725 0 70725 2510975

United Nations Commission on International Trade Law Fifty-eighth session Vienna , 7–25 July 202 5

Additional comments on the UNCITRAL/UNIDROIT study on the legal nature of verified carbon credits issued by independent carbon standard setters

Contents Page

I. Introduction ................................ ................................ 2

II. Comments submitted by the Government of Chile ................................ 2A/CN.9/1216/Add.1

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I. Introduction

1. Document A/CN.9/1216 reproduce d comment s received by the secretariat until January 2025 on the revised version of the UNCITRAL -UNIDROIT study on the legal nature of verified carbon credits issued by independent carbon standard setters

(A/CN.9/1191/Rev.1 ). This document supplements that document and reproduces the comments received from the Government of Chile as received by the secretariat .

II. Comments submitted by the Government of Chile

[Original: English ] [2 July 2025] Chile has signed agreements implementing carbon market mechanisms under Article 6.2 of the Country Agreement. These agreements seek to promote the mobilization of private resources to finance mitigation activities that are additional to national efforts and contribute to accelerating transformations toward low -emission models. Chile's Nationally Determined Contribution (NDC) recognizes that marketbased instruments are tools that play a relevant role in fulfilling national climate change commitments. In this context, the discussion of the legal considerations associated with verified

national efforts and contribute to accelerating transformations toward low -emission models. Chile's Nationally Determined Contribution (NDC) recognizes that marketbased instruments are tools that play a relevant role in fulfilling national climate change commitments. In this context, the discussion of the legal considerations associated with verified carbon credits (VCCs) is particularly important. The work developed by UNCITRAL/UNIDROIT contributes to the harmonization of legal criteria and interpretations on issues such as the legal nature of VCCs, applicable law, and dispute settlement procedures, among oth ers. The purpose is to generate greater levels of legal certainty for public and private actors involved in the different stages of the carbon credit cycle and to reduce risk levels in carbon markets. Considering the above mentioned, the Government of Chile submits the following comments on the "UNCITRAL/UNIDROIT Study on the legal nature of verified carbon credits issued by independent carbon standard setters" .

Chapter I. Introduction

B. Issues of terminology and definition of fundamental concepts

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It is important to recognize that the term “verified carbon credits” can also encompass credits issued under the cooperative approaches outlined in Article 6.2 and the centralized mechanisms described in Article 6.4 of the Paris Agreement. In Article 6.2 of the Paris Agreement, the term "Internationally Transferred Mitigation Outcomes" (ITMOs) is used to describe the carbon credits that can be exchanged between countries for the achievement of the NDC of the buyer country or for other purpos es. While ITMOs share many characteristics with verified carbon credits, they include a crucial additional component: the requirement for corresponding adjustments.

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While the use of Article 6 mechanisms is optional for parties to the Paris Agreement, the decision to engage with these instruments comes with significant responsibilities. Adherence to rules and guidelines is essential to ensure environmental integrity an d accountability. This structured approach not only enhances the credibility of carbon

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While the use of Article 6 mechanisms is optional for parties to the Paris Agreement, the decision to engage with these instruments comes with significant responsibilities. Adherence to rules and guidelines is essential to ensure environmental integrity an d accountability. This structured approach not only enhances the credibility of carbon markets but also fosters trust among parties and stakeholders, ultimately driving more effective climate action to achieve the Paris Agreement goals.A/CN.9/1216/Add.1

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C. Scope of the study

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Excluding Article 6 mechanisms from the study overlooks their potential to reshape carbon credit markets significantly. These mechanisms, particularly the cooperative approaches under Articles 6.2 of the Paris Agreement, are poised to usher in a new phase of development for carbon credits. As countries strive to meet their nationally determined contributions (NDCs), the demand for carbon credits issued under Article 6 mechanisms is expected to rise. These credits not only provide a pathway for nations to collaborate on emissions reductions but also offer an opportunity for private stakeholders to engage in more robust carbon market. Carbon credits issued under Article 6 mechanisms are designed with additional safeguards to ensure environmental integrity. This includes rigorous verification processes and the requirement for corresponding adjustments, which enhance the credibility of th ese credits compared to other types. Understanding these features is crucial for policymakers and market participants alike. Given the expected increase in demand and the unique characteristics of these credits, it is advisable to include them in the analysis. A comprehensive understanding of the legal nature of Article 6 credits will benefit both public policymakers and private market participants.

