Carbon Trading Opportunities: A Comprehensive Proposal

The working group presented its findings this morning at a meeting held in the Ministry and in streaming. A recording of the meeting is available here.

Mr. Guðlaugur Þór Þórðarson, Minister of the Environment, Energy and Climate, appointed the group last year and the group’s recommendations have now been submitted to the minister. The group was tasked with examining the role of carbon markets in Icelandic context and evaluating the main challenges and opportunities as well as the potential benefits of projects that can produce valid carbon units, as well as evaluating the following:

The working group was led by Jónas Friðrik Jónsson. Other attendees were Helga Barðadóttir, a subject matter expert in the Ministry of Environment, Energy and Climate, and Rafn Helgason, a subject matter expert in the Ministry of Food, Agriculture and Fisheries.

Jónas presented the committee’s work and proposals during the meeting. First, Jónas explained the concept of a carbon unit, which is equivalent to one metric ton of carbon dioxide equivalents. He then provided an overview of compliance and voluntary carbon markets. Compliance carbon markets are established by governments or federations of states, and participation is based on meeting the obligations of participants to reduce their carbon footprints. In voluntary markets, participants purchase carbon units without being compelled to do so.

Mr. Jónas engaged in a discussion regarding the characteristics of the voluntary market, the government's role as a buyer of units, the stringent requirements associated with such transactions, and the necessary legal modifications to ensure the efficient functioning of the voluntary market. It was emphasized that the concept of carbon units should be clearly defined within the legal framework, and a legislative proposal for carbon registries should be formulated. Furthermore, Mr. Jónas addressed the topic of policy formulation for carbon unit purchases, highlighting the need for the government to develop a comprehensive policy in this domain. One specific aspect mentioned was the prohibition of international exports of carbon units from Iceland that could potentially have adverse effects on the country's emissions accounts.

In addition, he presented the notion of a tax structure for the production and acquisition of carbon credits, including the potential for businesses to deduct carbon offsetting expenses from their operational costs. The working group's recommendations encompass specialised depreciation provisions, the option of recouping a portion of capital expenditures, or the payment of environmental taxes in the form of carbon credits. Furthermore, it suggests that the government engage in a pilot intergovernmental trade initiative based on Article 6 of the Paris Agreement, with the aim of identifying the political system's infrastructure for executing such projects. Additionally, it proposes evaluating the potential of projects that can assist developing nations in achieving carbon neutrality. Lastly, Jónas presented the proposal for governments to convene stakeholders to gauge interest in establishing a trading market for carbon units.

The subsequent actions involve placing the report in a consultation portal to gather feedback and suggestions. Addressing the matter will continue based on the working group's recommendations and the consultation process. Additionally, work on a draft proposal for carbon units will be initiated.

Following the chairman's presentation, the minister reiterated that the implementation of these measures will bolster the establishment of incentives for the restoration of wetlands, afforestation projects, and land reclamation efforts. Also that it is crucial to promote and effectively communicate the mechanisms that facilitate such projects.

A recording of the presentation is available on the Ministry's Website.