I.  Introduction

Over the past few years, carbon credits have become a thriving global trade system valued in billions. In particular, the voluntary market (“VCM”), has attracted growing interest from private actors looking to offset emissions, and from project developers in the Global South seeking finance for sustainable initiatives. Simultaneously, an increasing number of disputes have begun to surface.^[1] Unlike earlier, they are no longer confined to questions of contract law. They often involve deeply technical debates around environmental integrity, scientific validation, and data verification.

Traditional dispute resolution methods, especially international arbitration, are struggling to adapt to this evolving landscape. Arbitration institutions like the International Chamber of Commerce (“ICC”), the London Court of International Arbitration (“LCIA”), and others have long been the default forums for resolving transnational commercial disagreements. Yet when applied to carbon credit conflicts, they appear slow, costly, and ill-equipped to manage the scientific and regulatory complexity of these cases.

Several disputes related to carbon credits have emerged involving alleged double issuance of credits, delays in validation, challenges to additionality, and the sale of credits from projects that failed to meet permanence standards. These disagreements are often governed by standard contracts, but their underlying factual disputes are rooted in climate science, satellite data, and rapidly changing market regulations.^[2]

As the carbon economy expands, the trustworthiness of offset credits has become central to their legal and financial viability. The credibility of these markets will, in large part, depend on whether the disputes they give rise to are resolved in a timely, transparent, and technically sound manner. This article argues that the current international arbitration frameworks are falling short of this standard and must be reshaped if they are to meet the demands of a decarbonising world.

II. The Evolution of Carbon Markets and the Nature of Disputes

Carbon markets were introduced as part of a broader attempt to tackle climate change using economic tools. The idea was straightforward: to allow entities that exceed their emission reduction targets to sell excess reductions to those that do not. Under the Kyoto Protocol, the Clean Development Mechanism (“CDM”) allowed developed countries to invest in emission-reduction projects in developing nations and receive certified emission reductions (“CERs”) in return. This laid the groundwork for carbon credits as tradable instruments in a global marketplace.

The voluntary carbon market has grown rapidly and largely independently, whereas the compliance markets continue to operate under governmental or intergovernmental mandates. It enables businesses and individual to buy carbon offsets outside of regulatory obligations, often to meet internal or domestic environmental commitment. Although the certificates vary in methodology and oversight, standards such as Verra’s Verified Carbon and the Gold Standard have emerged to ensure credibility.

The disputes have been increasing proportionally with the financial projects in these offsetting projects. At the centre of many of these disputes is the question of integrity. One recurring issue is additionality. For generating credits, a project must produce emissions reductions that would not have occurred without it. Disputes mainly arise, when this claim is contested through updates data or scientific reassessments. Another pultruding issue is of permanence. This becomes problematic in case of forestry projects that are at risk of wildfires, pests, or illegal clearing. If such events occur, previously issues credits may lose their environmental value long after they have been traded.

Double counting has been a major issue given the lack of a unified registry across the voluntary market. This happens when a single credit is sold more than once, or when both the host country and the buyer claim the same credit. As carbon credits become more commoditised, these disputes are no longer confined to technical concerns, raising significant legal, commercial and ethical questions.

These disagreements usually involve parties across jurisdictions, complex scientific data, and require timely resolution. However, existing dispute resolution processes are struggling to keep pace.^[3]

III. Why Current International Arbitration Frameworks Fall Short

International arbitration due to its neutrality, enforceability, and procedural flexibility has long been preferred for resolving cross-border commercial disputes. However, limitations start to arise as it is applied to the carbon credit market. The complex, science driven and often time-sensitive nature of these cases poses challenges that traditional arbitration systems were not designed to handle.

One of the key issues is the lack of technical expertise among arbitrators. While the arbitration panels are composed of experienced legal and commercial professionals, they rarely include individuals with backgrounds in climate science, environmental economics, or carbon accounting, which creates problems when disputes turn on highly specific technical questions such as whether a carbon sequestration project meets additionality standards or whether monitoring data justifies credit issuance. In such matters, legal knowledge alone is insufficient.

Another issue is of procedural delay. While many disputes over carbon credits are time sensitive, yet arbitration proceedings, under institutions like the ICC or LCIA, often extend over several months or even years. This delay undermines both the financial value of the disputed credits and the environmental objectives of the underlying projects.

