In a significant step towards advancing global climate goals, Bhutan and Singapore have signed a landmark implementation agreement under Article 6.2 of the Paris Agreement, paving the way for bilateral collaboration in carbon trading. The agreement, signed on 28 February in Singapore, marks a pivotal moment for Bhutan, a carbon-negative nation, as it seeks to leverage international carbon markets to fund sustainable development projects while maintaining its environmental commitments.
The signing ceremony, attended by senior officials from both countries, was led by Bhutan’s Minister of Energy and Natural Resources, Gem Tshering, and Singapore’s Minister for Sustainability and the Environment, Grace Fu Hai Yien. This partnership positions Singapore, an emerging hub for carbon trading, as a key ally in Bhutan’s climate ambitions, facilitating the trade of Internationally Transferred Mitigation Outcomes (ITMOs) to meet Nationally Determined Contributions under the Paris Agreement.
A Positive List for Climate Action
Coinciding with the agreement, Bhutan’s Ministry of Energy and Natural Resources (MoENR) unveiled a “positive list” of project proposals eligible for carbon trading. This comprehensive list includes initiatives in renewable energy, green infrastructure, low-carbon transport, and afforestation, among others. These projects are designed to align with Bhutan’s broader strategy to reduce greenhouse gas emissions while advancing its climate goals. 
Renewable energy initiatives, such as solar and wind power, alongside energy-efficient technologies like improved cookstoves and thermal efficiency in buildings, are prioritised. Green infrastructure projects, including waste-to-energy systems and sustainable waste management, also feature prominently. Additionally, low-carbon transport solutions, such as biofuels and green hydrogen, as well as sustainable agricultural practices, are included to curb emissions.
Nature-based solutions form a critical component of the list. Afforestation, reforestation, wetland restoration, and livestock management projects are highlighted for their role in sequestering carbon. While Bhutan’s vast forests naturally absorb significant amounts of carbon dioxide, only certified projects meeting stringent international standards—demonstrating “additionality,” or emissions reductions that would not have occurred otherwise—can generate tradeable carbon credits.
The positive list, developed through a consultative process and endorsed by Bhutan’s National Environment Commission on 6 February 2025, will be periodically reviewed to incorporate emerging technologies and strategies. The forthcoming Bhutan Carbon Market Policy 2025 will further govern these initiatives, ensuring alignment with national priorities and international guidelines.
Strengthening Bilateral Ties for a Greener Future
The agreement with Singapore is more than a procedural step; it represents a shared vision for a sustainable future. During the signing ceremony, Minister Grace Fu Hai Yien expressed optimism about the partnership, noting Bhutan’s status as a leader in environmental stewardship. “By working together on high-integrity carbon markets, we can drive sustainable growth, mobilise climate finance, and reduce global carbon levels,” she said, as quoted by local media. She emphasised that the collaboration would accelerate the global green transition, benefiting both nations and the wider region.
For Bhutan, the partnership offers access to Singapore’s expertise and infrastructure as a global carbon trading hub. This is particularly significant as Bhutan transitions from a Least Developed Country status, facing a decline in traditional donor finance. The agreement enables Bhutan to tap into new streams of climate finance, ensuring sustained environmental commitments while fostering economic resilience.
Lyonpo Gem Tshering, Bhutan’s Minister of Energy and Natural Resources, underscored the transformative potential of carbon markets. “Bhutan aims to demonstrate that carbon markets can be a powerful tool for both climate action and sustainable development,” he said. He extended an invitation to international partners to collaborate on these initiatives, highlighting the importance of collective action for lasting impact.
The Bhutan Climate Fund: A Model for Innovation
Following the signing, the Bhutan Climate Fund Roundtable Forum was convened in Singapore, hosted by MoENR in partnership with the Government of Singapore and the World Bank. The event drew over 31 investors, project developers, and climate finance experts from 21 organisations, spotlighting opportunities to develop carbon projects and scale Bhutan’s climate ambitions.
The Bhutan Climate Fund (BCF) is an innovative financing mechanism designed to channel carbon finance into high-integrity climate projects. Acting as an intermediary for carbon transactions, the fund aggregates financial resources and carbon credits to create a transparent and structured carbon market. With an ambitious target of mobilising USD 50 million in its first year, the BCF aims to attract both public and private investors, positioning Bhutan as a model for climate finance innovation.
The fund is particularly crucial in the context of Bhutan’s economic transition. As traditional donor funding diminishes, the BCF offers a sustainable pathway to maintain environmental leadership while promoting economic growth. By linking carbon credits to tangible projects, such as reforestation or renewable energy, the fund ensures that climate finance directly contributes to emissions reductions and community development.
Challenges and Opportunities in Carbon Trading
While the agreement and the positive list signal a bold step forward, challenges remain in operationalising Bhutan’s carbon trading ambitions. Registering projects, particularly forest-related initiatives like reforestation, under international mechanisms requires rigorous certification to ensure compliance with standards such as “additionality.” Moreover, the complexities of carbon accounting under Article 6.2—designed to prevent double counting of emissions reductions—demand robust systems and transparency.
If successful, however, the Bhutan-Singapore partnership could serve as a blueprint for other nations seeking to engage in carbon markets under the Paris Agreement. Analysts suggest that Bhutan’s unique position as a carbon-negative country, coupled with Singapore’s financial and logistical expertise, creates a compelling case for scalable climate solutions. If the Bhutan Climate Fund meets its initial funding targets, it may encourage similar initiatives across the Asia-Pacific region, driving broader adoption of carbon trading as a tool for climate action.
It must be noted, however, that projections regarding the economic and environmental impacts of these initiatives remain speculative at this stage. While the potential for mobilising significant climate finance is clear, the actual outcomes—both in terms of emissions reductions and financial inflows—depend on project implementation and market dynamics. No definitive evidence yet confirms the scale of benefits, and stakeholders are urged to approach such estimates with caution.
A Shared Vision for Climate Leadership
The Bhutan-Singapore agreement underscores a growing recognition of carbon markets as a critical mechanism for achieving global climate goals. For Bhutan, this partnership offers a pathway to sustain its environmental legacy while addressing economic challenges. For Singapore, it reinforces its role as a leader in climate finance and sustainable development in the region.
Beyond the immediate bilateral benefits, the collaboration sends a powerful message to the international community: collective action, underpinned by innovation and integrity, is essential to combat climate change. As Bhutan and Singapore chart this new course, their efforts may inspire other nations to explore similar partnerships, amplifying the impact of the Paris Agreement on a global scale.
With the Bhutan Climate Fund poised to attract significant investment and the positive list providing a clear framework for action, the coming years will be crucial in determining the success of this initiative. For now, this agreement stands as a testament to what can be achieved when environmental ambition and strategic collaboration converge.
