UNDP proposes to the government to formalize carbon market policies to attract private investment

Delivering a special address at the 2026 Sri Lanka Climate Summit, organized by the Ceylon Chamber of Commerce, Ms. Azusa Kubota, Resident Representative of the United Nations Development Programme (UNDP) in Sri Lanka, stated that carbon market policies must be urgently formalized and brought to a practical level to attract private capital to the country. She further pointed out that merely having climate targets is not enough, and it is essential to translate them into clear operational plans to build investor confidence.

As private sector climate finance globally has now exceeded the USD trillion mark, the government must send clear signals to enable local industries to access these funds. Emphasizing that funds limited to documents are ineffective and that it is crucial to create the necessary legal and technical environment for businesses to enter this market without hesitation, Ms. Kubota also stated that this should include official approval for projects, strict accounting rules to prevent double counting of carbon, and transparent models for benefit sharing.

However, a warning was also issued that recent government interventions related to carbon credit trading have severely impacted investor confidence. Although Sri Lanka has shown keen interest in Article 6 of the Paris Agreement, efforts to establish a national carbon credit trading system are currently stalled. Furthermore, new conditions added to standard power purchase agreements prohibit renewable energy developers from selling carbon credits to third parties, and experts in the field point out that such restrictive measures will result in the loss of significant foreign exchange revenue that the country could have received.

Sri Lanka incurs damages exceeding LKR 50 billion annually due to the impacts of climate change, and according to post-disaster needs assessment reports, over LKR 1,000 billion is estimated to be required for recovery within the next three years. In such a severe economic climate, the UNDP representative further emphasized that the private sector will not invest merely by looking at climate objectives. Therefore, it is imperative to swiftly transition from conceptual goals to practical implementation by removing existing restrictive policies and introducing mechanisms to minimize investment risks.