Special Law on Forest Carbon Transactions for Climate Justice Chapter One General Provisions

This Law is of public order and has as its object to establish the legal, administrative, technical and financial norms for the utilization and distribution of the environmental, social and economic benefits generated from the sustainable management of forest carbon sinks based on results.

For the purposes of application of this Law, the following terms are defined:

• 1)

  Carbon Bond: Financial compensation for reductions or removals of carbon dioxide emissions equivalent to the atmosphere through the application of policies and initiatives for mitigation of Greenhouse Gas (GHG) emissions.

• 2)

  Carbon Market: It is a system of national and international trade through which national and local governments, natural or legal persons or individuals can acquire or sell units of reduction of Greenhouse Gas (GHG) emissions in order to comply with current and future obligations.

• 3)

  Carbon Credit: Unit represented by one metric ton of carbon dioxide equivalent, absorbed or reduced in emissions that can be traded.

• 4)

  Greenhouse Gas: gaseous component emitted from the earth's surface to the atmosphere, due to natural or anthropogenic actions, that absorbs and emits radiation at specific wavelengths of the terrestrial radiation spectrum.

• 5)

  Reduction of Emissions from Degradation and Deforestation (REDD+): Approaches to policies and positive incentives on issues related to the reduction of emissions from deforestation and forest degradation, conservation, sustainable management of forests and improvement of forest carbon reserves as established by the United Nations Framework Convention on Climate Change (UNFCCC) and the Paris Agreement.

• 6)

  Verification: Set of procedures performed during the planning and development, or after the completion of a carbon flow inventory, that can help establish the reliability of the estimates and associated uncertainties.

• 7)

  Monitoring: Sustainable and operational process of data collection, processing and integration to produce information on the state, dynamics and trends over time of forest carbon flows.

• 8)

  Report: Issuance of notifications or reports on emissions and absorptions of Greenhouse Gas (GHG) from carbon stocks fixed in forest carbon sinks. The Secretary of State in the Office of Natural Resources and Environment (SERNA) is responsible for the corresponding report.

• 9)

  National Balance of Greenhouse Gas (GHG) for the LULUCF Sector: Difference of emissions and removals of greenhouse gases at the national level in a given period.

• 10)

  Reservoir: Signifies a component or components of the climate system where a greenhouse gas or a precursor of a greenhouse gas is stored, with the owner being responsible.

• 11)

  Sink: Reservoir of natural origin or product of human activity, in soils, oceans or plants, that absorbs a greater quantity of greenhouse gas, an aerosol or a precursor of a greenhouse gas than the quantity it emits, which must be accounted for considering all inputs of the process.

• 12)

  Contract: Agreement, which as a rule must be in writing, by which two (2) or more parties mutually commit to respect and comply with a series of conditions.

• 13)

  Paris Agreement: It is an international treaty on climate change that is legally binding. It was adopted by 196 Parties at COP21 in Paris, on December 12, 2015 and entered into force on November 4, 2016. Its objective is to limit global warming to well below 2 degrees, preferably to 1.5 degrees Celsius, compared to pre-industrial levels.

• 14)

  Nationally Determined Contributions: They are the core of the Paris Agreement and the achievement of those long-term objectives. Nationally determined contributions embody each country's efforts to reduce national emissions and adapt to the effects of climate change.

• 15)

  LULUCF: Understood as land use, land-use change and forestry, has particular relevance for the future evolution of net emissions of Greenhouse Gas (GHG) for activities of the Forest Sector.

• 16)

  Results-Based Payment: Disbursement received by governments, natural or legal persons as a result of their activities for reduction or removals of carbon dioxide emissions equivalent duly verified by the United Nations, reported in Honduras' nationally determined contributions and the National Transaction Registry.

• 17)

  Safeguard System: REDD+ Safeguards are environmental, social and governance measures or guarantees that serve to prevent negative impacts and promote REDD+ benefits in the territory, they constitute an international framework of principles that seeks to prevent or mitigate the possible risks and enhance the benefits associated with the implementation of REDD+ actions, each country must apply them according to its own national context.

• 18)

  Benefits Distribution System: Set of mechanisms, agreements and benefits distribution plans that facilitate the intentional transfer of monetary and/or non-monetary incentives (goods, services or others) to interested parties that possess bonds or carbon dioxide equivalent credits duly issued by the technical body.

• 19)

  Observers: Has the function of exercising oversight of the actions or decisions that are decided in the Technical Commission.

