As time goes by, the need to find mitigation mechanisms against climate change increases. In this context, there is a direct influence on Panamanian legislation from international instruments whose main objective is to combat the effects of climate change and assume commitments to reduce greenhouse gas emissions (“GHG”); among which are the Kyoto Protocol of the United Nations Framework Convention on Climate Change, adopted by Panama through Law 88 of November 30, 1998; the United Nations Framework Convention on Climate Change through Law 10 of April 12, 1995; the Paris Agreement through Law 40 of September 12, 2016 and the Doha Amendment to the Kyoto Protocol through Law 38 of June 3, 2015.
A carbon credit is a mechanism that allows companies, countries and organizations to offset the carbon dioxide emissions they produce. These credits represent the amount of GHG emissions that a company, country, organization or individual has reduced, prevented or removed from the atmosphere by investing in projects that reduce or mitigate these gases.
Carbon credits are traded on the carbon market, which is divided into voluntary and regulated markets. The voluntary market operates outside of regulated markets and allows the purchase of credits through free supply and demand, allowing companies, organizations and even countries to offset their emissions voluntarily. In contrast, the regulated market operates within the framework of a government or international organization and trading must comply with applicable regulations. It is important to mention that carbon credit prices are not standardized, but vary depending on the type of market, project, sector and other factors.
Panama has expanded regulation on this particular topic through Executive Decree No. 100 of October 20, 2020 (the “DE 100”) and Decree 142 of December 9, 2021 (the “DE 142”). DE 100 grants the Ministry of Environment (“MIAMBIENTE”) the power to develop the National Carbon Market (“MNC”), while DE 142 defines the MNC and its components. DE 142 refers to carbon credits within the MNC as greenhouse gas emission reduction units (“UNRE”).
The components of the MNC are:
- National Greenhouse Gas Management Programs : These GHG management programs, under the framework of the National Program Reduce Your Footprint (“PNRTH”), are expected to represent the demand for credits (or UNRE) within the MNC. Currently, there are programs within the PNRTH, such as Reduce Your Corporate-Carbon Footprint (“RTH Corporate – Carbon”) and Reduce Your Municipal Footprint (“RTH- Municipal”), which were created to standardize processes related to GHGs.
- Panama’s National GHG Compensation System (“SNCP”) : This component corresponds to the demand for carbon credits (or UNRE) at the national level by the actors participating in the PNRTH. The SNCP will be composed of project developers that implement GHG reduction or removal initiatives in sectors such as energy, waste, refrigeration, forestry, and livestock. These projects will be registered in the National Climate Transparency Platform, which will serve as a general information registry for those interested in entering the SNCP and participating in the MNC.
- Panamanian Carbon Exchange (“BPC”) : This platform will connect the supply and demand of national carbon credits (or UNRE), facilitating the connection between the organizations participating in the PNRTH to the projects that reduce emissions in the SNCP. The BPC will be administered by the Latin American Stock Exchange, SA (LATINEX). The BPC is expected to begin operating in 2024.
Although this regulation and the MNC are recent, there is a marked trend towards future projects of this type, as can be seen in several projects, including the Azuero Reforestation Project, in which we recently participated as legal advisors. We see an increasing number of investors and companies that want to belong to the SNCP, as well as companies, organizations, and countries that want to invest in carbon credits in the voluntary market. This growing interest bodes well for the future of carbon credit trading in Panama.
For more information on this topic, please contact:
Inocencio Galindo , partner
Aristides Anguizola , partner
Arantxa Fernández , associate