Another significant barrier is cost as smaller project developers, especially in the Global South, may lack the resources to pursue full arbitration proceedings. Financial pressure constrains their ability to defend their claims or challenge discrepancies, even though these parties are the ones producing credits. This results in an imbalance in procedural access, which undermines the fairness of the process.

Consistency is also lacking. Carbon credit disputes do not currently benefit from any consolidated body of precedents. Awards are often confidential, fragmented, and grounded in varying contractual and institutional rules. This leaves market participants with little guidance on how similar disputes may be resolved in the future.

Finally, enforcement presents its own challenges. Although arbitral awards are generally enforceable under the New York Convention, the transnational nature of carbon credit transactions, combined with regulatory ambiguity in certain jurisdictions, can make enforcement unpredictable. This uncertainty creates risk for investors and developers alike.^[4]

In sum, while arbitration remains a cornerstone of international commercial law, it is not yet equipped to meet the particular needs of the carbon credit market. Without reform, the gap between market complexity and procedural adequacy will continue to widen.

IV.  Specific Procedural and Institutional Gaps

Beyond the general mismatch between arbitration and the nature of carbon credit disputes, specific procedural and institutional features make current systems particularly unsuited to this context.

Arbitrator selection is one such problem. Most arbitral institutions permit parties to nominate their own arbitrators, typically favouring those with commercial, construction, or financial backgrounds. However, disputes concerning carbon credits often involve technical evidence drawn from climate modelling, ecological monitoring, or satellite imagery. In the absence of a neutral expert or scientifically literate tribunal, the outcome of the dispute may depend not on the strength of the evidence but on the parties’ ability to explain complex data in simplified terms, which disadvantages smaller actors and reduces the integrity of the process.^[5]

The other challenge is of evidentiary rules. The carbon credit claims rely on highly technical material, such as validation reports, drone footage, geospatial datasets, and digital registries that do not generally align with traditional forms of proof. In this scenario, the standard evidentiary rules may either overburden the process or fail to accommodate these new types of evidence in a meaningful way.

Confidentiality which goes hand in hand with arbitration, becomes a double edged sword. While parties prefer discretion in commercial matter, carbon credits disputes often implicate wider interests. A forest project that loses its credits due to non-compliance does not only affect the investor and the verifier; it can impact local livelihoods and regional climate targets. Resolving such disputes in private, give very little scope for public scrutiny or regulatory learning.

Finally, there is also an issue of procedural flexibility. While institutional rules allow for expedited procedures, these are rarely invoked in practice for carbon market claims. Further, delays in resolving disputes not only affect project financing but may also lead to environmental non-performance or reputation loss of buyers.

V. The Path Forward: Institutional Reforms and New Frameworks

1. Establishment of a Dedicated Carbon Arbitration Centre

A specialised body focused on environmental and carbon-related disputes should be made. A Carbon Market Arbitration Centre (“CMAC”) could be housed in neutral jurisdictions with robust arbitration hubs such as Singapore or London. This centre would be equipped with rules, procedures, and personnel specifically tailored to handle disputes over carbon credit issuance, verification and trade.

2. Expert Panels with Scientific and Technical Backgrounds

Rosters of experts in climate science, carbon accounting, foster management, and data verification should be there as support in Tribunals. Their appointment would be as tribunal members or they would serve in an advisory capacity. Their presence would ensure that technical arguments are assessed with the necessary depth and accuracy.^[6]

3. Model Clauses for Carbon Credit Contracts

Standardised arbitration clauses specifically designed for carbon markets should be adopted by market participants. These clauses should include terms regarding the forum, governing law, use of technical experts, and timelines for resolution. Institutions like the International Bar Association or UNIDROIT could lead in drafting such instruments.

4. Regional Hubs to Increase Access and Equity

Dispute resolution facilities must also be accessible to parties in regions where many carbon offset projects originate. Establishing regional arbitration hubs in Africa, Southeast Asia, and Latin America would improve access to justice and reduce costs for project developers. These hubs could operate under the umbrella of the global centre, ensuring consistency in procedure and standards.

5. Procedural Streamlining and Emergency Measures

Rules should incorporate fast-track procedures and emergency arbitration mechanisms for disputes that involve time-sensitive project funding, certification deadlines, or reputational risks. This would ensure that key commercial or environmental outcomes are not undermined by procedural delay.