Regulate the administrative, legal and community relations that occur in the context of forest carbon sink management, with an approach oriented towards climate justice based on the results of measurements made with respect to the capacity to conserve protected areas and reduce greenhouse gas emissions.

For the application and implementation of this law, the following principles must always be observed:

• 1)

  Climate Justice: Development model centered on respect for human rights, especially of the most vulnerable populations, that guarantees the equitable distribution of benefits associated with common goods and demands the shared and differentiated responsibilities for the impacts of climate change;

• 2)

  Sustainability: Consists of meeting the needs of present generations without compromising the needs of future generations, while guaranteeing a balance between economic growth, respect for the environment and social well-being;

• 3)

  Equity: It is a commitment to generate fair access to environmental resources, mitigate the impacts of pollution, natural disasters or climate change that some communities suffer disproportionately and to promote the effective participation of citizens in environmental management;

• 4)

  Participation: The application of "Free, prior and informed consent" will ensure the participation of communities and local populations, which have an essential role in the management and development of natural resources;

• 5)

  In dubio, Pro Natura: It is a principle of action for the benefit of the environment and nature that requires that when there is doubt that an action or omission could affect the environment or natural resources, the decisions made must be in the sense of protecting them;

• 6)

  Transparency: The transparency of measurement processes must be:

  • a)

    Complete, in the sense that it includes all information needed to understand the carbon flows over a period of time;

  • b)

    Consistent, to allow monitoring of actual progress over time; and, c) Accurate, to avoid any bias and precise, to reduce uncertainty as much as possible; and,

• 7)

  Conventional Congruence: The State of Honduras must promote environmental integrity, transparency, accuracy, completeness, comparability, consistency and ensure that double counting is avoided.

The technical concepts necessary for the application of this Law will be described in the respective regulations and manuals issued by the regulatory body. CHAPTER TWO REGULATORY BODY

The following are comprised:

• 1)

  National Commission for Carbon Transactions;

• 2)

  Technical body dependent on the Secretary of State in the Office of Natural Resources and Environment; and,

• 3)

  Obligated Institutions.

The National Commission is created as a regulatory body composed as follows:

• 1)

  The head of the Secretary of State in the Office of Natural Resources and Environment or the person designated by them, who will preside over this Commission;

• 2)

  The head of the Forest Conservation Institute or the person designated by them, who will assume the Secretary position;

• 3)

  The head of the Secretary of State in the Office of Finance or the person designated by them; and,

• 4)

  The Representative of the Protected Area Administrators elected in an Assembly. The Commission must be established no later than thirty (30) days after this Law enters into force.

The functions of the Commission shall be:

• 1)

  Create the Internal Regulation, technical documents, manuals and all regulations necessary that derive from this Law;

• 2)

  Know and resolve on requests for forest carbon transactions;

• 3)

  Promote the strengthening of institutional and sectoral capacities regarding carbon transactions, in the framework of Climate Justice;

• 4)

  Define guidelines to determine the viability and eligibility of proposed transactions;

• 5)

  Declare and nullify temporary moratoria applicable to carbon transactions;

• 6)

  Authorize and coordinate the participation of other state and non-state entities related to the field of carbon transactions; and,

• 7)

  Define a system for the distribution of benefits in results-based payments.

Apply the methodology for calculating the mitigation potential for project initiatives before accredited entities or companies, following the guidelines of the Intergovernmental Panel on Climate Change (IPCC) and official country reports from updates to the National Forest Inventory, Forest Reference Levels and technical annexes within the framework of REDD+, as well as the enhanced transparency framework.

This Body is the technical organ of the National Commission for Carbon Transactions, attached to the Secretary of State in the Office of Natural Resources and Environment and subordinate to the National Commission for Carbon Transactions.

The functions of the Technical Body shall be:

• 1)

  Review, reception, evaluation and opinion of viability for forest carbon transaction requests;

• 2)

  Design, creation and implementation of a forest carbon transaction registration system;

• 3)

  Accreditation of companies or entities providing services in this field;

• 4)

  Registration of transactions before the United Nations Framework Convention on Climate Change;

• 5)

  Accounting of available and committed carbon in the market;

• 6)

  Promote a national carbon market;

• 7)

  Review and present proposals to the appointed administrators of the funds to ensure results-based payments; and,

• 8)

  Other functions attributed in this Law or in the regulations created for such purpose.

