Growing Pains of a Burgeoning Market

Ecosystem Marketplace recently released their report, “State of the Voluntary Carbon Market 2024: On the Path to Maturity,” which details the latest trends within the market. The report detailed a significant downturn in the market last year, but details an increasingly complex landscape, with some market segments showing growth as others fell. In this Commentary, American’ Forest Foundation (AFF)’s Manager of Environmental Markets, Calvin Tran, breaks down the news and what it means for the future of the market. This article was originally posted on the AFF blog.

As it goes with any emerging market, trends continue to shift and evolve within the voluntary carbon market (VCM). This emergence takes time, and the VCM is showing the right signs that it is on its upwards “flight to quality.” In my view, the VCM is between growth phases; volatility and larger contractions are part of this growth. Reminiscent of the dotcom bubble before the advent and growth of the internet, it makes sense that buyers in the VCM is “derisking” from – that is, not participating in – the market as they wait for volatility to settle.

The problem is this: being so close to midnight on the climate catastrophe clock, there’s no time to waste.

A key takeaway from this report is that retirements of credits have remained steady. This is the most fundamental metric to assess the health of demand for voluntary carbon credits. The rate of credit retirement shows that end users are indeed consistently using carbon credits generated. Most of the drop in sales seem to be attributable to a drop in speculative purchases. This is not entirely surprising. In short, people have stopped believing in the upside of the current iteration of the voluntary market and are demanding higher quality, integrity, and durability. The call for high integrity, along with general demand hesitancy, indicates a need to build an updated version of the market that incentivizes investment and expands access to participation in high-quality projects.

REDD+ Receipts

The REDD+ controversy was an unfortunate but necessary bump in the road. The reality is if we want the VCM to be successful, we need stronger, more certain guardrails around the quality of supply. Now, we are seeing new narratives emerge around higher scientific integrity principles to increase the quality of supply, with everything from the End-to-End Framework to dynamic baselines in carbon accounting methodologies. This highlights the strength and unity in the market, showcasing its responsiveness along with its ability to adjust course.

However, the optics around REDD+ unfairly spread across the entire market, especially to other REDD+ projects in developing nations.  This is quite an injustice, as there are good projects out there that have simply gotten associated and dropped with the general negative perceptions.

The good news is that now a new generation of supply is beginning to enter the market. The EM report found that some project types – notably, improved forest management (IFM) and afforestation, reforestation, and revegetation (ARR) – experienced increases in price.  This is good for anyone working on these project types, but it also shows promise for the market overall. The carbon price increase reflects a “flight to quality” that will eventually occur across all project types.  In short, buyers are willing to pay much more for “safe” projects.

If this market is to play out, it will become a structural supply constraint challenge that curtails growth instead of the simple lack of demand we’re seeing today. In this regard, the market knows where it needs to go and is already building up and making progress; we just need the finance to get it done. In the meantime, volumes and valuations of existing credits will drop, as the report duly shows.

Up Next: A Demand Reckoning

In my view, the same reckoning that the VCM experienced across supply will eventually be faced on the demand side. We need stronger incentives for climate risk reporting and corporate transparency so that the public knows if and how companies are falling short on their decarbonization objectives. With clearer and stronger mandates will come clearer and stronger demand incentives for the proper use of carbon credits.

Governments have a major role to play here. Those who have focused more efforts into sorting their domestic policies on carbon markets indeed have stronger carbon markets in their regions as a result. The U.S. Government’s announcement this week of their “Principles for the Responsible Participation in VCMs” is an indication that this is still happening now at varying paces.

Buyers and suppliers are only just beginning to understand the nuances of building a global interconnected market from the ground up. We’re now seeing a sophistication across different regions – not just in type of credits but the type of credit demand. Businesses across different regions and industries are just beginning to understand how to parse through the intricacies of this. A company based in Singapore will have different demand drivers compared to a company based in the EU, the US, and so on and so forth. The same is true for companies from different sectors – some industries will have geographic or credit type preferences. Others have distinct mandates (e.g., CORSIA). It’s almost like a balkanization of the VCM, and it is the job of the supply side to remain as interoperable as possible across these similar-but-distinct markets. It is also the job of policymakers to make sure demand is sufficiently consistent across domains.

Future Market Loading…

While this report might seem like a damnation of a volatile market, it holds critical learnings for market players that are invaluable in building a voluntary carbon market that works for people and the planet. 2023 was a year of reckoning for those working to transform the quality, integrity, and viability of carbon projects. In 2024, we need companies and governments to step up to the plate and invest to bring this promising market to scale. Governments and standards bodies can continue to provide clearer guidance for participation, and companies can invest in high-quality projects to scale climate solutions to maximize their impact on our atmosphere. This is an inflection point, one that will determine the path we take to either shrink away from a work in progress or to strengthen a critical element of our fight against climate change.

Shades of REDD+
Without Projects, Jurisdictional REDD+ Programs Risk Becoming ‘Paper Parks’

As Everland’s Global Head of Business Development, I spend my days talking to customers which include several of the largest carbon credit buyers in the Voluntary Carbon Market (VCM). And alongside robust carbon accounting, what buyers most want to understand is the positive impact their money will have.

For the high-integrity REDD+ projects that Everland represents, this is a simple question to answer: sustained investment into a project means that the Indigenous and traditional communities who live in and around project areas can pursue their own development goals, whilst protecting the biodiverse forests they call home. I can point to many examples of how the projects we work with have helped local people access clean water, improve agriculture, and build hospitals and schools.

But as REDD+ moves towards a ‘jurisdictional approach’ with credits aligning to national forest carbon programs, how can buyers be confident of that same connection between a carbon credit purchase and local impact on the ground?

Buyers’ concern is understandable. Much of the discussion within the sector so far has treated large-scale jurisdictional REDD+ programs and smaller community-centered REDD+ projects as separate and incompatible.

But they aren’t. In fact, the opposite is true and the success of jurisdictional REDD+ will be built upon an accumulation of successful REDD+ projects.

Through a process called ‘nesting’ governments can build networks of projects, with each project tailored to local contexts and to best meet the specific needs of individual communities. Together these projects can be merged (or ‘nested’) into the overall jurisdictional REDD+ program, which is overseen regionally or nationally.

The old saying – local solutions to global problems – applies.

Nesting has advantages for REDD+ projects too. For example, because jurisdictional REDD+ programs are part of national plans and policies, nesting means the impacts projects achieve are more likely to be permanent and the risk of deforestation being displaced to areas outside of projects’ boundaries, or so called ‘leakage’, is reduced.

When done robustly, nesting also allows countries to measure deforestation and associated emissions consistently, by setting ‘national baselines’, and count emissions avoided by REDD+ projects towards nationally determined contributions under the Paris Agreement.

For all these reasons, every stakeholder in the VCM should welcome the idea that the Wildlife Works Mai Ndombe REDD+ Project has been nested into the Forest Carbon Partnership Facility’s (FCPF’s) Mai Ndombe Emission Reduction Program since 2019, representing the first project to issue credits under a jurisdictional program.

The project protects roughly 300,000 hectares of forest to the west of Inongo in the Democratic Republic of the Congo (DRC). With dense forest covering over 100 million hectares of land, the Congo Basin is a critical carbon sink and – following the Amazon – the second largest tropical rainforest in the world. Many communities in DRC have long depended on the forest to survive. In the Mai Ndombe province for example, the majority of the population lives on less than $1 a day.

The area where the project stands was originally a logging concession held by a notoriously bad actor who did nothing for the local community. However, Wildlife Works was able to convert the area into a conservation concession and by partnering with the local community has been using carbon finance to stop deforestation and improve the lives and livelihoods of people who call Mai Ndombe home.

So far the project has built more than 20 schools and a hospital, has introduced fish ponds to improve food security, and built wells to provide access to safe drinking water. In total, the project has reached more than 16,000 community members through health and education initiatives, all while avoiding over 38 million tons of CO2e emissions to date.

It is thanks to these proven successes that the Government of DRC has decided to make the Mai Ndombe project the jewel of its jurisdictional REDD+ program; a program that will be integral in meeting DRC’s international climate commitments, because 86% of the country’s greenhouse gas emissions are currently caused by forestry and other land-use.

This is what the market is calling for: the opportunity to support communities and conservation at the project-level, where buyers can be confident of demonstrable local impact. And when those projects are nested into jurisdictional programs, buyers can be equally confident of their contribution to national and global climate targets.

As the sector begins to adopt jurisdictional REDD+, we continue to focus on what really works. Nested projects will be crucial for effective jurisdictional REDD+ programs.

Because without projects like Mai Ndombe to do the work on the ground, governments risk creating jurisdictional ‘paper parks’ – circles drawn on maps, with little benefit for communities, climate or conservation.

How Carbon Markets Can Serve as a Catalyst to a Low-carbon, Green Economy

Last week’s much anticipated Ecosystem Marketplace’s State of the Voluntary Carbon Market report made yet another significant contribution to making sense of the voluntary carbon market (VCM). The analysis found that, overall, the VCM contracted in 2023 for the second consecutive year, leading to a billion-dollar reduction in climate finance for the Global South. Of course, this provided opponents of the market with an opportunity to claim that the data signals the beginning of its decline.

Perhaps unsurprisingly, I have a very different view of what the data really said and the future of the market. This contraction should not be surprising, especially as it was led by project types that are undergoing natural evolutions (e.g., consolidation of REDD+ methodologies, broad reevaluation of renewable energy projects). In addition, initiatives like the  Voluntary Carbon Markets Integrity Initiative (VCMI) and the Integrity Council for the Voluntary Carbon Market (ICVCM), which are working to restore confidence in the market, have only recently started to generate results. In other words, this is therefore the perfect time for corporates to take a step back and wait to see what comes out of these important processes.

That does leave the market with a fundamental question to consider: What is the ultimate objective of the market if concerns about integrity are addressed and we are no longer mired in discussions about whether a tonne is a tonne? If we can count on integrity, what then? I propose that we view carbon as a means to an end rather than the end itself, which can then free our mind to think about a bigger purpose.

What would “better” look like?

Carbon markets, designed properly, can act as a catalyst for the urgently needed global transition to a low-carbon, green economy. While such an outcome may be broadly desired by the vast majority of market participants, this has never been made explicitly clear. As a result, the existing rules and requirements that govern the market do not necessarily lead to those types of transformational outcomes.

In an ideal world, carbon finance introduces new technologies and practices, lowers costs, and builds the capacity to scale up climate solutions that no longer depend on this innovative and nimble source of finance. This can be achieved through market forces, government regulation, and other innovative support mechanisms. In this scenario, the market can channel money to sustainable, future-focused businesses and support governments tackling climate change, and thereby enable the green transition the world desperately needs.

Reframing carbon markets for the future and redesigning carbon finance for sustainable transitions

If carbon finance is going to serve a bigger purpose, parts of it need to be redesigned. To use carbon as a proper transition tool, we must build on the requirements that govern the market. In my report, I recommend the development of methodologies designed with the green transition in mind, which means setting the stage for when carbon finance is no longer needed for the ongoing evolution of a particular sector of the economy. In addition, streamlined methodologies, which should allow for simpler approval processes, need to replace cumbersome project-by-project additionality tests (the idea that the project would not have been implemented without the extra finance provided through the sale of carbon credits).

In future installments of my report, I recommend embracing government participation given that carbon finance, if structured properly, can also help governments achieve ambitious NDCs. In addition, I suggest some changes which could make natural climate solutions more resilient. Taken together this could unlock the necessary legal, financial, institutional backing to ensure a transition.

