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Sergey Sitnikov took part in the session on the legal nature of voluntary carbon credits (VCC)

Sergey Sitnikov took part in the session on the legal nature of voluntary carbon credits (VCC)

On January 31—February 1, 2024, a joint session of the United Nations Commission on International Trade Law (UNCITRAL) group of experts and the International Institute for the Unification of Private Law (UNIDROIT) Working Group on the legal nature of voluntary carbon credits (VCC) took place in Vienna. The Center’s expert Sergey Sitnikov participated in this session.

The experts considered the research project on the legal nature of VCC, prepared jointly by the UNCITRAL and UNIDROIT secretariats. The document is a comprehensive review of key aspects of VCC and their circulation, including their legal nature, their regulatory treatment as a commodity or a financial instrument, specifics of property rights to VCC, transfer of VCC, possibility to use them as support means, course of action in case of insolvency of market participants, as well as some aspects of applicable law.

Expert discussions on these issues have been going on for a long time. Bringing them to the UNCITRAL and UNIDROIT level may provide a basis for broader regulatory harmonization in the future. It is envisioned that the research project will include possible approaches to key aspects of the existence and circulation of VCC that could be considered by different countries as they work towards their own regulation. Thus, the draft research already provides examples of the approaches to VCC regulation in some countries. In addition, the Hague Conference on Private International Law is also expected to prepare within its competence a study on private law issues, applicable to VCC and their circulation.

During the discussion of the project, the Center’s expert made some recommendations for its finalization. In particular, he suggested to clarify definitions (the scope of the term “emissions trading system”, etc.) and outcomes within the research related to non-VCC carbon assets. He also proposed to clarify the issues of regulation of relations between participants in the joint implementation projects under the Kyoto Protocol to the UN Framework Convention on Climate Change and determination of the legal regime of VCC in some cases (for example, in case of transfer from one registry to another), and others.

An updated version of the research on the basis of discussion is scheduled to be submitted for the UNCITRAL member-states consideration at the 57th UNCITRAL session, which will be held in New York from June 24 to July 5, 2024.

In continuation of the joint meeting, on February 2, a separate meeting of the UNIDROIT Working Group on the legal nature of VCC was held. The main purpose of the meeting was to discuss issues related to the selection of the UNIDROIT instrument, within which this international organization is going to consider the issues of private law applicable to VCC circulation. Participants tentatively supported the development of “principles” that would allow not only the inclusion of outcomes but also recommendations on the issues addressed therein.

The Center will continue to monitor the development of these important documents.