The Joint Management Institutions are the following:

• 1)

  Property Institute (IP);

• 2)

  National Secretary of State in the Office of Science, Technology and Innovation (SENACIT);

• 3)

  National Agricultural Development Bank (BANADESA);

• 4)

  Secretary of State in the Office of Agriculture and Livestock (SAG);

• 5)

  National Agrarian Institute (INA);

• 6)

  National Institute of Statistics (INE);

• 7)

  Association of Municipalities of Honduras (AMHON);

• 8)

  Secretary of State in the Office of Risk Management and National Contingencies (COPECO);

• 9)

  Honduran Transportation Institute (IHTT);

• 10)

  Secretary of State in the Office of National Defense; and,

• 11)

  Other obligated institutions pursuant to law or convened by the Commission.

The Secretary of the Commission shall convene at the instance of the Secretary of State in the Office of Natural Resources and Environment for the integration of Commission members no later than thirty (30) days after the entry into force of this Law.

The Commission must take the corresponding administrative, technical and financial measures to maintain the National Inventory of Greenhouse Gas Emissions updated. This inventory must be supported by results-based payments financed with income from carbon transaction fees and other associated income. CHAPTER THREE CARBON TRANSACTIONS.

Carbon transactions are authorized as a results-based payment mechanism, technical and environmental legal instrument, with the object of generating integral, sustainable and equitable solutions toward National Climate Justice. All of the foregoing managed under the directives of the regulatory bodies of this Law.

MODALITIES OF CARBON TRANSACTIONS. Carbon transactions are a multimodal mechanism whose purpose is to bring Honduran reality closer to climate justice. Among the permitted modalities are:

• 1)

  Debt-for-Nature and Carbon Swap: Relating principally to external debt, wherein, on a voluntary basis, the parties, making use of a financial mechanism that permits the exchange of part of the debt for the conservation and preservation of a natural space or for climate action;

• 2)

  National Carbon Market: A system of national commercialization where national parties commercialize negotiable carbon credits that are equivalent to one ton of carbon dioxide, or the equivalent amount of a different greenhouse gas, that has been reduced, sequestered, or avoided; and,

• 3)

  Results-Based Payments: Commercialization associated with the reduction of emissions or increase in removals of forest carbon, in relation to the fulfillment of national targets related to its Nationally Determined Contributions.

AUTHORIZATION. The authorization process shall be governed by the following stages:

• 1)

  Request Admission: The Technical Entity shall admit all requests that comply with the requirements established in the present Law and in the Regulation created for such purpose. Requests shall be correctable within a period of ten (10) days;

• 2)

  Correction: In any case the petitioner may correct the defects found in the request, having a period of ten (10) business days for this purpose;

• 3)

  Assessment: The Technical Entity, once the request is admitted, must conduct legal, technical, administrative, and financial assessments in order to form a judgment regarding what is requested;

• 4)

  Opinion: The Technical Entity, once it has conducted the pertinent assessments, must issue a technical opinion of viability;

• 5)

  Notification: The Technical Entity must notify the petitioner regarding the UNFAVORABLE viability opinion no later than three (3) days after it is issued, which shall be carried out by electronic and physical means. The same period is applicable for the notification that must be made to the committee regarding FAVORABLE viability opinions.

• 6)

  Resolution: The Commission shall review the favorable viability opinion issued by the Technical Entity to, once the eligibility analysis is completed, resolve regarding the requested carbon transaction; and,

• 7)

  Certification: The Commission shall issue ex officio the certification of the Resolution adopted.

OF THE CONTRACT AND VIABILITY CRITERIA. It consists of the agreement entered into by the parties following approval of their project by the National Commission, in which both parties reciprocally commit to respect and comply with a series of conditions. The viability criteria of the contract are as follows:

• 1)

  To guarantee ecological integrity and avoid double-counting;

• 2)

  Clear distribution of benefits for each party, in results-based payments;

• 3)

  That the term of validity of the contract be proportional to the growth in the area to be intervened;

• 4)

  That the contract have a scalability mechanism;

• 5)

  That the contract have a compliance guarantee mechanism; and,

• 6)

  Such others as shall be established by regulation.