Looking to the future

The climate crisis requires a long view. If we are to meet the ambitious targets of the Paris Agreement and create a foundation for long-term sustainability, it is essential that we reassess our climate solutions. The carbon market, fitting our dominant economic model, needs to be reoriented to serve a more enduring purpose. By doing so, the market can channel finance to key sectors of the global economy and support a low-carbon, green economy.

The carbon market is undergoing an important transition of its own, and we will likely soon have a market that is underpinned by quality and integrity. This will enable greater investment, and at the same time provide the market with a unique opportunity to further redesign it for maximum impact. Ideally, we can move on from today’s debates about integrity to tomorrow’s challenges of achieving green transition.


Antonioli’s new paper, published on June 4, includes an introductory overview to the concepts, with further chapters to be released on his website between June 11 and July 9. These future installments will elaborate on the specifics of how this new carbon markets concept builds on many of the innovations that are already operational in the market and would help achieve a green transition.

David Antonioli is a strategic advisor who specializes in harnessing the power of markets to solve critical environmental issues and support sustainable development. David has worked on climate change for the last 30 years and most recently served as CEO of Verra until stepping down last June. David’s experience includes working in the private sector as a project developer (EcoSecurities) and as a government official (USAID in Mexico).

His company, Transition Finance, supports clients in the design of financial instruments to support the green transition. The company’s website can be found at www.tranfin.com

New Report: The Voluntary Carbon Market Contracted in 2023, Driven by Drop-off in Transactions for REDD+ and Renewable Energy

30 May 2024: New research published today shows the voluntary carbon market (VCM) contracting for the second year in a row. However, the report’s findings also illustrate an increasingly complex landscape within the VCM, with some market segments showing growth as others fell.

Market analysis from Ecosystem Marketplace finds that overall market transaction volume declined 56 percent from 2022-2023. While the market saw a slower year overall last year than in the banner years of 2021 and 2022, not all project categories followed that trend–underscoring the complexity of a market that has matured considerably as voluntary climate ambition has proliferated in the private sector.

Key findings from the report:

  • In 2023, the volume and value of the voluntary carbon market contracted for the second year in a row from its 2021 peak, with a 56 percent year-on-year decline in the volume of reported transactions. The total reported transaction value of the VCM was $723M USD. Disclosures from market participants indicate that negative media coverage and a pause in purchasing as buyers awaited guidance from integrity initiatives were key reasons for a pullback in buyer investment.
  • Within the Forestry and Land Use category, REDD+ credits, the most popular project type, lost 62 percent of their value year-over-year, with the average price of credits falling 23 percent. 2023 saw a rash of negative media coverage of REDD+ which likely contributed to the decline; many credit buyers may have also paused purchasing as they awaited updates to a widely used project methodology. The pullback largely affected project developers in Asia, Latin America, and the Caribbean, where the majority of these projects are located.
  • Renewable Energy credit transaction volume also declined relative to 2022, though less than the market as a whole. That drop seems to be a natural consequence of a decline in the supply of these credits. The report finds that credit buyers are also moving away from projects with weaker additionality, such as international clean infrastructure financing.
  • The volume of transactions in the Energy Efficiency, Agriculture, and Household/Community Devices carbon project categories all increased in 2023.
  • The market share for projects delivering co-benefits for nature and communities continues to grow, with 28 percent of transactions in 2023 supporting from projects with verified “beyond carbon” environmental and social co-benefits, such as preserving and restoring biodiversity, contributing to water security, or supporting sustainable local economies.
  • On average, buyers paid $6.53 per ton CO2e for carbon credits in 2023, a slight drop from 2022. Average credit prices in 2023 were higher than in any year before 2022. As of early 2024, prices appear to be rebounding from this dip.
  • The publication of the ICVCM’s Core Carbon Principles and the launch of VCMI’s Claims Code contributed to buyer confidence in market quality and integrity. But delays in implementation of these initiatives and a lack of guidance from the Science-Based Targets Initiative (SBTi) on the use of carbon offsets to meet corporate net-zero goals was cited by many respondents as a prime factor keeping buyers on the sidelines for much of late 2023.

Alex Procton, report author and Manager of Data Solutions and Insights at Ecosystem Marketplace, says,“The entire voluntary carbon market is going through a transition focused on project additionality, integrity, and environmental and social co-benefits. As a result, we are seeing shifting supplies of credits from different project types and regions of origin. It’s essential to pay attention to the green shoots today to understand which kinds of carbon market projects will be the most important for the climate action of tomorrow.”

Michael Jenkins, President and CEO of Forest Trends, says, “Unfortunately it was a tough year for many carbon project developers, particularly those focused on avoiding deforestation – who are found mostly in the Global South,. The voluntary carbon market is still the best tool we have to channel private finance to the communities around the world calling for more resources to better protect nature. The science is telling us very clearly that we will fall short on climate goals if we fail to step up on natural climate solutions.”

Mark Mondik, VP of Carbon Markets at 3Degrees, says, “As the market navigates new standards, new project types, and new regulations, we are witnessing a shift in demand toward premium-priced credits with stronger environmental claims.”

Dee Lawrence, Founder and Director at High Tide Foundation, says, “It’s frustrating to see that in 2023, the hottest year on record, we saw the voluntary carbon market drop 56 percent, and roughly $1.1 billion in finance for climate mitigation evaporate, compared to the prior year. To put it bluntly, our global climate targets just got a little farther out of reach.”

Will Turner, Ph.D., Senior Vice President, Natural Climate Solutions at Conservation International, says, “It is encouraging to see that credits from Forestry and Land Use projects are still popular and categorically had the highest number of retirements. This is a sign that fundamental demand is being driven by buyers that value nature’s role as an essential climate solution. We’re also seeing an encouraging trend toward high-integrity credits being called for by standards bodies and demanded by responsible buyers. Science-based use of credits within broader corporate climate strategies will continue to be a powerful tool to address the climate crisis at the speed and scale required.”

Maximiliano Bernal Temores, Carbon Markets Assistant, Impact Finance & Markets at The Nature Conservancy, says, “If the VCM hopes to increase its mitigation potential and the value it provides to ecosystems and communities, especially those hosting NCS projects, it is imperative that the credit supply shows its integrity by shifting towards methodologies that use the best available science and social safeguards. Ecosystem Marketplace’s SOVCM report and recent advanced market commitments like the Symbiosis Coalition show buyers are looking for signs of high integrity such as impactful co-benefits, airtight additionality, and robust durability. Crediting standards and project developers must incorporate best-science practices like dynamic baselines and remote sensing to ensure the VCM, especially nature-based credits, meets buyer expectations. “

The full report, State of the Voluntary Carbon Market 2024: On the Path to Maturity, can be downloaded here.


Ecosystem Marketplace is an initiative of the non-profit organization Forest Trends, and a leading global source of information on environmental finance, markets, and payments for ecosystem services. As a web-based service, Ecosystem Marketplace publishes newsletters, breaking news, original feature articles, and annual reports about market-based approaches to valuing and financing ecosystem services. EM believes that transparency is a hallmark of robust markets and that by providing accessible and trustworthy information on prices, regulation, science, and other market-relevant issues, it can contribute to market growth, catalyze new thinking, and spur the development of new markets and the policies and infrastructure needed to support them. Ecosystem Marketplace is financially supported by a diverse set of organizations, including multilateral and bilateral government agencies, private foundations, and corporations involved in banking, investment, and various ecosystem services.

Incidiendo eficazmente en la financiación climática: Lecciones de las comunidades indígenas y locales

Este artículo apareció por primera vez en el sitio web de Peoples Forests Partnership.

Nunkui Veronica Tentets Vargas (Sharamentsa) & Uyunkar Domingo Peas (Cuencas Sagradas). Crédito: Anna Lehmann

Los mercados de carbono y otras formas de financiación climática se enfrentan a una crisis de confianza y credibilidad. Existe un potencial increíble para que los programas de financiamiento climático canalicen millones de dólares directamente a los pueblos indígenas y comunidades locales (PI y CL) que administran el 36% de los bosques del mundo y el 80% de su biodiversidad. Pero cosas como los “vaqueros del carbono” mal preparados que se apresuran a emprender proyectos y causan desconfianza entre las organizaciones locales, la falta de estándares y salvaguardias, y requisitos técnicos y legales tremendamente complejos, han hecho que los actores del mercado, especialmente los PI y las CL, sean cautelosos a la hora de participar.

Establecer transparencia, integridad y confianza entre los PI y las CL y otros actores del mercado es esencial para restablecer la confianza en estas herramientas financieras críticas. Los actores del mercado exigen mejores recursos y apoyo técnico para participar eficazmente en los mercados de carbono. En respuesta a este llamado, se lanzó la Peoples Forests Partnership (PFP) en la COP26 en Glasgow para ayudar a conectar a los PI y las CL con oportunidades de financiamiento directo y hacer que la participación en estas oportunidades sea más accesible, transparente y equitativo.

Un modelo singular para la construcción de conocimiento.

Con tanto claramente en juego para los bosques de nuestro mundo y las comunidades que los salvaguardan, la PFP reunió a sus miembros en América Latina del 18 al 20 de marzo para una reunión regional cerca de la ciudad de Tena en la Amazonía ecuatoriana. El objetivo de estos tres días fue hacer un balance del estado actual de los mercados de carbono, la evolución de la oferta y la demanda, la reforma de las normas y otras formas de financiación climática, facilitar un espacio seguro para intercambiar conocimientos y experiencias, y construir una visión compartida para el trabajo futuro juntos para el PFP.

Entre los principales asistentes a la reunión se encontraban organizaciones indígenas como la Alianza Mesoamericana de Pueblos y Bosques (AMPB), la Organización de Pueblos Indígenas de la Amazonía Colombiana (OPIAC), la Confederación de Nacionalidades Indígenas de la Amazonía Ecuatoriana (CONFENIAE), la Confederación de Nacionalidades Amazónicas. del Perú (CONAP), la Coordinadora de Organizaciones Indígenas Amazónicas (COICA) y la Comunidad de Ixtlán; empresas como Green Collar, Wildlife Works y Everland; y ONG como Forest Trends, Pachamama y Cuencas Sagradas.

Las conversaciones abarcaron desde inteligencia de mercado hasta cuestiones técnicas de proyectos y desafíos políticos, todas ellas enmarcadas en torno a la creación de entendimientos comunes y el fomento de debates profundos sobre los desafíos enfrentados y dónde se necesita trabajar. Todas las discusiones se llevaron a cabo bajo la Regla de Chatham House, lo que significa que la información se puede compartir fuera de la reunión, pero no atribuirse a una persona u organización específica. Estos parámetros fomentaron puntos de vista y debates más diversos y apoyaron la creación de confianza entre los participantes.

Los miembros actuales y potenciales de la Asociación de los Pueblos por los Bosques se reúnen en Ecuador. Crédito: Anna Lehmann

“La creación de relaciones basadas en la confianza y la rendición de cuentas es parte de lo que hace que la PFP sea una iniciativa tan valiosa y oportuna; y del que nuestra empresa se enorgullece de formar parte”, destacó Blanca Bernal, de Green Collar, tras el evento.

La diversidad de asistentes y la profundidad del compromiso durante la clínica envían un fuerte mensaje de compromiso y colaboración y es un reflejo del momento oportuno para este diálogo. Los participantes identificaron riesgos y precedentes negativos, así como el potencial de los mecanismos de financiamiento climático para apoyar los Planes de Vida indígenas, la gobernanza territorial y las economías indígenas, basados en la participación informada y la igualdad de condiciones.

