HFW Briefing – Nationalisation risk – Will host countries hedge their bets between Article 6 and the Voluntary Carbon Markets? – Dec 2022

At a glance

As countries enact domestic legislation to implement their commitments in respect of their Nationally Determined Contributions (NDCs) under the Paris Agreement, it is likely that voluntary mitigation projects will be subject to greater regulation and scrutiny by host countries. In particular, voluntary mitigation or removal projects (Projects) are likely to face licensing or authorisation requirements as well as restrictions on international transfers of carbon credits or mitigation outcomes. 

As highlighted in our comparison of the current legal position in Indonesia, India and Malaysia, different countries are presently at varying stages of the enactment of their domestic legislation to aid in the implementation and delivery of their NDCs. The extent of regulation and the consequential attraction to investors of that country as an investment location will also therefore vary between different countries as a result of the legislative approach that they adopt. Project proponents would be wise to carefully consider a host country’s regulatory framework in assessing Project risk, investment structure and therefore, feasibility. 

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