THE PARTIES. The following are parties to a carbon transaction:

• 1)

  The natural or juridical person, of whatever nature, provided that they hold the title or domain of the resources susceptible to carbon transactions;

• 2)

  The natural or juridical person, national or foreign, that accedes to conduct carbon transactions with the actors included in numeral 1) of the present Article;

• 3)

  Natural or juridical persons that accredit the representation of the actors included in the preceding numerals;

• 4)

  The State of Honduras when it acts in a condition analogous to the actors regulated in numeral 1) of the present Article;

• 5)

  The State of Honduras in its condition as sovereign holder of resources, assets, and environmental patrimony; and,

• 6)

  Responsible developer and party responsible for presenting and monitoring the progress and implementation of the project or activity.

INSTRUMENT FOR CARBON TRANSACTION. The instrument containing the carbon transactions must contain at least the following requirements:

• 1)

  It must be executed in the language of the parties and with at least one copy in the Spanish language, which shall be the reference copy for jurisdictional disputes;

• 2)

  To establish the duration thereof;

• 3)

  To describe with precision the geographic and temporal location, as well as the geolocalized plans of the resources subject to the carbon transaction;

• 4)

  To specify the identity, data, and conditions in which each party acts;

• 5)

  To establish clearly the amounts, terms, and modalities of the financial relationship;

• 6)

  To establish the environmental, social, and economic benefits associated with the communities involved;

• 7)

  To establish the supervision and compliance mechanisms that guarantee the preservation, conservation, and restoration of the resources involved; and,

• 8)

  The mechanism for compliance with state fees derived from carbon transactions, which shall be established in regulatory form. What is referred to in the present Article must be established in the regulations that are issued for such purpose.

CARBON TRANSACTIONS FUND. The carbon transactions fund is hereby constituted, whose sources of financing are the income from the fees and other amounts derived from carbon transactions, which shall be destined toward the Protected Areas and Wildlife Fund (FAPVS), defining that collection shall be reinvested in areas for expansion and improvement of carbon sinks, as well as to sustain the activities of the Commission. This fund shall also be used for the annual update of the national inventory of greenhouse gases, design, creation, implementation, and sustainability of the Forest Carbon Transaction Registration System. Likewise, it shall be used to sustain the activities of the National Commission for Carbon Transactions.

The Commission has the faculty to declare the non-compliance with commitments assumed by the parties and to make the corresponding corrective recommendations. When one or more parties fail to comply with the Commission's recommendations, the latter may suspend by resolution the corresponding carbon transaction. Every transaction suspended by the Commission shall be withdrawn from the Registration System.

JURISDICTION. In cases of controversies of a civil nature derived from the application of the present Law, the courts and tribunals shall be competent as established in the Civil Procedural Code. In cases of controversies derived from an administrative act or resolution, the corresponding administrative contentious courts and tribunals shall be competent. When the contracts establish an arbitral clause, there is a renunciation of ordinary jurisdiction and the matter shall be subject to the autonomy of the will expressed by the parties in the arbitral clause.

All contracts, agreements, pacts, and other instruments containing carbon transactions that have been executed prior to the effective date of the present Law shall be recognized only if they follow the procedure and comply with the requirements of form and substance established in the present Decree, in accordance with the authorizing resolution of the Commission and, in this latter case, must be included in the Registration System.

Everything not regulated in the present Law shall be governed by the provisions of the Administrative Procedure Law, Civil Code, and the applicable regulations that the Commission shall issue for such purpose.

To repeal Article 40 of Legislative Decree No. 297-2013 containing the CLIMATE CHANGE LAW, published on November 10, 2014, in the Official Gazette "La Gaceta", number 33,577.

To repeal numeral 15) of Article 3 of Legislative Decree No. 98-2007, containing the FOREST LAW ON PROTECTED AREAS AND WILDLIFE, published on February 26, 2008, in the Official Gazette "La Gaceta", Edition Number 31,544.

The present Decree shall enter into force as of its publication in the Official Gazette "La Gaceta". Given in the city of Tegucigalpa, municipality of the Central District, in the Hall of Sessions of the National Congress, on the twenty-sixth day of the month of July of two thousand twenty-three. LUIS ROLANDO REDONDO GUIFARRO PRESIDENT CARLOS ARMANDO ZELAYA ROSALES SECRETARY LUZ ANGÉLICA SMITH MEJÍA SECRETARY To the Executive Power. Therefore: Let it be executed. Tegucigalpa, M.D.C., August 4, 2023. IRIS XIOMARA CASTRO SARMIENTO PRESIDENT OF THE REPUBLIC THE SECRETARY OF STATE IN THE OFFICES OF NATURAL RESOURCES AND ENVIRONMENT