La reunión fue mucho más que un simple intercambio de información; el PFP ha creado un lugar seguro singular para que los PI, las CL y las empresas aprendan sobre el financiamiento climático, compartan desafíos y éxitos y generen confianza.

“El evento en Tena fue un encuentro muy importante, donde hermanos, indígenas y no indígenas, empresas privadas y ONG, nos reunimos de buena fe para un intercambio de experiencias con diferentes criterios y perspectivas”, reflexionó Domingo Peñas, líder y dirigente Achuar. Presidente del órgano de gobierno de Cuencas Sagradas.

Aquí hay tres mensajes clave de los asistentes a la reunión sobre cómo el financiamiento climático puede funcionar para los pueblos indígenas y las comunidades locales:

1. La financiación equitativa de la lucha contra el cambio climático comienza con un intercambio equitativo de información.

Los pueblos indígenas y las comunidades locales (PI y CL) reclaman información sobre la financiación de la lucha contra el cambio climático que sea fiable, de calidad, accesible y culturalmente adecuada. La necesidad de capacitación no es un tema  solo de los pueblos indígenas y las comunidades locales. Las empresas, los gobiernos y las ONG también piden herramientas para relacionarse mejor con los PI y CL para contribuir a resultados equitativos y eficaces fundamentados en un diálogo transparente.

Algunos de los temas clave que escuchamos durante el evento fueron la mejora de la información sobre el consentimiento libre, previo e informado (CLPI); las salvaguardias y los mecanismos de reclamación; los distintos marcos y normas reguladores; los criterios para identificar a socios creíbles; y la mecánica de los contratos y los mecanismos de distribución de beneficios.

Crédito: Anna Lehmann

La necesidad de capacidad e información también trasciende a los individuos. La capacidad actual de muchas organizaciones para proporcionar apoyo y orientación técnica, financiera y jurídica especializada a sus miembros se ve limitada por la falta de personal, tiempo y recursos materiales. Uno de los objetivos del PFP es apoyar la capacidad de las organizaciones locales y regionales para que estén mejor equipadas para acompañar a las comunidades locales.

2. Los IPS y LC han asegurado sus asientos en las mesas donde se establecen de reglas, y eso significa que hay mucho trabajo por hacer.

Ha habido un avance notorio para que los PI y las CL participen directamente en la configuración de las reglas que rigen los diferentes mecanismos de financiamiento climático, desde los procesos de la ONU hasta los estándares, certificaciones y otros marcos voluntarios e industriales. Se les invita cada vez más a participar en debates, pero los asuntos suelen ser especializados y extremadamente técnicos, generando nuevas demandas sobre los líderes y el personal técnico de las organizaciones que ya están al límite con diversas frentes de trabajo. A los PI y CL se les pide que representen los intereses de sus comunidades en los foros globales, al mismo tiempo que enfrentan peligros inmediatos y múltiples desafíos, incluyendo amenazas y asesinatos de los defensores ambientales.

Gustavo Sánchez, miembro de la Alianza Mesoamericana de Pueblos y Bosques (AMPB, México) subrayó la importancia del momento: “Tenemos una enorme oportunidad de incidir en cómo deben operar los mecanismos nacionales e internacionales para que beneficien y no perjudiquen a las comunidades. Esto es a la vez un gran desafío y una gran responsabilidad”

Para participar efectivamente en espacios donde se establecen las reglas, los miembros de PFP están pidiendo el fortalecimiento, dentro de las organizaciones de PI y CL, de equipos dedicados con la experiencia técnica y en políticas requerida. Esta necesidad existe tanto a nivel nacional como internacional.

3. El carbono no es la única medida del éxito.

Un mensaje recurrente de los PI y las CL es que un enfoque limitado en las métricas de carbono como indicador principal del éxito del proyecto no se alinea con sus relaciones tradicionales con sus bosques y territorios. Excluye métricas más centradas en el ser humano, como derechos claros sobre la tierra y los recursos, una organización y gobernanza sólidas, y una serie de otros valores ecosistémicos, culturales y espirituales. Si bien el carbono es un variable fundamental frente a la crisis climática, los mecanismos centrados únicamente en reducir las emisiones tienden a marginar a aquellas comunidades y territorios que históricamente han demostrado una buena gestión forestal y, por lo tanto, tienen menos emisiones que reducir.

Durante el evento, vimos un gran interés en desarrollar mecanismos alternativos que compensen la buena gestión territorial, como impulsar el financiamiento hacia territorios indígenas de áreas con alta cobertura de bosques y baja deforestación (HFLD) y mecanismos emergentes que valoren la biodiversidad.

“Hablar sólo de vender carbono no parece coherente y nos incomoda”, enfatizó Domingo Peas. “La mayoría de los pueblos indígenas de la Amazonía tienen bosques intactos, bosques que todavía están en pie, y queremos ver mecanismos que valoren esto y funcionen como un intercambio equitativo, beneficiando a ambos mundos. Cuidamos el bosque y esto debe generar programas de apoyo para nosotros en una economía regenerativa y solidaria”.
Los miembros actuales y potenciales de la Asociación de los Pueblos por los Bosques se reúnen en Ecuador. Crédito: Anna Lehmann

Avanzando en una agenda común del PFP en América Latina

Salimos de este tiempo juntos emocionados por una comprensión colectiva más profunda de los contextos políticos y de mercado actuales e inspirados por la voluntad de los participantes de ser abiertos unos con otros y aprender de los conocimientos de los demás. La colaboración entre participantes muy diversos afirmó el espacio singular la Peoples Forests Partnership (PFP) como un espacio seguro para debates políticamente sensibles y técnicamente complejos, así como una plataforma que puede elevar las voces de los PI y CL para compartir lecciones aprendidas y convertirse en voceros de mecanismos que les funcionan.

“Nuestros miembros nos han dado un mandato claro para construir una plataforma que fomente la colaboración radical e impulse el conocimiento y la innovación centrados en la comunidad en espacios técnicos, políticos y financieros”, dice Anna Lehmann, directora ejecutiva del Comité Ejecutivo Interino de la PFP. “Las voces de la comunidad son fundamentales para crear flujos financieros que trabajen con la red de la vida y no en contra de ella”.

La PFP espera trabajar junto con nuestros miembros para continuar este trabajo en América Latina y en todo el mundo. Esperamos continuar ampliando nuestros esfuerzos de creación de conocimiento para individuos y organizaciones, iluminando los bosques del mundo con fuertes defensores y líderes en este espacio.

Beetles in a Pay Stack: Stacking and Bundling in Biodiversity Credit Markets

This article was originally published on the Environmental Policy Innovation Center blog.

What good is an ecosystem? Or rather, what goods are an ecosystem? Clean water and air, climate regulation, flood and erosion management, biodiversity and on and on. Can we value just one enough to get the rest for free? Should we put a price on each one and sell them separately? Or is that like taking a fresh-from-the-oven pizza and selling the cheese and toppings to different customers?!

Smart land managers and potential biodiversity market participants alike know that creating multiple revenue streams is often the difference between financial viability and bankruptcy. A forest manager can sell hunting access to the same land they sell timber from, or may sell some of the land’s development value later on. A restored hectare of land with excellent biodiversity outcomes can sell biodiversity credits, but may also have carbon credit value. Emerging biodiversity markets will inevitably coexist and compete with other nature markets and ‘registered’ credits, including voluntary carbon markets, water quality trading and others, with their own rules, jargon, and registries.

The conversation around how to generate multiple revenues from ecosystem credits is continuously evolving. The most straightforward way thus far seems to be to generate different ecosystem services (units or credits) from different, discrete supply areas of a project site. But what happens when you want to generate more than one credit from the same supply area of the property? Do you bundle? Do you stack? The debate goes on; stacking, bundling, or other terms have their champions and critics. What’s risky, what’s theoretical or unproven, and what’s the best way forward? How do we find the beetle in the pay stack?

Here we’ll have a crack at untangling how bundling and stacking fit into the growing biodiversity credit market using examples from the US and UK, which serve as an interesting contrast between long-established markets and an emerging nature market landscape.

“There are only two ways to make money in business: bundling and unbundling”
— Jim Barksdale, ex-CEO of Netscape and AOL

Clarity on Definitions

The terms bundling and stacking are raised quite frequently. Not surprisingly, there are differences in how the terms are interpreted and applied and nuances around whether ecosystem functions or services are sold together or separately. The Business and Biodiversity Offsets Program (BBOP 2018) provides a deeper dive into the bundling and stacking approaches that have been attempted globally, highlighting how additionality, ecological complexities, and transaction costs have largely prevented some stacking approaches from developing in practice. Finding a general consensus on the basic terms can refocus the conversation to help ensure that emerging approaches in biodiversity markets avoid “double-counting” (aka “double-dipping” or selling the same outcome twice) and lead to genuine outcomes for biodiversity.

First, what is bundling and stacking?

Bundling refers to when more than one ecosystem service produced on a piece of land is sold as a single trade or credit to a single buyer.” (IEMA 2023) A bundle may represent multiple overlapping co-benefits within a supply area, and the level of quantification of each discrete function/service can vary. For example, an implicit bundle represents multiple, overlapping functions/services that are not individually quantified or measured, whereas an explicit bundle defines and measures functions/services more explicitly, and thus may more closely resemble a stack (BBOP 2018). Arguably, when the biodiversity benefits of carbon credits (or other credits) are implied, e.g., through marketing with images of nature or descriptions of biodiversity, this should be considered an implicit bundle, as the implied biodiversity value affects both sales volume and price.

Stacking is when various overlapping ecosystem services produced on a given piece of land are measured and separately ‘packaged’ into a range of different credit types or units of trade that together form a stack.”  (BBOP 2018). A prerequisite to stacking is ecosystem unbundling, or representing an ecosystem as its discrete and divisible functions and/or services, which can be particularly challenging when it comes to interlinked functions or services (Robertson et al. 2014).

Is it really that simple? Well, no. 

As we dive in further, the lines seem to blur, and what is emerging in practice does not always fit neatly into the boxes of a bundle or a stack. The variability in practice can be distilled into 1) whether ecosystem services are defined as separate credits, 2) whether those credits can be sold separately, and 3) whether stacked ecosystem services are unbundled and accounted for independently.

On one side of the spectrum lies implicit and explicit bundling, where there are co-benefits, but only one credit type is generated and sold. Another form of bundling can occur where an area/activity may generate more than one credit type (meeting the criteria to generate units in each respective credit type), but the credits are bundled for purchase, and sold only once to a single buyer. For example, a site may generate a bundled Salmonid/Riverine Riparian credit that can be sold to meet wetland offset requirements, species offset requirements, or a combination, but only in a single transaction. This type of multi-credit bundle (sometimes referred to as ‘Stacking without unbundling’) occurs when multiple credits form a stack, but they cannot be sold independently. In this scenario, you could generate both carbon and biodiversity credits, allowing the sale of multiple types of credit, but any credits could only be sold under a single, bundled transaction. Effectively, the ecosystem value of the supply area is kept whole, avoiding the risks and complexities around ecosystem unbundling.

Moving along the spectrum is a form of stacking where multiple credits form a stack, these credits can be sold in more than one transaction (or to more than one buyer), but the credits are linked (i.e, not accounted for independently). For example, in US water quality trading, this is referred to as proportional accounting’, and occurs when more than one credit type is defined and sold, but the remaining credits in the stack are discounted or retired following a transaction. Say 50% of one credit type from a supply area is purchased in a transaction, then the remaining available credit types would all be discounted by 50% for subsequent transactions. In this case, co-located credits can be sold to multiple buyers, or in more than one transaction, but this depends on availability of remaining credits. Because the credit accounting among credit types is linked, this type of approach also reduces the risk of selling interlinked functions/services more than once.

