Suriname has announced its intention to become the first country to sovereignly sell carbon credits under Article 6.2 of the Paris Agreement developed using the UNFCCC REDD+ framework. This development, facilitated by a partnership between ITMO Ltd and BancTrust Investment Bank, marks a significant step forward in implementing international carbon trading mechanisms.
The REDD+ project under the UNFCCC is registered as part of the UN Mechanism under the Paris Agreement. Developing countries can issue REDD+ results under Article 5 that can be converted to Internationally Transferred Mitigation Outcomes (ITMOs) under Article 6.2 by adhering to the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement (CMA) guidance and fulfilling the participation, reporting, and verification requirements.
These ITMOs are verified, authorized by the host countries, and recorded in national or international registries to ensure they are only used once, complying with the rules against double-counting. This process enables REDD+ projects to be traded internationally as ITMOs, which contributes to implementing Nationally Determined Contributions (NDCs) and allows for higher ambition in mitigation and adaptation actions.
With a population of under 0.65M and over 90% of its land covered in forests, Suriname is uniquely positioned as a credit seller under Article 6. The country's ambitious project aims to preserve 1.5M hectares of pristine rainforest, potentially generating up to 20M tons of carbon credits annually. ITMOs will be offered to sovereign nations and corporations seeking to offset their emissions and meet climate targets. Through Article 6, Suriname can leverage its natural resources to generate revenue while contributing to global climate mitigation efforts.
The introduction of Suriname's carbon credits is positioned to greatly impact the global carbon market. The entry of sovereign carbon credits can substantially increase the volume and liquidity of the carbon market, potentially leading to more efficient trading and pricing mechanisms. As one of the first major sovereign ITMO offerings under the Paris Agreement, this project will likely play an important role in establishing benchmark prices for high-quality, nation-backed carbon credits.
This price discovery process could provide valuable insight for future carbon credit transactions and help shape market expectations. Moreover, Suriname's emphasis on preserving pristine rainforest may set new standards for credit quality and integrity in the market, potentially raising the bar for carbon credit projects worldwide.
The strong investor interest in Suriname's forest carbon ITMOs, with reports indicating that 65 companies have already expressed interest, suggests a robust demand for these credits. The enthusiasm from potential buyers not only validates the market potential for high-quality sovereign carbon credits but also signals a growing recognition of the importance of nature-based solutions in addressing climate change. This offering could also drive improvements in credit quality standards which has the potential to address existing concerns about additionality and permanence in forest carbon projects. Suriname’s position as a carbon-negative country adds credibility to its credits, which in turn can command a premium in the market. However, the market may also face challenges such as regulatory uncertainties surrounding the implementation of Article 6 and the need for robust monitoring and verification.
Overall, Suriname’s initiative to sell sovereign carbon credits under Article 6.2 represents a significant milestone in the evolution of international carbon markets. By leveraging its position as a carbon-negative country, Suriname is launching a model that could be replicated in other forest-rich nations, potentially leading to an increase in high-quality carbon credits.