Ethiopia’s New Landowner Carbon Rights Could Reshape Project Finance in Nature-Based Carbon Markets

What the agro-forestry law changes in practice for carbon credit ownership

Ethiopia’s 2024/2025 forest framework changes the starting point for carbon credit ownership. The Forest Development, Protection and Utilization Regulation No. 544/2024 recognizes that carbon assets and emission reductions can belong to the legal bodies that invested time, know-how, and capital in forest land management. That includes private actors, communities, cooperatives, associations, NGOs, and religious institutions.

That matters because carbon rights are no longer treated as a simple contract add-on for the developer. The regulation opens the door to transferring or delegating forest carbon assets to third parties through sale or other arrangements, but each issuance still needs clear legal interpretation and documentation. For buyers and developers, that means carbon credit ownership now depends on more than project design. It depends on title, authority, and paper trail.

The practical issue is the split between land title, use rights, and carbon title. In Ethiopia, land ownership remains public, but carbon rights can be allocated to the entities that developed or protected the forest. That separation is exactly where the bankability of nature-based projects is decided.

The MRV side is also moving into place. By January 2026, Ethiopia had completed its national forest reference level, aligned reporting with UNFCCC and ART-TREES, and was finalizing its forest inventory and BTR1 in 2026. That strengthens the case that title to carbon is not just a legal question. It is being built on top of a growing measurement and reporting infrastructure.

The key question for project finance is simple. If the title to the credit shifts toward landowners or the parties with substantive rights, who can actually guarantee performance, encumbrance-free title, and enforceable offtake?

Why shifting title from developers to landowners matters for project bankability

This change goes straight to project bankability and lenderability. Offtake buyers and financiers can no longer assume that the project developer is automatically the beneficial owner of the credits. They need to verify chain of title, authority to sell, and whether carbon rights have vested in the entity signing the contract.

That raises title risk. It also raises enforceability risk. If the regulation says carbon assets belong to the parties that invested in forest management and protection, then landowners and communities become central to the structure of the deal. Developer-led SPVs still work, but only if they are backed by strong sub-agreements.

For institutional buyers, the risk is not only legal. It is also delivery risk. The regulatory direction suggests that validation and verification of emission reductions will depend on formal documentation showing who has the right to transfer the ERs. That means forward offtake pricing has to reflect legal completion risk more carefully.

A practical example makes this clearer. A project finance structure for agroforestry with local cooperatives may need a pledge over carbon revenues, lender step-in rights, and community consent for assignment. A developer-owned project, by contrast, must prove why the developer has full transfer rights in the first place.

That is why this legal shift matters for bankability. It changes who sits at the center of the financing stack, and it changes what lenders need before they can treat the project as financeable.

The new framework forces revenue-sharing agreements to be rewritten from the ground up. It is no longer enough to distribute proceeds after issuance. Contracts now need to allocate emission reduction rights, development costs, MRV burden, buffer contributions, and any reversal liability before the project starts.

That is a major change for benefit-sharing mechanism design. If carbon revenue allocation is not clear at the outset, the project can run into disputes later over who owns the cash flow, who bears the risk, and who pays for reversals.

The governance structures already visible in Ethiopia make a mixed model plausible. Forest Management Cooperatives and PFM operators are already part of the landscape, often organized by government agencies or supported by NGOs. That points toward a community plus developer plus state structure, with different splits for stewardship, commercialization, and development.

For buyers and intermediaries, the important point is that ownership is not the same as service delivery. If the asset belongs to the parties that developed and protected the forest, then the revenue split should reflect both title and stewardship quality. Contracts will need to distinguish between cash proceeds, carbon title, and service fees.

Ethiopia is also moving toward a National Carbon Market Strategy and a forest carbon trading directive. That suggests future standardization of benefit-sharing models. For now, though, most structures will still be negotiated case by case.

What buyers and investors should now test in due diligence before signing offtake deals

Carbon due diligence now has to start with four checks: title to carbon, authority to contract, land or use rights, and alignment with the national MRV and registry framework. If any one of those is weak, the offtake risk rises quickly.

Buyers should ask for evidence of legal body status, board or community resolutions, a chain-of-title memo, proof of land tenure or customary use rights, and a legal opinion confirming that the carbon assets can be transferred. The official direction from the government is already pointing toward this kind of documentation, including a letter clarifying which entity has the right to transfer the ERs and why.

Double claiming risk also needs attention. So does the risk of mismatch between voluntary market use and Article 6 pathways. Ethiopia’s alignment of UNFCCC reporting and ART-TREES helps, but buyers still need to check exclusivity, corresponding adjustment logic, and registry segregation.

A forward offtake for restoration or agroforestry should also test permanence clauses, buffer contributions, replacement obligations, and change-of-control rules. If land tenure changes or cooperative governance shifts, the contract needs to say what happens next.

That deeper due diligence does not have to slow the market. It can help capital move toward projects with stronger governance, including GEF-backed programs and landscape-scale initiatives.

How the law could affect Ethiopia’s nature-based finance pipeline, including GEF-backed projects

The biggest impact may be on pipeline risk. Clearer rules on ownership and transfer can make restoration, agroforestry, and landscape projects easier to turn into bankable carbon finance. That matters in a country that has already mobilized more than 48 billion seedlings and created a Green Legacy and Landscape Restoration Special Fund of roughly USD 40-80 million a year.

The GEF-backed pipeline adds another layer. In 2026, the GEF approved Ethiopia’s project “Enhancing Participatory Conservation and Restoration of Biodiversity and Ecosystem Services in Ethiopia,” with USD 3.8 million in grant funding and USD 13.2 million in co-financing. That shows concessional capital is already flowing into nature-positive landscapes.

The broader GEF portfolio matters too. The fund continues to support nature-based solutions and Africa restoration initiatives through programs such as the Great Green Wall and other multi-trust fund approaches. For buyers and investors, that means carbon law can support blend finance, not just voluntary market supply.

The real value of clearer ownership is that it reduces legal friction between grant-funded readiness and revenue-generating carbon assets. That improves the optionality of the pipeline.

The market question is now straightforward. If Ethiopia can align carbon rights, MRV, and benefit sharing, it could become a stronger hub for nature-based project finance. If transfer documentation stays ambiguous, capital costs will rise and some buyers will wait.