On the far side of the spectrum lies the concept of true stacking (or “payment stacking” or  “stacking with unbundling” or “unstacking”), where separate payments can be received for each type of credit. Hypothetically, with true stacking, you could generate carbon and biodiversity credits from the same activity, and then sell them to separate buyers and/or accept payments for separate impacts. This type of stacking remains relatively rare in practice, likely due to policy restrictions, complex additionality criteria, transaction costs and the practical risks and challenges of ecosystem unbundling and disaggregating linked ecosystem functions/services (BBOP 2018).

Status Quo in the US and UK

In the US, the primary biodiversity-related ecosystem markets generally allow for ‘bundling’ and some types of stacking, but they draw the line at ‘true stacking.’ Clean Water Act (CWA) regulations allow for stream/wetland mitigation projects to be “designed to holistically address requirements under multiple programs and authorities for the same activity.” As such, joint banks have been developed which sell co-located wetland/stream mitigation credits (CWA) and conservation/species credits (Endangered Species Act), and, where agreed, these compensatory mitigation credits can also be sold to meet requirements under water quality or nutrient trading programs as well. However, the CWA regulations mentioned above are also quite clear that credits can only be sold to offset one impact. In other words, credits (e.g., ESA and stream/wetland credits) can be sold to a project needing to offset impacts to one or more resources, but these credits cannot be unbundled and sold separately for two different projects (e.g., for ESA/wetland impacts of one project and then again for water quality later). For a rundown of the updated rules in species markets, see Becca Madsen’s (of EPIC) blog here. There are also examples from water quality trading programs, where the sale of one credit type results in a proportional reduction of credits from other co-located credit types (e.g., the Willamette Partnership General Crediting Protocol), although specific policies vary state-to-state.  But in practice, co-located credits are generally either sold in a multi-credit bundle or a linked stack, where unsold stacked credits are discounted or retired after a single transaction. Note that compatible uses that could generate payments for landowners, such as duck hunting, can be approved at a bank site but this is not considered a form of stacking.

To date, we aren’t aware of examples in the US where true stacking approaches have been allowed or implemented within biodiversity-related credit markets or where stacked services/functions are inextricably connected. However, there are other market-based approaches that stack multiple ecosystem services but sit outside the construct of ‘registered’ credit markets. For example, bi-lateral trading models exist where landowners are paid for the services generated and the resulting gains are used to meet insetting requirements, risk reduction targets, etc. An example of this type of approach is the Soil and Water Outcomes Fund, where they provide the landowner a combined ecosystem service payment for all benefits produced, and use the resulting gains towards carbon sequestration and water quality insetting requirements of market participants (note that biodiversity is not explicitly identified as a co-benefit). While this seems to fall within the definition of bundling (i.e, all ecosystem benefits are purchased together in a single transaction), it also seems to allow for the unbundling of these benefits in subsequent transactions between the intermediary and market participant. Further discussion of these market approaches is outside the scope of this blog, but it should be noted that the same double-dipping issues can arise and transparency is needed.

Unlike in the US, where the primary markets have drawn a clear line on whether they allow ‘true stacking’, the direction of emerging markets in the UK is less clear. As England kicks off their ambitious Biodiversity Net Gain policy, new guidance has been released allowing for stacking across BNG and nutrient markets (provided eligibility criteria are met for each market). The guidance defines stacking as selling multiple credits or units from different nature markets separately from the same activity on a piece of land – a definition which appears to leave the door open to a range of stacking approaches, including ‘true stacking’ models. The guidance also discusses how BNG and nutrient mitigation could align with voluntary carbon credits or the use of other environmental payments on the same land, although this does not appear to be considered stacking. Emerging voluntary biodiversity markets in the UK sometimes also allow for stacking. For example, PlanVivo notes that biodiversity credits can be stacked with carbon (assuming additionality criteria are met), but only with approved carbon codes, which to date includes only the PlanVivo Carbon Standard.

Recently, the British Standards Institute put out a new “flex standard” for nature markets for consultation, with definitions of bundling and stacking that generally align with the ones above. This standard also appears to leave the door open to a range of stacking approaches, so long as there is “robust measurement and verification of additionality in place for each type of unit in the stack.” The flex standard also specifically addresses double-counting, with requirements that are intended to build on additionality and bundling/stacking trading rules – it’s possible these requirements could serve as guardrails to prevent the unbundling and separate sale of interlinked ecosystem functions/services. However, it’s still unclear in both the UK compliance and voluntary biodiversity markets how well eligibility, additionality criteria and requirements on double-counting will address ecological complexities, and whether there will be clear limits on how stacked credits can be sold, as we’ve seen in the established markets in the US.

Charting a low-risk path forward

Whatever bundling and stacking models emerge in nascent biodiversity markets in the next few years, it’s important to remember the overarching goal that high-integrity markets are aiming for – that these markets result in measurable, additional outcomes for biodiversity, above all else. Biodiversity represents the variability among living organisms and the ecological complexes of which they are a part. This requires thinking about the whole ecosystem in how we market and sell biodiversity gains, and whether it’s appropriate (or feasible) to unbundle biodiversity from its supporting and interconnected ecosystem functions/services. Arguably, robust additionality criteria can go a long way towards preventing double-dipping. But can we rely on financial and legal criteria to do this?  How do we tackle the ecological complexities of biodiversity and ensure that interlinked functions/services are not sold more than once to separate buyers?  Can a biodiversity outcome be disaggregated clearly enough to sell it as a truly separate commodity? Should it be attempted?

Here are four recommendations to make bundling and stacking less of a risk:

  1. There needs to be clear guardrails and governance mechanisms in place to prevent double-dipping. For example, in implicit bundles, we need to ensure that biodiversity credits are not subsequently sold from a property on which nature benefits have already been marketed to a different type of credit buyer. And in stacking, we need to acknowledge that ecosystem unbundling has its limits – interlinked functions should not be unbundled and sold to separate buyers.

  2. There needs to be transparency in credit accounting that allows for credit integrity evaluation. Credit sellers, methodology developers, and registries need to be specific about what they’re doing, and this information needs to be clear and understandable. It should not take an investigative journalist or an exhaustive technical review to uncover the details of how credits are generated, marketed, and sold.

  3. When buyers are engaging in markets as a way to address their impacts, whether in compliance offset markets or through voluntary markets, the equivalence of impacts and uplift needs to be considered – the same ecosystem services/functions need to be accounted for on each side of the equation. Buyers need  – and regulators or equivalent project validators must require  – absolute clarity on when selling stacked credits to different buyers is appropriate, and whether re-selling of unbundled credits is allowable. Let’s not let vague guidance create a policy gap.

  4. Emerging biodiversity markets, and especially voluntary markets, should aim for simplicity and legibility, recognizing that attempts at bundling or stacking may add layers of risk and complexity. Early transactions will work out better if complex additionality determinations or ecosystem accounting approaches aren’t necessary. There is value in building from established practice elsewhere with well-considered pilots of new approaches, and within new markets.

As with so many other debates in the biodiversity crediting world, the hard-earned lessons of existing markets – habitat mitigation and species banking, wetlands, carbon, and others – give us the tools for success. Let’s not ignore them.

Julia McCarthy is a research associate at Scotland’s Rural College (SRUC), funded in part by the Scottish Government’s Rural and Environment Science and Analytical Services Division (RESAS) Natural Capital – Galvanising Change (D5.3) project. She is also self-employed as an ecologist (McCarthy Ecology) working with multidisciplinary teams to provide strategic and expert advice to improve environmental program governance, implementation and policy, and advance science-based approaches.

Ryan Sarsfield is the Senior Advisor for Biodiversity Markets at the Environmental Policy Innovation Center (EPIC), working to build a market for biodiversity credits in the U.S. and abroad.

How to effectively engage in climate finance: Lessons from indigenous and local communities

This article first appeared on the Peoples Forests Partnership website.

Nunkui Veronica Tentets Vargas (Sharamentsa) & Uyunkar Domingo Peas (Cuencas Sagradas). Credit: Anna Lehmann

Carbon markets and other forms of climate finance are facing a confidence and credibility crisis. There is incredible potential for climate finance programs to drive millions of dollars directly to indigenous peoples and local communities (IPs & LCs) who steward 36% of the world’s forests and 80% of its biodiversity. But things like unscrupulous or ill-prepared “carbon cowboys” who rush into projects and cause distrust amongst local organizations, lack of standards and safeguards, and dauntingly complex technical and legal requirements, have made market actors, especially IPs & LCs, wary to engage.  

Establishing transparency, integrity, and trust between IPs & LCs and other market actors is essential to restore confidence in these critical finance tools. Market actors are calling for better resources and technical support to effectively participate in carbon markets. In response to this call, the Peoples Forests Partnership (PFP) was launched at COP26 in Glasgow to help connect IPs & LCs with direct finance opportunities and to make engaging with these opportunities more accessible, transparent, and equitable. 

A unique model for knowledge-building 

With so much clearly at stake for our world’s forests and the communities that safeguard them, the PFP gathered its members in Latin America from March 18th-20th for a regional members meeting near the city of Tena in the Ecuadorian Amazon. The goal of these three days was to take stock of the current state of carbon markets, demand and supply side developments, reform of standards as well as other forms of climate finance, and to facilitate a safe space to exchange knowledge and experiences and build a shared vision for future work together.  

PFP members present included indigenous organizations such as the Mesoamerican Alliance of Peoples and Forests (AMPB), the Organization of Indigenous Peoples of the Colombian Amazon (OPIAC), the Confederation of Indigenous Nationalities of the Ecuadorian Amazon (CONFENIAE), the Confederation of Amazon Nationalities of Peru (CONAP), and the Ixtlán Community; companies such as Green Collar, Wildlife Works, and Everland; and NGOs such as Forest Trends, Pachamama, and Cuencas Sagradas. The Coordinating Body of Amazon Indigenous Organizations (COICA) also joined as a special guest. 

Peoples Forests Partnership Current and Prospective members meet in Ecuador. Credit: Anna Lehmann

Conversations spanned from market intelligence to technical project issues and policy challenges, all framed around creating common understandings and encouraging deep discussions of challenges faced and where work is needed. All discussions happened under the Chatham House Rule, meaning information can be shared outside the meeting, but not be attributed to a specific person or organization. These parameters encouraged more diverse viewpoints and discussions and supported trust building among participants. 

“The creation of partnerships built on trust and accountability is part of what makes the PFP such a valuable and timely initiative, and one that our company is proud to be part of,” noted Blanca Bernal of Green Collar after the event. 

The diversity of attendees and the depth of engagement during the clinic sends a strong message of commitment and collaboration and it is a reflection of the appetite for and timeliness of this dialogue. Participants identified risks and negative precedents as well as the potential of climate finance mechanisms to support indigenous Life Plans, territorial governance, and indigenous economies, predicated on informed participation and a level playing field.  

The gathering was so much more than a simple information exchange; the PFP has created a unique safe place for IPs & LCs and businesses to learn about climate finance, share challenges and successes, and build trust.  

“The event in Tena was a very important meeting, where brothers, both Indigenous and non-Indigenous, private companies, and NGOs came together in good faith for an exchange of experiences with different criteria and perspectives,” reflected Domingo Peas, Achuar leader and President of the governing body of Cuencas Sagradas. 

Here are three key messages from meeting attendees on how climate finance can work for indigenous peoples and local communities: 

  1. Equitable climate finance starts with equitable information sharing.  

Indigenous peoples and local communities (IPs & LCs) are calling for information on climate finance that is reliable, high quality, accessible, and culturally appropriate. The need for capacity-building goes beyond IPs & LCs, too. Companies, governments, and NGOs are also calling for tools to better engage with IPs & LCs and to contribute to equitable, effective outcomes based on transparent dialogue. 

