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Carbon Markets Framework For The Kingdom Of Bhutan 2025

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:
<ul>
<li>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.</li>
<li>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.</li>
<li>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.</li>
<li>Climate Change Division (CCD): A division within DECC handling climate-related programmes and operational oversight and administering Bhutan Climate Fund (BCF).</li>
<li>Carbon Market Unit (CMU): The operational arm within the CCD that manages day-to-day carbon market operations, registry updates, and mitigation outcome transfers.</li>
<li>Registry Operator: A unit reporting to CMU and CCD, overlooking the administrative management of Bhutan National Carbon Registry.</li>
</ul>

Market infrastructure:
<ul>
<li>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.</li>
<li>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.</li>
</ul>

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:
<ul>
<li>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.</li>
<li>Entities (Type B): Approval of specific project developers to participate in activities that generate ITMOs.</li>
<li>ITMOs (Type C): Final approval for the actual issuance and international transfer of specific emission reduction units.</li>
</ul>

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

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An aim to achieve a quantifiable outcome within a given time-frame, set by an institution such as a national government.

Policy instruments are techniques or tools used by governing authorities to promote certain policies in order to achieve predetermined goals. Put simply, instruments are how a government tries to achieve its goals, with this taxonomy being focused on national policy instruments.

Risk is the potential for adverse consequences resulting from the dynamic interplay between (climate-related) hazards, exposure, and vulnerability of affected human or ecological systems.

Groups  of people who are adversely affected by climate change or the response to it

A set of principles, processes, and practices that build economic and political power to shift from an extractive economy to a regenerative economy.

Renewable energy means all forms of energy produced from renewable sources in a sustainable manner.

Fossil fuel is a generic term for non-renewable energy sources such as coal, fossil gas, and oil (including crude oil, and petroleum products), that can be used for electricity and heat generation. Fossil fuels are hydrocarbons formed from pressurised and heated organic material buried over millions of years.

Molecules in the atmosphere that play a key role in the greenhouse effect by trapping heat radiating from Earth’s surface.

Area of the economy in which actors engage in identical or related activities.

In human systems, the process of adjustment to actual or expected climate change and its effects, in order to moderate harm, increase resilience or exploit beneficial opportunities. In natural systems, the process of adjustment to actual climate change and its effects; human intervention may facilitate adjustment to expected climate change and its effects.

The management and allocation of funds, assets and investments to meet various objectives

Compulsory, required payments to the government that are levied more-or-less in proportion to the services provided. Fees and charges range from entrance fees to national parks, charges on land-based sewage discharge.

Tradable permits are market-based tools that grant permission for specific activities, frequently used to regulate emissions. These permits can be issued within a trading system to manage environmental impacts.

Codes and standards are regulatory instruments that specify minimum standards to protect health and safety. This ranges from performance standards, which prescribe outcomes while allowing flexibility to achieve compliance, to the more prescriptive approach of technology-specific standards.

The processes through which enterprises can identify, prevent, mitigate and account for how they address their actual and potential adverse impacts. Due diligence is the idea that reasonable precautions should be taken to avoid causing harm to people, the environment, or society. It also involves identifying and mitigating risks before they occur.

Financial actors and resources that are primarily directed towards climate change mitigation, adaptation and compensation.

Dedicated pool of financial resources for climate-related projects.

Using laws and the legal system more broadly to protect vulnerable entities

Either money or something of monetary value is transferred between two or more organisations, people or countries.

Actions or measures to adapt terrestrial systems to climate change.

Actions or measures to adapt freshwater systems to climate change.

Actions and measures to adapt and increase resilience of societies and the economy to climate change.

Actions or measures to adapt freshwater, coastal and marine systems to climate change.

The release of heat-trapping gases, primarily from human activities such as burning fossil fuels, agriculture and industry.

A long-lived, colourless gas, chiefly emitted from fossil fuel combustion, deforestation and cement production.

A potent, short-lived greehouse gas, largely released from livestock, fossil fuel extraction and waste management.

Analysing climate change as a political and ethical issue, recognising how it -- and the exploitation of natural resources broadly -- impacts people, communities and countries differently and disproportionately.

Social inclusion is the process of improving the terms on which individuals and groups take part in society—improving the ability, opportunity, and dignity of those disadvantaged on the basis of their identity.

Oil is a combustible liquid fossil fuel composed mainly of hydrocarbons, occurring as crude oil and refined into petroleum products such as petrol, diesel and kerosene.

Fossil gas, commonly known as natural gas, is a fossil fuel consisting chiefly of methane with smaller amounts of other hydrocarbons and trace gases, found in underground deposits.

People with different national or cultural traditions from the dominant population

Social and cultural groups that share collective ancestral ties to the lands and natural resources where they live, occupy or from which they have been displaced

Any compulsory, unrequited payment to the government levied on corporations or individuals. This can be for environmental reasons, such as introducing a Carbon tax to set a price that emitters must pay for the greenhouse gases they emit.

The activities of industries involved in the production, distribution, and sale of energy, including electricity, gas, and renewables.

This sector involves managing waste treatment, sanitation, pollution control and environmental cleanup.

Activities that involve planning, designing and building infrastructure, residential, and commercial structures.

This sector involves activities to move goods and people, alongside the storage of products.

This sector involves activities that impart knowledge and skills to individuals, including formal schooling, vocational training and educational support.

Activities of government agencies and institutions that provide public services, enforce laws and manage public resources.

Activities of businesses and institutions that provide financial services and products to individuals and organisations.

Activities that involve the cultivation of crops and raising of livestock for food, fibre, and other products essential for human life and industry.

the fair distribution of risks and opportunities of climate change and the transition to a regenerative economy, cognisant in particular of disproportionate impacts on vulnerable communities and the working class

Procedural justice means ensuring that decision making is fair and inclusive, emphasizing the agency and influence of vulnerable groups and those most impacted.

Slow onset events evolve gradually from incremental changes over many years or from increased frequency or intensity of recurring events. As defined in the Cancun Adaptation Framework (2010), slow onset events include risks and impacts from rising temperatures, desertification, biodiversity loss, land and forest degradation, glacial retreat, ocean acidification, sea level rise, and salinization.

Carbon Markets Framework For The Kingdom Of Bhutan 2025

Policy instrument

Risk

Impacted group

Just transition

Renewable energy

Fossil fuel

Greenhouse gas

Economic sector

Adaptation/resilience

Finance