The Bhutan Carbon Markets Framework 2025 provides a detailed set of guidelines and rules for the country to participate in international carbon markets under Article 6 of the Paris Agreement. The framework establishes the institutional arrangements, project development and technical requirements necessary to mobilise climate finance while ensuring environmental integrity.
Institutional arrangements and governance:
Bhutan has established a multi-tiered governance structure to oversee carbon market activities:
- National Environment Commission (NEC) / National Climate Change Committee (NCCC): The apex body for climate governance and high-level policy oversight, responsible for policy oversight, rulemaking, and approving the strategic direction of Article 6 engagement.
- Climate Change Coordination Committee (C4): A technical advisory body that provides technical guidance on Article 6 participation like proposing positive list of activities, approving technical standards, guidelines, and accreditation rules for auditors/verifiers, approving project authorization and ITMO participation and addressing grievances and technical disputes.
- Department of Environment and Climate Change (DECC): Functions as the Designated National Authority (DNA), responsible for implementing strategic guidance from NEC/NCCC, and supervise CCD and CMU operational activities.
- Climate Change Division (CCD): A division within DECC handling climate-related programmes and operational oversight and administering Bhutan Climate Fund (BCF).
- Carbon Market Unit (CMU): The operational arm within the CCD that manages day-to-day carbon market operations, registry updates, and mitigation outcome transfers.
- Registry Operator: A unit reporting to CMU and CCD, overlooking the administrative management of Bhutan National Carbon Registry.
Market infrastructure:
- Bhutan National Carbon Registry (BNCR): Bhutan has established a National Carbon Registry that meets the reporting and tracking requirements of the Paris Agreement. The registry will be interoperable with international registries connected to the Climate Action Data Trust. The key functions of a registry include initial creation or issuance, transfer and tracking of ownership, cancellation, and retirement of ITMOs/MOs.
- Bhutan Climate Fund (BCF): The BCF is a sovereign fund established by the RGoB to serve as the primary financial mechanism supporting the country’s participation in carbon markets under Article 6 of the Paris Agreement.
Authorization: The authorization process in the Bhutan Carbon Markets Framework 2025 is a structured, multi-stage mechanism.
Types of Authorization: The framework defines three distinct levels of approval:
- Cooperative Approaches (Type A): Approval of bilateral or multilateral agreements (such as the one with Singapore) that define how ITMOs will be transferred and used.
- Entities (Type B): Approval of specific project developers to participate in activities that generate ITMOs.
- ITMOs (Type C): Final approval for the actual issuance and international transfer of specific emission reduction units.
The process moves from initial conceptualization to final international transfer through these key phases:
1. Pre-Authorization: Prepare Mitigation Activity Note (MAN) to show alignment with national goals. If the request is approved by CMU, the proponent will be issued Letter of Intent (LOI).
2. Mitigation Activity Authorization: Formal review of the Mitigation Activity Design Document (MADD) and third-party validation by CMU. Issuance of Letter of Authorization (LOA) upon request approval.
3. Mitigation Outcome (MO) Authorization: Verification of actual emission reductions achieved during project operation. Issuance of Letter of Positive Examination, upon request approval by CMU.
Pre-Approved List of CCPs:
The DECC maintains a pre-approved list of CCP that are eligible in Bhutan under Article 6 of the Paris Agreement, specifically towards authorization purposes. These programmes are:
1. Paris Agreement Crediting Mechanism or Article 6.4 Mechanism
2. Gold Standard for the Global Goals (GS4GG)
3. Verified Carbon Standard (VCS)
4. American Carbon Registry (ACR)
5. Global Carbon Council (GCC)
6. Architecture for REDD+ Transactions (ART)
Fee structure:
Types of Fees:
1. Administrative and Management Fees: These fees cover the procedural costs for processing and monitoring projects, which includes components like Project Development Fee, Account Creation Fee, Registration Fee, Entity Identification Fee, Listing Fee, and Authorization Fees (LoA fee, LoI fee, Letter of Acknowledgement Fee (Optional)).
2. Corresponding Adjustment (CA) Fees: The CA fee is a critical component that reflects the "opportunity cost" to Bhutan for transferring mitigation outcomes to external buyers instead of using them toward its own NDC. CA fees will be applied per unit of ITMO and may vary based on the type, sector, or cost of mitigation activity.
The framework suggests a tiered fee that increases as the total volume of transferred ITMOs rises: $5 per tCO2e for ITMO volume of Up to 5 million tons; $10 per tCO2e for ITMO volume of 5-6 million tons; $15 to $ 20 per tCO2e for ITMO volume of 6-8 million tons and $25 per tCO2e for ITMO volume of 8-9 million tons and above.
Share of Proceeds (SOP):
To align with international Article 6 guidance, transactions include mandatory contributions of the issued ITMOs:
Overall Mitigation in Global Emissions (OMGE): 2% of issued ITMOs are cancelled to ensure a net benefit to the atmosphere.
Adaptation Fund: 5% of issued ITMOs are contributed to Bhutan’s national adaptation fund, managed through the BCF.
The Bhutan Carbon Markets Framework 2025 outlines a comprehensive approach to benefit-sharing, ensuring that the rewards from carbon projects are distributed transparently and equitably among all stakeholders