A few key topics we heard during the event included better information on free, prior, and informed consent (FPIC); safeguards and grievance mechanisms; different regulatory frameworks and standards; criteria for identifying credible partners; and the inner workings of contracts and benefit-sharing mechanisms. 

Credit: Anna Lehmann

The need for capacity and information also transcends individuals. The current ability of many organizations to provide specialized technical, financial, and legal support and guidance to their members is constrained by a lack of staff, time, and material resources. One of the goals of the PFP is to embed capacity within local and regional organizations who are better equipped to partner with individual communities.  

  1. IPS & LCs have secured seats at the rule-setting table, but that means there’s a lot of work to be done.

There has been a demonstrated effort for IPs & LCs to be directly involved in shaping the rules that govern different climate finance mechanisms, from UN processes to voluntary and industry standards, certifications, and other frameworks. They are increasingly invited to engage in discussions, but the matters are often extremely technical and procedural, and they are rarely accessible to participate effectively when organizations’ leaders and technical staff are being stretched thin. IPs & LCs are being asked to represent their community’s interests on a global forum, while also supporting their community’s immediate threats to survival as environmental defenders continue to be threatened and killed. 

Gustavo Sánchez, a member of the Mesoamerican Alliance of Peoples and Forests (AMPB, Mexico), underscored the importance of the moment: “We have an enormous opportunity to influence how national and international mechanisms should operate so that they benefit, not harm, communities. This is both a great challenge and a great responsibility.” 

To effectively participate in spaces where rules are set, PFP members are calling for the development and deployment of dedicated teams with policy and technical expertise within IP & LC organizations. This need exists both at the national and international levels. 

  1. Carbon isn’t the only metric for success.

A recurring message from IPs & LCs is that a narrow focus on carbon metrics as a primary indicator of project success does not align with their traditional relationships to their forests and territories. It excludes more human-centric metrics such as clear land and resource rights; strong organization and governance; and a host of other ecosystem, cultural, and spiritual values. While carbon is a critical currency in the face of the climate crisis, mechanisms focused solely on reducing emissions tend to marginalize those communities and territories who have historically demonstrated good forest stewardship and therefore have fewer emissions to reduce. 

During the event, we saw strong interest in developing alternative mechanisms that compensate good forest stewardship, such as driving finance to high forest, low deforestation (HFLD) indigenous territories and emerging mechanisms that value biodiversity. 

“Talking only about selling carbon doesn’t seem coherent, and it makes us uncomfortable,” emphasized Domingo Peas. “Most indigenous peoples in the Amazon have intact forest, forest that is still standing, and we want to see mechanisms that value this and work as an equal exchange, benefiting both worlds. We take care of the forest, and this should generate programs of support for us in a regenerative economy of solidarity.” 

Peoples Forests Partnership Current and Prospective members meet in Ecuador. Credit: Anna Lehmann

How we’re building on this momentum 

We’re coming away from this time together excited by a deeper collective understanding of current market and policy contexts and inspired by the willingness of participants to be open with each other and learn from each other’s knowledge. The collaboration between very diverse participants affirmed the Peoples Forests Partnership’s (PFP) unique offering as a safe space for politically sensitive and technically complex discussions, as well as a convenor that can elevate the voices of IPs & LCs to share lessons learned and become messengers on mechanisms that are working for them. 

“Our members have given us a clear mandate to build a platform that fosters radical collaboration and drives community-centered knowledge and innovation in technical, political, and financial spaces,” says Anna Lehmann, the Executive Director of the PFP’s Interim Executive Committee. “Community voices are critical in creating financial flows that work with the web of life rather than against it.”  

The PFP looks forward to working together with our members to continue this work in Latin America and across the globe. We hope to continue to scale our knowledge-building efforts for individuals and organizations, lighting up the world’s forests with strong advocates and leaders in this space. 

Companies and Carbon Credits: From Anecdote to Evidence

Last week, the Board of Trustees of the Science Based Targets initiative (SBTi) announced that they will recognise the responsible use of carbon credits and other environmental attribute certificates toward a portion Scope 3 emissions for achieving net-zero targets. This is a significant milestone for the market, not just for companies with ambitions to decarbonise, but for nature and project stakeholders who will benefit from the increased funding that this decision should initiate.

But the announcement is already rekindling the debate between market proponents and critics. Proponents argue that it could give companies much-needed flexibility on their net-zero journeys, which will ultimately accelerate climate action. Critics fear that this flexibility will give companies a “get out of jail free” card that allows them to maintain business as usual; or at least delay other steps they could be taking to reduce their emissions.

So what does the evidence say? Well, to date, this debate has been largely anecdotal – what do we think or feel is happening? The good news is, thanks to new research and analysis, we now have a clearer picture of not only how companies currently use carbon credits, but about what role carbon credits can and should play in credible and responsible climate action moving forward.

The findings? In short, the SBTi Board of Trustees is following the evidence, which points to the VCM being a valuable decarbonisation tool to support companies on their journey to reach net-zero targets. With the appropriate guardrails, carbon credits enable responsible businesses to immediately accelerate their action on climate, and can ultimately support more climate action than a focus on internal emissions reductions alone.

Here are three recent studies and their findings:

1/ Ecosystem Marketplace – The Role of Carbon Credits in Corporate Climate Strategies

In October last year, Ecosystem Marketplace released new research that suggests that companies that participate in voluntary carbon markets (VCM) are leading across a range of measures of robust climate action, accountability, and ambition—across the board, outperforming companies that do not buy carbon credits.

Findings include:

  • Companies engaging in the VCM are reducing their own emissions more quickly than their peers. They are 1.8 times more likely to be decarbonizing year-over-year and the median voluntary credit buyer is investing 3 times more in emission reduction efforts within their value chain.
  • Voluntary carbon buyers are more likely than non-buyers to have targets to address climate change, and their targets are more ambitious. They are 3.4 times more likely to have an approved science-based climate target and are 3 times more likely to include Scope 3 Emissions in their climate target

This reinforced earlier findings from Trove Research (now MSCI) that found that companies that use material quantities of carbon credits are decarbonising at twice the rate of companies that do not use carbon credits.

2/ We Mean Business – Accelerating Corporate Climate Finance Through Carbon Markets

In March this year, We Me Business – together with the Intercontinental Exchange (ICE) and Bain & Company – published research that suggests companies would substantially boost their climate investments (more than double them) if the corporate net-zero architecture recognizes and rewards investments in transparent, high-integrity carbon credits.

Findings include:

  • 71% of companies say the VCM allows them to do more to decarbonise (not less).
  • 61% of companies say purchasing quality carbon credits incentivises decarbonisation.
  • 51% of companies say climate finance is “use it or lose it”. That means if they are dissuaded from offsetting, they are absorbing the funds.

3/ AlliedOffsets – High Integrity Demand in the VCM: Forecast Analysis

 The International Emissions Trading Association (IETA) commissioned AlliedOffsets, as part of its recently issued VCM Guidelines, to consider whether the volume and pace of emission reductions could be increased through different compensation ‘use cases’ for carbon credits. Published in April this year, the modeling looks at the role carbon credits can play in compensating for corporate greenhouse gas (GHG) emissions where there is a high risk of such corporates missing their climate targets, or where such corporates are struggling to reduce their GHG inventory at the pace physically required by climate science to achieve the Paris Agreement goals.

Findings include:

  • 81% of companies have not yet set climate targets. This represents 63 gigatons CO2e and should be a greater focus of our attention.
  • Among companies who have set targets, Scope 1 and 2 emissions have exceeded reduction targets by 26%, and Scope 3 emissions by 62%, per year on average (1.5 gigatons CO2e) that should be addressed through carbon credit purchases
  • Assuming this rate of under-delivery on targets continues, this could represent 4.5 gigatons CO2e in 2030 (14 Gt CO2e in 2050).

A similar report from last November by MSCI found that if only firms that are on-track to achieve Science Based Targets initiative (SBTi) Scope 1 & 2 emissions targets can use carbon credits to bridge the Scope 3 gap, this could create a demand for carbon credits of 640 megatons today and 2.2 gigatons CO2e in 2030. This would require an additional expenditure of $19 billion today and $65 billion in 2030, assuming a $30/t carbon price.

Taken together, these pieces of analysis paint a compelling picture that carbon credits are not only currently being used as part of more ambitious overall climate plans, but that there is an important opportunity to boost corporate climate investments and accelerate corporate climate action through carbon markets. This of course assumes alignment with some fundamental guardrails, such as ensuring that carbon credits are not seen to be, or used as, an alternative to internal emissions reductions.

Why does this matter for nature? Well, simply put, the voluntary carbon market has the potential to fill a significant portion of the funding gap. In 2022, US $200 billion was directed to nature-based solutions, but this must triple to reach US$542 billion per year by 2030 and quadruple to US$737 billion by 2050.

A high-integrity voluntary carbon market has the potential to mobilise, at speed and scale, billions of dollars a year in additional climate finance that removes carbon or cuts emissions that help the world stay within the 1.5 degrees C limit of the Paris Agreement, and that benefits communities and ecosystems more broadly.

With high-integrity standards in place, the VCM can also build resilience and transfer wealth to the world’s most vulnerable countries and support sustainable development and the livelihoods of Indigenous peoples and local communities.

The value of the global VCM topped $1 billion in 2021 and could be worth between US $5 – 30 billion per year by 2030.  Nature-based credits made up 46% of VCM market share in 2022, and credits connected to nature-based solutions were a primary driver of high market value. Perhaps as much as two-thirds of market growth could be channelled into NBS.

There is now a growing body of evidence to show that the VCM has evolved and continues to evolve, and that we are moving forward into a VCM2.0 era. We are putting the days when companies could wash their emissions away with weak claims in the rearview mirror. With the support of science-backed guidelines and strong standards, the VCM is proving itself as a valuable tool, available now and at scale, for companies with an existing commitment to decarbonising and those who are yet to start their decarbonisation journey. Additionally, and perhaps more importantly, it is also providing a vital source of finance for nature and the stewards of nature.

Shades of REDD+
Two clashing visions for Article 6

14 February 2024 | COP28 failed to produce further guidance on how carbon markets governed by Article 6 (A6) of the Paris Agreement should work. Disagreements were many and concerned larger issues as well as more minute details of the Article 6 rulebook. In an overall charged atmosphere and an unusual -even-for-UNFCCC-negotiations breakdown of trust, the prospect of reaching an agreement on carbon markets became more and more elusive.

What became clear, even though it was never articulated as such, was that negotiating parties are driven by widely disparate visions of the role that the mechanisms formulated under Article 6.2 or 6.4 (A6.2 and A6.4) can play in achieving the goals of the Paris Agreement. On one side are those that see those mechanisms as opening the door to excessive offsetting with all the risks and pitfalls that come with that concept, and on the other side those that see them as opening a door to bolder and more transformative climate finance investments.

