Need for Targeted Legislation on Public-Private Collaboration in Climate Project Financing

“One of the biggest challenges in international climate cooperation is finding ways to direct funding into actions that address climate change,” says Hrafnhildur Bragadóttir, a PhD candidate at the Faculty of Law at the University of Iceland. She is currently researching the relationship between transactions in voluntary carbon markets and the commitments and actions of states on climate issues. “The challenge is not only related to public funding but also to mobilizing private capital for projects that support climate-friendly value creation—such as technological developments in renewable energy and carbon capture.”

In this context, voluntary carbon markets are playing an increasingly important role. These are diverse markets with no single definition, but generally the product being traded is a so-called carbon credit, which can result from various climate projects undertaken by private actors without any legal obligation to do so. “Carbon credits can then be bought and sold as certificates demonstrating that a certain amount of greenhouse gas emissions has been removed from or avoided in the atmosphere. The main demand comes from companies using these credits to offset their emissions or to demonstrate their contribution to climate efforts,” Hrafnhildur explains.

Rapid Growth in Climate Projects in Iceland

Hrafnhildur is an expert in climate law and has worked extensively on projects related to Iceland’s European climate commitments. Asked about the inspiration for her research, she cites the rapid growth of various climate projects in Iceland, such as forestation and carbon capture and storage, aimed at generating carbon credits. Her academic interests lie primarily in environmental and climate law.
She also notes that legal research on voluntary carbon markets has so far focused largely on projects carried out in developing countries but financed by actors in developed nations. “Less attention has been paid to how projects within developed countries, such as those in the EEA, align with legal requirements and climate commitments.” Her research focuses on whether and how legislation within the EEA needs to be rethought to support private financing of climate projects through voluntary carbon markets.
State Commitments and Voluntary Carbon Markets

The research has a twofold purpose. First, Hrafnhildur examines the relationship between transactions in voluntary carbon markets and the climate commitments and actions of states. “I explore the role of lawmakers in ensuring that privately funded climate projects align with government goals and obligations, not only in climate policy but also across other areas.” Second, she investigates how and whether voluntary markets can support public climate measures and improve the cost-efficiency of tackling climate change.

Using Private Capital to Achieve Carbon Neutrality

In recent years, the operational environment of voluntary carbon markets within the EEA has changed significantly. This is due to rising global demand for carbon credits and the rapid development of EU legislation affecting both the production and use of carbon credits within the EEA.

“At the same time, both the EU and specific European countries have shown interest in directly linking public policy instruments with voluntary carbon markets. The idea is to scale up technological solutions like carbon removal using private capital, while working toward the EU’s long-term goal of climate neutrality by 2050,” explains Hrafnhildur.

“However, the European regulatory framework does not fully align with the norms and standards that have developed in voluntary carbon markets,” she notes. “For example, there is growing emphasis on ensuring EEA countries meet minimum targets for carbon sequestration. This emphasis may limit private actors’ ability to produce carbon credits in voluntary markets. The reason is that the issuing of such credits depends on the 'additionality' principle; that the credited outcome would not have occurred without the specific project.”

Analysing EU Regulations and Directives

The research primarily involves analysing laws related to voluntary carbon market activities within the EEA. “I mainly study EU regulations and directives, but also national legislation,” says Hrafnhildur. The analysis is largely based on traditional legal methodology, though she also employs comparative legal methods.

Her supervisors are Aðalheiður Jóhannsdóttir, professor of environmental and natural resources law at the University of Iceland, and Malou Larsson Klevhill, lecturer at Uppsala University and Luleå University of Technology.

Need for More Targeted Legislation

So far, the research has focused on how the interests of states and private actors intersect. “I’ve been looking at whether legal barriers prevent the mobilization of private capital through voluntary carbon markets to meet national climate commitments,” says Hrafnhildur. She wrote an article on the topic, published in the Nordic Journal of Environmental Law in December 2024 .

Although results are still pending, Hrafnhildur argues in the article that attempts by states to harness voluntary carbon markets for their climate goals essentially create cooperation between two systems that are structured and guided by different objectives and principles. “The main conclusion of the article is that targeted legislation, grounded in systems thinking, is needed to ensure that cooperation between these different systems supports the temperature goals of the Paris Agreement,” she explains.

Hrafnhildur envisions that the findings of her research can improve understanding of the interplay between legal climate commitments and the functioning of voluntary carbon markets. “This could lead to more targeted and efficient legislation on the production and use of carbon credits, potentially boosting the effectiveness of public climate measures and accelerating progress in the fight against climate change.”