Chapter II . Carbon markets: an overview of the global landscape

A. Compliance carbon markets

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The characterization of ITMOs as a variety of “things” can be somewhat misleading. While it is true that ITMOs can encompass various metrics, the fundamental purpose

A. Compliance carbon markets

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The characterization of ITMOs as a variety of “things” can be somewhat misleading. While it is true that ITMOs can encompass various metrics, the fundamental purpose of an ITMO is to represent real and verified emissions reductions or removals. Most ITMOs are grounded in tangible, measurable reductions or removals of greenhouse gases (GHGs), typically quantified in metric tons of CO2 equivalent. These credits are generated through projects that have undergone rigorous verification process. While there may be exceptional cases where ITMOs could encompass mitigation co-benefits resulting from adaptation actions or economic diversification plans, these instances are not the norm. The primary function of ITMOs is to facilitate the transfer of verified emissions reductions, not to serve as a catch -all for various environ mental benefits. The inclusion of non -GHG metrics or co -benefits should be viewed as an exception rather than the rule. Decision 2/CMA.3 Guidance on cooperative approaches referred to in Article 6, paragraph 2, of the Paris Agreement Annex 1. Internationally transferred mitigation outcomes (ITMOs) from a cooperative approach are: (a) Real, verified and additional (b) Emissi on reductions and removals, including mitigation co -benefits resulting from adaptation actions and/or economic diversification plans or the means to achieve them, when internationally transferred and (c) Measured in metric tonnes of carbon dioxide equivalent (t CO2 eq) in a ccordance with the methodologies and metrics assessed by the Intergovernmental Panel on Climate Change. ITMOs (Internationally Transferred Mitigation Outcomes) share many essential elements with VCCs and can indeed be viewed as a specific type of VCC.A/CN.9/1216/Add.1

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B. Voluntary carbon markets

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In the context of carbon credit issuance and the potential for suspension, it is relevant

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B. Voluntary carbon markets

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In the context of carbon credit issuance and the potential for suspension, it is relevant to consider the legal ramifications of government decisions, whether legislative or judicial, that may impact the validity of verified carbon credits. These legal cha llenges can arise from various factors. When a host state suspends an underlying project, it may delay the issuance of related credits. Such suspensions can stem from shifts in government policy, changes in environmental regulations, or legal challenges th at question the projects compliance with national laws. Legal challenges related to environmental safeguards can significantly affect the validity of verified carbon credits. If a project fails to meet established environmental standards, its credits may be deemed invalid. Human rights issues can also play a critical role. Projects that negatively impact local communities or violate human rights may face legal scrutiny, potentially affecting the legitimacy of the corresponding carbon credits.

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In the context of Article 6.2 mechanisms, failing to make the necessary corresponding adjustments presents significant legal implications. Corresponding adjustments are critical for maintaining the environmental integrity of ITMOs, as they prevent double counting and ensure that emissions reductions are accurately accounted for. Not applying corresponding adjustments can undermine a country’s climate commitments under the Paris Agreement. If a country transfers ITMOs without making the necessary adjustments , it risks misrepresenting its actual emissions reductions, which can lead to legal challenges both domestically and internationally.

C. Relationship between compliance and voluntary carbon markets

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The issuance of a letter of authorization by a government to a private entity for the transfer of an ITMO under Article 6.2 carries significant legal implications, particularly regarding the obligations assumed by the state. Understanding these obligations is essential for all parties involved in the carbon market. When a government issues a letter of authorization approving an ITMO for transfer, it effectively assumes a legal obligation to apply corresponding adjustments. This

particularly regarding the obligations assumed by the state. Understanding these obligations is essential for all parties involved in the carbon market. When a government issues a letter of authorization approving an ITMO for transfer, it effectively assumes a legal obligation to apply corresponding adjustments. This requirement is crucial to pre vent the double counting of mitigation outcomes — ensuring that the emissions reductions achieved are accurately represented in both the host country and the buyer country. The letter of authorization may establish a formal relationship between the government and the private entity. It can be viewed as a type of contractual arrangement that outlines the rights and responsibilities of both parties. The contractual nature of the relationship raises important questions about dispute resolution and the applicabl e law governing the relationship between the state and the private entity.