More specifically, one group of countries, often led by the European Union, is worried that carbon trading under A6 could undermine the Paris Agreement by creating mitigation outcomes that fail to represent real and additional emission reductions and removals (ERRs). Influenced by the recent debate around the quality of offset credits in the voluntary carbon market, those worried about A6 integrity want to see broad exclusions of project classes and strong top-down controls of projects and resulting mitigation outcomes. This “control position” resonates with suspicions that Parties left on their own will not be able to produce high-quality ERRs and generally casts doubt on the abilities, intentions, or designs of countries participating in A6. According to this view, A6 needs strong centralized steering to avoid subpar credits. However, strong centralized rules also limit the overall role of A6 – which defenders of the control position may not be overly worried about as, in their view, a small A6 reduces the risk that carbon transactions would undermine domestic mitigation policies. What remains is a vision for both A6.4 and A6.2 that is not much different from the design and role of the Clean Development Mechanism (CDM) under the Kyoto Protocol: a mechanism to finance a limited set of smaller projects, but this time with a lot more suffocating bureaucracy.

On the other side, there are countries, most notably the United States, that feel little inclination to elaborate on a second iteration of the CDM but consider A 6 – A6.2 in particular – to be an opportunity to mobilize large-scale private sector finance for transitional investments into larger mitigation programs. An example of this vision is the Energy Transition Accelerator that seeks to forge international partnerships to leverage carbon finance for coal transition projects. Countries taking this “light touch position” measure the success of A6 in the mechanisms’ ability to mobilize flexible finance with maximum mitigation impact responding to specific

Parties’ needs. They emphasize that A6.2 enables Parties to define crediting rule that support their own transformational carbon crediting initiatives. The light touch position argues that moving beyond narrowly defined concepts of project additionality and ERRs accounting is justified if the attempts and investments are just bold enough. Rather than putting the problem of offsetting and carbon accounting into the center of A6, those that promote a light touch approach to A6.2 stress the sovereign and partnership aspects of A6 that see the mechanism as essential tool to channel finance into broader mitigation efforts in the Global South and reject strict top-down UN ruling on the design of such programs.

While the light touch position can live fairly well in the absence of an agreement, the control position needs agreement to further narrow the space for A6 implementation. Existing rules already provide a framework for cooperative approaches under A6.2 and what is missing can largely be defined by participating countries. However, since regulation needs consensus, countries that want to steer implementation top-down need agreement. The result is that activities under A6.2 can move ahead for now, and it is A6.4 that is suffering most harm – and developing countries with fewer capacities who put their hopes on this mechanism.

Regaining trust will not be easy, but it is essential to reach a compromise on A6. A first step to building trust will be countries with differing positions understanding and evaluating the driving visions. Negotiators may need to take a step back and discuss what different countries expect from A6.2 and A.6.4 respectively. That is: how different Parties expect these mechanisms to contribute to the goals of the Paris Agreement, and how they wish to use these mechanisms to achieve their NDCs. In doing so, Parties can think more boldly about their goals and priorities.

It may also be time to reconsider accounting concerns in the context of the Paris Agreement. Transparency and strong inventories are the pillars of integrity of the Paris Agreement. As long as bolder A6 approaches are embedded in robust accounting, their transformational mitigation potential outweighs trade-offs imposed by the absence of centrally supervising each mitigation outcome.

Times have changed, the climate crisis is upon us, and it may be time to put accounting into the service of bold climate action. It may also be time to understand A6 in the context of the bottom-up architecture of the Paris Agreement. That architecture puts its fate into the ability and willingness of countries to contribute what they can to addressing the climate crisis. Honestly, it is all what we have, and positive encouragement is the only way that countries will act. The glue and spirit of this approach is trust – trust in the Parties of the Paris Agreement.

EM Strategic Supporter Feature
Navigating the Carbon Credit Landscape

In the face of an escalating climate crisis, sustainability managers are grappling with a myriad of challenges. From concerns about greenwashing to the intricacies of the carbon credit market, the path to a sustainable future is filled with uncertainties. The events of 2023 have underscored the urgency for immediate action, with both public and private sectors aligning their efforts with the Paris Agreement’s objectives. However, the voluntary carbon market (VCM) remains a complex and daunting terrain due to the lack of clear sourcing and standardized guidance.

3Degrees’ Carbon Action Playbook emerges as a beacon of clarity in this landscape. It offers practical, actionable steps for companies eager to incorporate carbon credits into their decarbonization strategies. Drawing insights from various third-party NGO action frameworks and market guidance, this playbook provides a well-defined roadmap for navigating the VCM. Download the guide to help in your sustainability journey.

The Carbon Action Playbook will help organizations:

  1. Understand the role of carbon credits in a climate strategy – Learn how to shape a comprehensive climate strategy for your organization, including the credible use of carbon credits in achieving global sustainability goals.
  2. Decide which carbon credits to purchase – Discover effective carbon procurement strategies, understand the balance between carbon removals and emissions reductions, navigate carbon credit standards, and implement robust due diligence to make informed procurement decisions.
  3. Make credible carbon claims – Understand the importance of establishing credible carbon credit claims by prioritizing accuracy and transparency, while adopting a strategic communication approach that emphasizes contributions to global climate change mitigation efforts.

 Your sustainability journey starts here.

Download the Carbon Action Playbook: https://bit.ly/41w247t

It’s time to stand up and take action – protecting forests is too important to wait

This coming year is the 25th anniversary of my returning to the ground. And having watched our leaders at the latest round of UN climate talks, I feel this tugging on my heart that it’s important for me to speak out publicly again – after more than a decade away from the spotlight. The story that I’ve been blessed to be part of seems to have a life of its own. It is repeated again and again on social media because people care passionately about forests and feel overwhelmed by their destruction. It seems that my story also offers a sense of hope and belief that positive change can happen.

We need this change desperately. Since 1990, the world has lost about 420 million hectares of forest – an area roughly half the size of the US. By 2030, only 10% of the world’s rainforests may remain. This hurts my head and my heart. My heart because I remember feeling such deep devastation when I saw my first ‘clear cut’ – with the trees slashed and burned away. My head because it makes no sense; our species needs forests to survive. The livelihoods of 1.6 billion people depend on them, almost 80% of life on land lives in them, and protecting and restoring them would deliver a third of what’s needed to help meet global climate targets. So, if we can’t come up with a solution to deforestation right now – we are basically saying that future generations do not deserve the right to a healthy planet.

The good news is we have solutions, we just need to turn talking into action.

Even in Luna more than 20 years ago, I was talking about the potential of carbon credits to fund forest protection if done right. The idea, later backed by the UN, is that companies voluntarily purchase credits that represent emissions avoided by forest conservation projects. Today projects like this (known as REDD+ projects) protect over 3 million hectares of forest and reduce emissions by more than 63 million tons a year.

Seems like a win. But instead of celebrating, or at the very least allowing these projects to continue, extreme people drag the world back to just talking and attack the REDD+ system for giving corporations a ‘license to pollute’.

Corporations already have that license to pollute from governments, otherwise they wouldn’t be doing it. If people just want to point fingers and say that there should be no polluters period and anything else is a sellout proposition, then those people should be in the halls of governments lobbying to end pollution.  The sad truth is that for the foreseeable future, corporations are going to be polluting. So while that’s the case, let’s use the money to do something good – not only good but vital – for the future of our planet.

Corporations have even been attacked specifically for investing in REDD+ projects. It is said, no good deed goes unpunished. After all, people said terrible things about me when I began living in Luna, and I always thought – I’m here because I’m showing up for what I care about. What are you doing, besides attacking me?

So to those who have been criticized, I deeply hope you keep standing up for REDD+ projects. You’re doing great work that’s innovative and making a real quantifiable difference in the world. It might not always be perfect because nothing that’s innovative ever will be. But REDD+ projects mean less carbon in the atmosphere, trees stand, wildlife thrive, and some of the world’s most disenfranchised communities are on a pathway to a better life.

And to the “haters”,  if your only contribution to making the world a better place is attacking others, then you’re part of the problem. Some of you are behaving like nothing more than bullies on the playground. As for the rest of us, we can either let the bullies win, or we have to stand up and take action – protecting forests is too important to wait.

REDD can be high quality: Here’s how

The world needs to drastically reduce global emissions. However, decarbonization will take time. One way to progress faster towards a net zero future is for companies to offset hard-to-abate, residual emissions with emission reductions or removals created elsewhere. Forests store carbon and provide multiple biodiversity, hydrological, social, cultural and livelihood benefits. Fossil fuels also store carbon while they remain buried, but keeping them in the ground does not have the same inherent co-benefits as storing carbon in a forest. A question that has been fought over for almost 30 years is whether emission reductions from protecting forests (reducing emissions from deforestation and forest degradation, or REDD) are a credible option to offset emissions from fossil fuels or industrial emissions.

There has been a recent bombardment of reports that credits from protecting forests should be considered worthless (e.g. 1, 2) and that using carbon markets to protect forests harms local populations (e.g. 1, 2). Most recent critiques are leveled at Verra’s Verified Carbon Standard (VCS) Program as the dominant carbon standard in the market, but jurisdictional programs such as ART TREES are also criticized for issuing hot air and disregarding the rights of  Indigenous Peoples and Local Communities (IPLCs).

These problems have arisen in the context of a voluntary carbon market that does not (yet) have adequate infrastructure or governance to meet the needs of a rapidly growing and evolving market. Cracks in the system can grow over time and, when not repaired, lead to problems with integrity and media scandals. The recent criticisms of REDD are like an earthquake that hit a town with weak building codes and insufficient oversight. Some buildings that were constructed properly will be fine, but others that cut corners have been cracked and damaged and will likely collapse or require significant repairs. Just as it would be ludicrous to conclude we should abandon buildings or building codes after an earthquake, it is wrong to conclude from the current media critiques that carbon markets and forest protection are automatically incompatible.

Some of the criticisms of REDD projects and jurisdictional programs and methodologies are debated (e.g. 1 and 2), but the critiques are based on genuine issues that need to be confronted. Problems with the greenhouse gas integrity of REDD credits and the negative social impacts that can occur are unacceptable and need to be addressed. For example, where REDD projects have overstated deforestation risks in their baselines and consequently enormously inflated the claimed emission reductions, such credits are, undeniably, unacceptable as a means to offset emissions.

But it is also wrong to conclude that because of these problems the world should walk away from using carbon markets to finance forest protection. Stopping deforestation by 2030 is estimated to cost $130 billion per year, and multiple policy, financial, and market incentives are needed to halt deforestation. Current funding already falls short, and carbon markets can be one part of the solution to protect forests and mitigate climate change – if the forest protection initiatives can demonstrate environmental and social integrity.

Is it possible to have high-quality, high-integrity REDD credits? Ones that measurably reduce greenhouse gas emissions AND protect critical biodiversity and ecosystems AND strengthen rights and benefits for IPLCs who live in and near forests?

The problems with REDD methodologies were known well before the recent barrage. Verra has been working since 2020 to revise and improve its REDD methodologies.  Verra should have acted faster, but this three-year process has reached an important milestone with a new REDD Methodology that will (eventually) replace all the existing REDD+ methodologies that have come under fire. Some of the authors of this blog have been part of the team working with Verra to produce the new methodology. We believe the new methodology – if implemented well and accompanied by robust validation and verification procedures and strengthened governance to increase transparency of the market and reduce conflicts of interest among its actors – can provide a solid basis to accurately quantify and account for emission reductions from REDD projects.

The most high-profile technical issue for avoided deforestation offsets is that the baselines are often inflated, as illustrated by scientists and ratings agencies. Baselines tell us what to compare forest protection achievements against – in this case, the deforestation that would have occurred without the protection activities. Baselines present a challenge because the moment a project is implemented it becomes impossible to see and measure exactly what would have happened if the project didn’t exist. Inflation in existing REDD project baselines is largely driven by projects choosing inappropriate reference areas to justify what would happen in the absence of the project, and by aggressively modeling rapidly rising rates of deforestation.

Picking a reference region and modeling its future is not necessarily a poor method to estimate a baseline – but it is prone to abuse and creates an inherent conflict of interest, as project developers that inflate their baseline will generate more credits.

