This research explores the intersection of Islamic finance, sustainability, and environmental governance through an in-depth examination of carbon credits. The central aim is to evaluate whether carbon credits can be recognised as Sharīʿah-compliant assets and whether their trading mechanisms align with the higher objectives of Islamic law (maqāṣid al-Sharīʿah), particularly the preservation of the environment (ḥifẓ al-bīʾah). The study adopts a qualitative approach based on fiqhī analysis (takyīf fiqhī), classical and contemporary Islamic legal scholarship, authoritative fatwas, and practical case studies, such as the Bursa Carbon Exchange (BCX) in Malaysia.
Carbon credits are tradeable instruments representing verified reductions or removals of greenhouse gases (GHGs), generally quantified as one metric ton of CO₂ equivalent. These credits are generated through environmental projects and traded in either compliance or voluntary carbon markets. While compliance markets are governed by regulatory obligations, voluntary markets are driven by organisations seeking to fulfil internal sustainability goals or demonstrate climate leadership. As the world pivots toward carbon neutrality, these credits are increasingly seen as vital tools in global efforts to mitigate climate change.
The study begins by analysing the nature, types, and functioning of carbon credits, as well as their historical development since the Kyoto Protocol and the Paris Agreement. Technological advancements, such as blockchain and digital registries, are improving credit traceability and reducing fraud. However, the paper also acknowledges criticisms related to human rights violations and questionable environmental benefits in some offset projects, urging strong governance and ethical safeguards.
A major contribution of the research lies in its legal and Sharīʿah-based classification of carbon credits. Drawing upon diverse global legal interpretations, the authors assert that carbon credits can be treated as intangible financial rights (ḥaqq mālī). Islamic finance generally prohibits elements such as usury (ribā), excessive uncertainty (gharar), and speculation (maysir), and any financial asset must be backed by real value. The paper finds that carbon credits, while intangible, are definable, transferable, and possess economic benefit—satisfying key Sharīʿah criteria for property (māl).
The research then explores whether carbon credit trading aligns with maqāṣid al-Sharīʿah. Although early jurists did not explicitly include environmental preservation among the five classical objectives of Sharīʿah (religion, life, intellect, lineage, and wealth), modern Islamic scholarship views ḥifẓ al-bīʾah as integral to all five. For example, climate change endangers life, health, and livelihoods, making environmental protection an Islamic imperative. Qur’ānic verses and hadiths reinforce the responsibility of humans as stewards (khulafāʾ) of the Earth, encouraging sustainable living and accountability.
A nuanced issue addressed is whether permitting carbon offsetting indirectly condones pollution. The study clarifies that Islam permits necessary harm if it is outweighed by a greater public benefit (maṣlaḥah). Thus, allowing unavoidable emissions to be offset through verified credits is justified when it leads to broader environmental preservation.