Chapter III. Current legal issues related to the trading of verified carbon credits issued by independent carbon standard setters

A. Legal nature of verified carbon credits under private law

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Qualifying VCCs as contractual claims rather than as rights over an intangible property poses significant challenges and potential legal uncertainties. While it is essential to maintain legal certainty and facilitate market operations, understanding the complexities acro ss different legal systems is vital.A/CN.9/1216/Add.1

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Under the intangible property approach, VCCs are viewed as rights over an intangible asset, which can simplify transactions and enhance market fluidity. Conversely, classifying VCCs as contractual claims introduces complexities related to the rules governi ng the transfer of such claims, which can vary significantly across jurisdictions. Different legal systems have varying definitions and scopes regarding what constitutes intangible property. In some jurisdictions, the concept of intangible things eligible for proprietary rights are limited. If VCCs do not meet these criteria, they may be treated as rights derived from contractual arrangements. If VCCs are not clearly identified as proprietary rights, courts may default to viewing them as

constitutes intangible property. In some jurisdictions, the concept of intangible things eligible for proprietary rights are limited. If VCCs do not meet these criteria, they may be treated as rights derived from contractual arrangements. If VCCs are not clearly identified as proprietary rights, courts may default to viewing them as contractual rights, potentially undermining t heir perceived value and marketability. To address these challenges, there may be a need for specific legislation that clarifies the legal nature of VCCs. Such legislation could establish a framework that recognizes VCCs as proprietary rights, providing greater legal certainty.

B. Ownership of verified carbon credits

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The ownership of VCCs generated by climate mitigation projects, particularly those involving greenhouse gas sequestration in natural reservoirs, raises complex legal questions. One important aspect to consider is how different legal systems view the absorption of emissions and the resulting rights associated with land ownership. In some legal systems, the absorption of emissions through ecosystems —such as forests or other nature base solution — can be classified as "fruits of the land." This legal characterization recognizes that the carbon sequestered by these ecosystems is a product of the land itself. As such, the rights to this carbon sequestration may be intrinsically linked to the ownership of the land. The legal qualification of carbon absorption as fruits of the land empha sizes that ownership rights in this context arise from land tenure rather than contractual agreements. This distinction is crucial, as it suggests that landowners have inherent rights to the carbon credits resulting from the sequestration processes taking place on their land. A related issue concerns the subsequent owners of VCCs generated by a sequestration project. If VCCs are viewed as linked to the land from which the carbon was sequestered, the ownership of these credits could imply an interest in the underlying land. This raises questions about the rights of VCC holders and their relationship to the original landowners.

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as linked to the land from which the carbon was sequestered, the ownership of these credits could imply an interest in the underlying land. This raises questions about the rights of VCC holders and their relationship to the original landowners.

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The transfer of VCC s can involve not only the sale between a seller and a buyer but also the transfer between different registries. This process, while straightforward in concept, introduces complexities that are crucial for determining the applicable law governing these trans actions. Typically, the applicable law for VCC transfers is determined by the jurisdiction in which the registry operates. This means that the legal framework governing the transfer of credits is heavily influenced by the laws of the country hosting the registry. However, this becomes more intricate in the context of Article 6.2 cooperative approaches where multiple countries participate. In cases where VCCs are transferred between different registries, the process often involves cancel ing VCCs in one registry and reissuing them in another. This raises important legal questions regarding which jurisdiction’s laws apply. The involvement of multiple registries means that stakeholders must navigate different regulatory framework. The registries linked through Article 6.2 cooperative approaches are interconnected with a central database managed by the UNFCCC Secretariat. This central database plays a critical role in monitoring and compiling information to prevent double counting of emissions reductions. The UNFCCC’s oversight adds another layer of complexity and raises questions about the governance and legal authority of the database in relation to national laws.A/CN.9/1216/Add.1

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Developing standardized processes for cross -registry transfers can help streamline operations and reduce legal ambiguities .