The new REDD methodology fixes this by removing project developers from setting the baseline. Under the REDD Methodology Verra will use third-party service providers to determine historical rates of deforestation for whole countries (or very large subnational jurisdictions), then model where in the jurisdiction that deforestation is most likely to occur based on well-documented and defensible indicators of risk. From this model, Verra will present a baseline to each project using this new technical approach. This approach should protect the atmosphere and integrity of emission reductions in the following ways:

  • Rates of deforestation are based on historical averages. In a world in which rates are often rising, a historical average will often underestimate the area of deforestation each year.
  • Verra will use advanced satellite observations and peer-reviewed open-source science-based data to quantify historical rates of deforestation.
  • Projects represent a subset of the total forest area in any given country. Under the new approach, projects are allocated a portion of expected national deforestation. As a result, the sum of all project baselines can never exceed the national total.
  • With Verra taking responsibility for setting the baselines, the risk is substantially lowered that baselines will be manipulated to benefit project developers.

To strengthen IPLC safeguards, Verra released updates to its Verified Carbon Standard Program on 29th August 2023 which includes enhanced environmental and social safeguards. Verra’s changes increase the requirements for free prior and informed consent (FPIC) with stakeholders and strengthen safeguards to promote no-net-harm. While we believe safeguard requirements can still be improved, projects and project developers can also go beyond the standards to implement and support IPLC-led projects and initiatives such as the Peoples Forest Partnership.

It is easy to criticize and there can be no question that accurately accounting for emission reductions by protecting forests, restoring grasslands, or implementing agroforestry practices is complex. But this doesn’t mean we can’t transparently and conservatively estimate nature-based emission reductions.

The changes Verra is making now are like new building codes for REDD. They have the potential to create a higher-integrity REDD credit that can be differentiated from credits generated under the old methodologies. As current projects shift to the new methodology and new projects come online, we expect there will be renewed scope for high-quality REDD projects to enter the market with a new asset. For many projects, there may be fewer credits generated under the new methodology, but we expect the market will recognize the increased integrity and price the new credits accordingly. The new REDD Methodology should be accompanied by ongoing efforts to improve the governance and strengthen the infrastructure of the market, improving estimates of leakage and management of reversal risks, and resolving issues related to overlapping claims – all of which should be subject to continued public and academic scrutiny.  Such steps will ensure REDD remains an important part of the solutions that benefit IPLC stewards, biodiversity, and the climate.

What Lies Ahead for Carbon Markets After COP28?

21 December 2023| When voluntary carbon standards such as Plan Vivo, Gold Standard, and the Chicago Climate Exchange emerged in the late 1990s and early 2000s, they aimed to create transitional mechanisms to test new concepts and support early action until a global regulatory apparatus emerged.

More than 20 years later, that apparatus is still in limbo, and regulation of International Carbon Credits (ICCs) won’t be operational for at least another year – and probably two – after delegates to the UN climate conference in Dubai (COP 28) failed to find agreement on operationalizing Article 6 of the Paris Climate Agreement.

That’s good news for the Voluntary Carbon Market (VCM) because it can continue operating without cumbersome and counterproductive corresponding adjustments.

It’s bad news for the planet because it delays the advent of a global compliance market that could double the climate impact per dollar spent on reducing emissions.

In the week since our last dispatch from COP, we’ve dug into the documents, listened in on webinars, and followed the LinkedIn debates to produce this simple synthesis of the status quo. We’ve chosen not to quote anyone in the piece in an effort to avoid emphasizing views from those who can speak on the record over those who can’t.

More Positive than Initially Reported?

Our reporting from the final day of COP mostly stands, but not all of it.

Countries are moving forward with the piloting of government-to-government transfers, labeled Internationally Transferred Mitigation Outcomes (ITMOs) under 6.2, and they can even execute corresponding adjustments on Emission Reductions and Removals (ERRs) from projects, turning them into ITMOs – although it’s not clear the UNFCCC will recognize those.

What’s changed since our final dispatch is the degree to which market proponents welcome the delayed progress on Article 6.2.

Several pro-market observers concede that another year of negotiations could lead to a clearer and more manageable mechanism without being the cause of delays.

That’s because countries still need time to build their capacities, and there’s s more than enough clarity to move forward under Article 6.2.

The downside: only the most advanced countries are moving forward under Article 6.2, while at least 70 are taking steps to utilize Article 6.4.

To help develop sovereign action on Article 6, Ecosystem Marketplace is working with the US Department of State to develop new carbon credit pricing intelligence tools and support services for developing counties (also known as host countries) through an International Carbon Credits Console.

Article 6: The Component Parts

Under the Paris Agreement, Article 6.2 covers bilateral agreements between countries that have exceeded their Nationally Determined Contribution (NCDs) to the Paris Agreement and those falling short. At the national level, those surplus ERRs don’t need to demonstrate additionality to be transferred as ITMOs; they merely need to represent reductions beyond the selling country’s NDC. At the project level, however, ERRs should meet additionality requirements under a recognized standard.

Article 6.4 covers a centralized credit issuance mechanism for countries that either can’t operate under 6.2 or want the flexibility of using both.  It’s the rebirth of the Kyoto Protocol’s Clean Development Mechanism (CDM), and it’s methodologies must deliver project-level additionality.

Article 6.3 defines ITMOs, which apply to ERRs from both 6.2 and 6.4 when transferred via 6.2.

The Good News

COP 28 opened with a commitment to fund the Loss and Damage Fund, and it closed with an agreement to phase out fossil fuels through a variety of mechanisms – including dramatically ramping up the use of renewable energy, support for energy efficiency, and even carbon removals and Carbon Capture and Storage (CCS).

The Global Stocktake explicitly called for accelerated action on Art 6.

The Bad News

The failure to reach an agreement on Article 6 means there will be no centralized UN-driven mechanism under Article 6.4 for at least another year and probably two.

It also leavies uncertainty around bilateral agreements between countries under 6.2, despite the optimism expressed above, because all of the Article 6 guidance must pass as a package.

That means any delays in guidance for 6.4 will also impact 6.2 – not to mention the UN’s global pact for offsetting airline emissions (CORSIA).

That’s because CORSIA, while it operates outside the Paris Agreement, requires corresponding adjustments. The failure to reach an agreement on the enabling tools for providing transparency and building registries, not to mention the need for corresponding adjustments, could stifle progress on CORSIA.

The Good News About the Bad News

Market proponents are divided over whether the failure to reach an agreement on Article 6 reflects legitimate quality issues or obstructionism by the market opponents – or a combination of the two.

A large minority of proponents said they believe further negotiations can yield a more robust mechanism.

Either way, countries continue piloting activities under Article 6.2, which lets countries like Thailand transfer ITMOs that represent reductions exceeding their NDCs to countries like Switzerland.

Then there’s the VCM, which has emerged more coherent than ever.

Centralized VCM and the Future of Legacy Standards

Those carbon standards that already passed muster under CORSIA[1] announced they’d continue to align around best practices, while the organizations promoting those practices[2] announced they’d work on end-to-end agreement about what works (the standards) and how it’s used (corporate claims).

At the same time, national regulators, such as the US Commodities and Futures Trading Commission (CFTC), and international organizations, such as the International Organization of Securities Commissions (IOSCO), stepped up with rational plans for regulatory certainty of the VCM.

The upshot: we’re getting more clarity on where experts align and where they diverge. This should help to ensure outlier views don’t have an outsized impact on the market.

Article 6: The Problem

The Glasgow Rulebook governs the implementation of Article 6, and it lets countries establish their own rules for implementing Article 6.2 while creating detailed rules for implementing Article 6.4.

In Dubai, talks bogged down over how prescriptive the UN’s rules for 6.2 should be and the role of nature-based solutions under 6.4, among other contentious aspects of what continues to be a highly technical and nuanced climate market.

Article 6, Paragraph 2: Who’s the Boss?

Four issues began bubbling up in technical discussions over the summer and erupted in Dubai:

  1. The degree to which countries can designate which information is considered confidential and which must be disclosed.
  2. The sequencing and timing of reporting obligations before ICCs could be issued.
  3. The degree of consistency among international trading linkages.
  4. The role of registries and the need for linkages among them.

The European Union pushed for more prescriptive language in Dubai, and the United States called foul. Countries then split into two factions – one arguing that the new requirements amount to renegotiating the Glasgow Rulebook and that countries engaged in 6.2 are sophisticated enough to develop their own rules, and the other arguing that lax guidance could lead to abuse and confusion.

There were also provisions in both 6.2 and 6.4 arguing that ITMOs could be canceled after being transferred abroad – provisions some argued would underpin integrity, while others said it would undermine demand.

While the preponderant view is that there’s enough agreement under 6.2 for countries to move ahead, many acknowledged serious risks. Some said corresponding adjustments made now won’t be recognized under the UNFCCC, and others worried that individual trades made now could be canceled later.

Article 6, Paragraph 4: Why Can’t we All Just Agree?

As of December 12, 2023, 67 countries had identified Designated National Authorities for engaging Article 6.4, and the draft agreement asked the Article 6 Supervisory Body (A6 SB) to establish a Designated National Authorities Forum “to facilitate the exchange of information and experience among designated national authorities and the identification of common challenges at the regional and subregional level in operationalizing the mechanism.”

Because Article 6.4 governs a central apparatus, the Article 6 Supervisory Body is charged with developing methodologies that govern transactions, and talks bogged down over two methodological issues: first, whether nature-based solutions (NBS) should be recognized and second, whether Avoidance should be treated as a third category additional to Reductions and Removals.

The European Union became the most prominent opponent of NBS – including both Afforestation/Reforestation/Regeneration (ARR) and Avoided Deforestation and Degradation (ADD) – due to uncertainty over the risk of reversal.

The Philippines became the most prominent proponent of treating Avoidance as a separate category, in part because they see it as a way of encouraging countries like themselves to leapfrog over (avoid) fossil fuels altogether and go straight to renewables. They have argued that such a leap represents a legitimate avoidance that should be treated differently from reducing current fossil fuel use.

Corporate Claims

At COP 27 in Egypt, negotiators agreed to recognize Mitigation Contribution Units (MCUs) for ICCs that don’t require corresponding adjustments, while the leading VCM actors are also aligning around agreement on what claims companies can make.

There appears to be a wide variance in how proponents perceive the new claims guidance. Some argue that if claims are too vague, companies won’t see the value in engaging the market, while others argue that current claims of carbon neutrality are overstated. This issue is not going away any time soon.

Previous Coverage

Piloting to Continue Under Article 6 Despite COP28 Failure

COP28 Update: Progress Towards Agreement on Avoidance Under Article 6.4, but Backsliding in 6.2

African Countries Mobilize for Carbon Markets Despite Article 6 Deadlock

Analysis: Article 6.4 Talks Have Stalled in Dubai. Here’s What’s At Stake

What to Watch for Voluntary Carbon and Article 6 at COP 28

Bionic Planet Podcast

Related Links

This LinkedIn post by Jos Cozijnsen of the Climate Neutral group offers a short and sweet summary of the differences between Articles 6.2 and 6.4, as well as a brief analysis of issues with 6.2 as it currently stands.

This Webinar hosted by Patch took place a few days after COP. It offers a deep dive into the prognosis of the VCM in 2024 and features Alexia Kelly of the High Tide Foundation, Stephen Donofrio of Ecosystem Marketplace, and Emma Parry of McKinsey & Company.