These reforms, taken together, would help create a dispute resolution ecosystem that is credible, fair, and responsive to the demands of a fast-evolving carbon market.

VI. Integrating Technology in Dispute Resolution

Technology has already begun to transform the way carbon credits are generated, verified, and traded. The next step is to incorporate these technological tools into the resolution of disputes. Doing so would not only enhance the accuracy and transparency of proceedings but also reduce procedural delays and costs.

1. Blockchain-Based Verification and Smart Contracts – Blockchain technology is increasingly used to track the issuance and transfer of carbon credits. Platforms like KlimaDAO and the Toucan Protocol have pioneered on-chain carbon registries that record every transaction on an immutable ledger. By integrating these records into arbitration proceedings, tribunals can verify transactions and ownership claims without relying solely on traditional documentation. Smart contracts could also automate performance obligations, reducing the scope for interpretive disputes.^[7]

2. AI-Assisted Evidence Review – Disputes involving environmental claims often require analysis of large data sets. Artificial intelligence tools can help in reviewing satellite imagery, drone footage, and validation reports. These tools can flag anomalies, generate patterns, and assist arbitrators in assessing factual claims. For example, AI has already been used to detect illegal deforestation in carbon projects by analysing changes in land cover over time.^[8]

3. Online Dispute Resolution (ODR) Platforms – Given the global nature of carbon markets, ODR can make arbitration more accessible and affordable. Cloud-based platforms can host digital hearings, allow secure document submissions, and accommodate parties from different jurisdictions and time zones. These systems also allow for transparent, multilingual proceedings, improving participation from project developers in non-English-speaking regions.

4. Data Registries as Evidence Sources – Verified carbon registries that operate publicly and transparently can serve as admissible sources of truth in arbitration. When these registries are linked to independent monitoring systems, such as satellite-based carbon measurement platforms, they offer a more objective basis for resolving disputes.

Integrating these technologies into arbitration would not only improve efficiency but also help restore market confidence by creating a more objective and traceable process for handling carbon-related claims.

VII. Conclusion

As the carbon credit market grows in scale and complexity, its credibility increasingly depends on the strength of the legal mechanisms that underpin it. Rising disputes over verification, ownership and project integrity are no longer hypothetical. Investments, community trust, and the environmental value of offsets are already being affected. Even though the current arbitration framework is well established in commercial contexts, a gaping hole still remains in the context of carbon credit market.

If carbon credits are to play a meaningful role in global climate mitigation, their legitimacy must be protected, which will require coordinated reforms across several levels. A specialised arbitration centre with scientific expertise which integrates technology would strengthen the procedural reliability of the system.

The private stakeholders, arbitral institutions and policy actors must work together to shape a dispute resolution framework that reflects the urgency and complexity of climate action for arbitration to contribute meaningfully to integrity and resilience of the carbon economy.

^[1] Nishtha Singh, Harman Singh, Chetna Arora & Vaibhav Chaturvedi, Role of Financial Players in the Indian Carbon Market: Learning from Existing Markets and Stakeholder Perspectives, Council on Energy, Environment and Water Issue Brief (Oct. 22, 2024), https://www.ceew.in/publications/role-financial-players-indian-carbon-market

^[2] Dispute Resolution in Carbon Markets, Kluwer Arbitration Blog (Sept. 16, 2023), https://arbitrationblog.kluwerarbitration.com/2023/09/16/dispute-resolution-in-carbon-markets/

^[3] See David Takacs, Carbon Offsets & Inequality, 56 Harv. Int’l L.J. 167, 176–78 (2015).

^[4] See Gary B. Born, International Commercial Arbitration 394–96 (3d ed. 2021).

^[5] Michael Scherer, International Arbitration and Climate Change, 38 Arb. Int’l 1, 7 (2022).

^[6] See Catherine Kessedjian et al., Principles on Climate Obligations of Enterprises, 51 Geo. Wash. Int’l L. Rev. 683, 701–03 (2019).

^[7] Klaus Schwab & Nicholas Davis, Shaping the Fourth Industrial Revolution 82 (2018).

^[8] Celine Herweijer et al., Building the Climate-Resilient Company, McKinsey & Co. (2022).