UNDP urges Sri Lanka to operationalise carbon trading framework urgently

Sri Lanka must urgently operationalise and regularise its policy position on carbon trading, as private capital only flows into markets offering deep predictability and clear institutional structures, the United Nations Development Programme (UNDP) urged.

Delivering the keynote address at the 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 surpassed the trillion-dollar mark, domestic industries wait for definitive signals to tap into these funds.

Ambition on paper is not enough and requires the backing of implementation systems, financing instruments, and institutional credibility, Kubota noted, pointing out that businesses require clear signals on where the macroeconomic landscape heads and what sectors face transition.

For the private sector to confidently engage in carbon markets, the state must finalise a clear, highly technical operational blueprint, Kubota explained. 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.

When regulatory standards remain ambiguous, licensing permits move slowly, or responsibilities diffuse across multiple government ministries, private capital naturally hesitates, Kubota added.

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

While 41% of NDCs globally identify private sector entry points, only 13% reflect active corporate engagement, representing a critical implementation gap that local industries and policymakers must urgently bridge, Kubota noted.

The economic urgency for unlocking these new financing channels remains severe, as climate-related damage in the country already exceeds Rs. 50 billion annually. Clarifying the post-disaster recovery needs of the state, 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 outdated reconstruction approaches.

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

The call for policy predictability arrives at a critical juncture, as recent state interventions severely clouded investor confidence in the local carbon space. Despite the country signaling 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 renewable energy developers from entering carbon credit sales agreements with third parties, effectively stripping developers of ownership rights over the credits they generate.

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

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

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, Kubota reminded stakeholders, urging a shift from concept to execution.