Sunday Times 2
Additionality on carbon credits: the UN-backed benefits denied to local renewable energy industry
View(s): 128Dr. Priyantha Wijesooriya
Sri Lanka, a committed signatory to global climate treaties such as the Kyoto Protocol and the Paris Agreement, has stirred a controversy with its 2024 policy claiming state ownership of all carbon credits from grid-connected renewable energy (RE) projects—solar, wind, small hydro, and biomass energy. This applies to initiatives entirely funded by private developers, prompting outrage from the RE sector. They accuse the government, particularly the Ministry of Environment, of breaching the UN’s Additionality Principle and undermining private sector investments.
The Additionality Principle is clear: carbon credits should reward emission reductions that wouldn’t occur without financial incentives from carbon markets. Sri Lanka’s private RE developers, however, built these projects with their own capital. By appropriating these credits, the government denies them a legitimate revenue stream, violating a bedrock of international climate frameworks. This isn’t a mere technicality—it’s a blow to the trust placed in private innovation to propel Sri Lanka toward its 2050 carbon neutrality goal.
For decades, the Additionality Principle has been a lifeline for RE developers worldwide, offering a modest return on investment through carbon credits—a principle Sri Lanka, as a UN member, pledged to uphold. Yet, the government now expects feed-in tariffs, set by the Ministry of Power and Energy, to compensate as a return on investments. This is unrealistic, as seasoned project developers would say. Tariff committees, however well-intentioned, rarely grasp the immense costs and challenges private developers face in Sri Lanka’s RE landscape.
This policy, enacted via a Cabinet decision under former President Ranil Wickremesinghe, raises doubts about whether ministers then fully understood the implications of the state owning all the carbon. Did they realise it jeopardises Sri Lanka’s standing under global protocols, where Additionality is a fundamental safeguard?
The consequences are dire: RE developers investing to support national climate goals now face losses, with all carbon benefits fitting the protocols, claimed by the State, potentially branding it as an investor-unfriendly country for renewable energy.
Using carbon credits earned rightfully by the private sector to fill the country’s NDC (Nationally Determined Contributions) position, by literally ‘waylaying’ or taking away the private-sector-earned carbon credits, is a height of misjudgment by the Environmental Ministry and other connected ministries. Note, we do not have any public consultations to show. If properly investigated, this matter should keep the Attorney General’s Department and the Board of Investment engaged for some time, as global protocols appear to have been breached.
The fallout also extends internationally, disrupting the Japan Credit Mechanism (JCM), a bilateral deal to share carbon credits. This contradiction, also rooted in Wickremesinghe’s tenure, has thrown the JCM also into chaos, casting doubt on Sri Lanka’s reliability as a global partner.
The Ministry of Environment and officials who lodged cabinet proposals for this ‘take away the carbon of the private sector’ must be held accountable. Pushing this policy through the Sri Lanka Cabinet smacks of bureaucratic overreach, eroding UN treaty commitments and private sector confidence. Even the new NPP government appears misled. Sri Lanka’s climate ambitions depend on partnership, not expropriation.
Feed-in tariff adjustments may soon emerge for the RE industry with the presumed assumption by instigators of this ‘Only the State owns the Carbon Policy’ irrespective of private sector efforts to develop RE projects. This removes a vital buffer in this sensitive industry.
Scientifically set feed-in tariffs are welcome, but expecting them to fully offset investment losses while breaching Additionality is a grave misstep, threatening the future of RE in Sri Lanka that depends mainly on private-sector efforts. It’s time to reverse course, honour the Additionality Principle, and fairly reward those driving our sustainable tomorrow, and this issue should draw attention from the Cabinet Secretary, the Attorney General’s Department, and the BoI.
(The writer is the founding president of the Solar Industries Association, Sri Lanka)