This Webinar hosted by BusinessGreen and sponsored by Sylvera also explores the prospects of the VCM in 2024 and features Ben Rattenbury of Sylvera, Jonathan Shopley of Climate Impact Partners, Simon Puleston Jones of Climate Solutions, Rich Gilmore of Carbon Growth Partners, and Anna Hickey of Phillip Lee LLP.


[1] The American Carbon Registry (ACR), Architecture for REDD+ Transactions (ART), Climate Action Reserve (CAR), Global Carbon Council (GCC), Gold Standard (GS), and Verra/Verified Carbon Standard (VCS).

[2] The Voluntary Carbon Market Integrity initiative (VCMI), the Integrity Council for the Voluntary Carbon Market (ICVCM), the Science Based Targets Initiative (SBTi), the GHG Protocol, the We Mean Business Coalition and CDP (formerly the Carbon Disclosure Project).

Press Release:
Top scientists issue rebuttal to West et al paper

12 December 2023 |Prof Ed Mitchard and colleagues find major flaws in research that claims up to 94% of REDD+ projects are worthless.

This Press Release was originally posted here.

See Space Intelligence blog for more information.

An international group of senior scientists has submitted a rebuttal to the West et al paper to Science for peer review, and urged the retraction or major revision of the study which discredited avoided deforestation projects.

As efforts to recognise the global trade in voluntary carbon credits make headlines at COP28, an international group of scientists including Professor Ed Mitchard, Professor Eric Nowak, Dr Sassan Saatchi, Dr Jason Funk and others released a study stating that the methodology used by the authors to discredit carbon credits contains serious errors.

“The flawed analysis of 24 projects both understates the impact of the projects in the sample, and unfairly condemned all REDD projects, of which there are over 100. It risks cutting off finance for protecting vulnerable tropical forests from destruction when funding needs to grow rapidly,” said lead author Professor Ed Mitchard.

Mitchard, a respected carbon specialist and Chief Scientist of nature data company Space Intelligence that counts Apple and The Nature Conservancy among its clients, was joined by a similarly respected group of co-authors that include satellite data and forest experts at NASA, scientists at the University of Edinburgh and UCLA; and economists at the University of Lugano (USI).

The group analysed the paper published by West et al, published in the journal Science in August 2023, that claimed too many carbon credits had been awarded to the forest carbon projects.

Key Findings of Study

Key flaws found in this group’s review include issues with the comparison sites chosen, the global deforestation datasets used, and the incorrect calculation of carbon benefits from projects.

Inappropriate Comparison Sites

The comparison sites West et al used to estimate what would have happened in the REDD project sites if no intervention was made to prevent deforestation were found to be completely inappropriate. For example, Peru and Colombia project areas were compared to sites on the other side of the Andes mountain range. They were therefore incomparable in universally recognised key factors that influence deforestation such as the biome, crop species grown, and whether there was access to international markets.

Inappropriate Dataset Usage

The global deforestation dataset used was also found to be inappropriate as it inevitably contains random errors and its sensitivity changed through time as available satellites changed. This meant that projects that successfully reduced deforestation were less likely to be detected as such. The authors refer to a large study in sub-Saharan Africa that assessed the deforestation dataset used and found using it would result in a project that was 100% effective only being credited with being 10% effective.

Errors in Calculation of Carbon Benefits

West and colleagues made numerical errors when calculating the carbon benefits of projects their analysis found were effective at stopping deforestation. There were two different calculation errors that together meant the proportion of credits they found that delivered real carbon benefits should be increased by 62%.

Mitchard concluded that the results claimed by the West paper were highly uncertain.

“As such, we believe their paper should be retracted or heavily revised,” he said.

“We call for future studies on the effectiveness of REDD projects to use locally tuned forest change data with known accuracies or point-based sampling approaches to quantify deforestation. Furthermore, analytical approaches must always lead to meaningful comparisons between forests of the same ecological type and legal status, and should consistently pass rigorous validation checks before conclusions are drawn from them.”

### / ENDS

For more information:

Kim McAllister, Communications Lead, Space Intelligence

+44 7740 336 991 [email protected]

About Space Intelligence

Space Intelligence is the leading provider of nature data and digital monitoring systems for nature-based solutions (NbS). They work with project developers and NGOs to identify and develop new NbS projects, and monitor them over time.

They also work with large corporates and asset managers to offer due diligence and digital Monitoring, Reporting and Verification (MRV) for portfolios of NbS projects designed to achieve Net Zero/ESG commitments. Their technologies are created using advanced multi-sensor satellite data fusion and analytics in a machine learning framework, and informed by deep expertise in tropical ecology within their 50+ person team. Learn more at https://www.space-intelligence.com/.

Piloting to Continue Under Article 6 Despite COP28 Failure

13 December 2023 | DUBAI | Countries say they will continue piloting cross-border cooperation under Article 6.2 of the Paris Agreement despite a failure by negotiators to agree on guidance for operationalizing that paragraph and its companion, Article 6.4.

Article 6 governs international carbon credits.

Within it, Article 6.2 provides a framework for countries to cooperate bilaterally or multilaterally, while Article 6.4 provides a centralized mechanism administered by the United Nations. Article 6.8 covers non-market transfers.

Coming into the talks, expectations were high for progress under Article 6.2 and low for Article 6.4, but they would have to pass as a package to operationalize the mechanism. Countries had been piloting cross-border cooperation under 6.2 for several years, and scores of them had already established designated national agencies for engaging 6.4.

“Article 6 is mentioned as an instrument to accelerate work under the Global Stocktake decision,” said Jos Cozijnsen, a former negotiator for the Dutch government now acting as policy advisor to the Climate Neutral Group.

“This would mean that Article 6.2 pilot deals can continue,” he said. “They do not need further guidance, and the Voluntary Carbon Market will keep playing a role in helping host countries meet their targets because no corresponding adjustment is needed.”

The International Emissions Trading Association (IETA) issued a statement condemning the “politicization” of the carbon markets, explicitly citing efforts by the European Union and others to relegate policy discussions, including on the role of REDD+ in Article 6.4, to the Subsidiary Body for Scientific and Technological Advice (SBSTA).

“The Article 6.4 Supervisory Body should not be micro-managed by SBSTA,” they said in a statement.

“The delay of the Article 6.4 mechanism is not a victory for environmental integrity,” added Andrea Bonzanni, IETA’s International Policy Director. “It is a victory for the anti-market agenda.”

IETA also reiterated that Article 6.2 can continue to be implemented without further guidance from the Parties to the Paris Agreement (CMA).

“Market-based cooperative approaches would have benefitted from an Agreed Electronic Format for reporting and clearer rules on the authorization of Internationally Transferred Mitigation Outcomes, but this is not essential,” they said.

Although piloting can continue, there is doubt over whether international carbon credits (ICCs) transferred from government to government will be recognized under the Paris Agreement. Voluntary transactions retain their current status as exempt from corresponding adjustments.

Negotiations on Article 6.2 backslid over disagreements on how much centralized oversight the UN should extend to bilateral and multilateral hubs.

US delegates expressed frustration with efforts by the European Union and others to impose more prescriptive rules on Article 6.2 than had previously been agreed.

Previous Coverage

COP28 Update: Progress Towards Agreement on Avoidance Under Article 6.4, but Backsliding in 6.2

African Countries Mobilize for Carbon Markets Despite Article 6 Deadlock

Analysis: Article 6.4 Talks Have Stalled in Dubai. Here’s What’s At Stake

What to Watch for Voluntary Carbon and Article 6 at COP 28

Bionic Planet Podcast

Countries Reject Proposed Guidance for Article 6

12 December 2023 | DUBAI | Countries have rejected the latest guidance on operationalizing Articles 6.2 and 6.4 of the Paris Agreement.

As the 28th session of the Conference of Parties (COP28) to the United Nations Framework Convention on Climate Change (UNFCCC) entered what were supposed to be its final hours, key discussions on the Global Goal on Adaptation (GGA), the Global Stocktake, and Article 6 were taking place behind closed doors and expected to continue well beyond the scheduled end.

A draft negotiating text on Article 6.4 emerged late on 11 December 2023, with a revival of the avoidance vs removals debate and a request to push the issue of ecological avoidance, including avoided deforestation, down to the Subsidiary Body for Scientific and Technological Advice (SBSTA) until 2028. The specific language states that the COP “requests the Subsidiary Body for Scientific and Technological Advice to continue its consideration of whether Article 6, paragraph 4, activities could include emission avoidance and conservation enhancement activities, as part of the review of the rules, modalities and procedures for the mechanism to be conducted by the Conference of the Parties serving as the meeting of the Parties to the Paris Agreement at its tenth session (2028).”

New draft texts emerged on the evening of the 12th, and while they looked clean, they failed to pass. We will have more details tomorrow.

Article 6.2

Article 6.4

Previous Coverage

COP28 Update: Progress Towards Agreement on Avoidance Under Article 6.4, but Backsliding in 6.2

African Countries Mobilize for Carbon Markets Despite Article 6 Deadlock

Analysis: Article 6.4 Talks Have Stalled in Dubai. Here’s What’s At Stake

What to Watch for Voluntary Carbon and Article 6 at COP 28

Bionic Planet Podcast

Corrections and Clarifications

This story initially referenced REDD+ credits possibly being relegated to SBSTA, but we changed this to “ecological avoidance, including avoided deforestation” to avoid confusion with REDD+ as it exists in the VCM.

COP28 Update: Progress Towards Agreement on Avoidance Under Article 6.4, but Backsliding in 6.2

9 December 2023 | DUBAI | 15:38 GST | UPDATED 1902 GST | Negotiations around the guidance for implementing Article 6 of the Paris Agreement are entering the final days, with the publication of new draft negotiating texts for Articles 6.4 and 6.8 as well as a continuing late-night session on the current text for 6.2.

The current 6.4 text is just seven pages long, with six pages comprising a negotiating text and one page prescribing an option if no agreement is reached.

Although negotiators made progress on Saturday, they still remain far apart on key issues.

“If there is an agreement at the end of this COP, the text will look a lot different than what we have now,” said Andrea Bonzanni, International Policy Director for the International Emissions Trading Association (IETA).

The highlight of the day came in the Saturday afternoon session, when the Philippines, which had been vociferously pushing for avoidance to be treated as a third category in addition to reductions and removals, said they could live with an option stating that “emission avoidance and conservation enhancement may also result from emission reduction or removal activities that meet the requirements of the rules, modalities and procedures for the mechanism, apply other related rules and guidance and an applicable methodology approved by the Supervisory Body.”

The agreement means that avoidance is not treated as a third category but can rather be treated as either a reduction or a removal, if adopted.

Unfortunately, negotiations under 6.2 have backslid after the European Union (EU), the Independent Association of Latin America and the Caribbean (AILAC), and the Alliance of Small Island States (AOSIS) proposed more prescriptive language, while the United States and most other countries argue that 6.2 is a party-driven approach that should leave more rule-making to participating countries.

The current 6.4 draft also recognizes the transition of afforestation and reforestation project activities and programs from the clean development mechanism (CDM) to the mechanism established under 6.4, provided the transition is requested by June 30, 2024.

Negotiations under Article 6.2 are continuing and are slated to run until 2330 GST.

UPDATED at 1902 GST to include the latest on Article 6.4.

African Countries Mobilize for Carbon Markets Despite Article 6 Deadlock

8 December 2023 | DUBAI | Climate negotiations that focus on international carbon credits (ICCs) through Article 6 of the Paris Agreement remain stalled at the 28th Conference of the Parties (COP 28) to the United Nations Framework Convention on Climate Change (UNFCCC), but government pavilions — and especially those of African countries — are buzzing as nations move forward with domestic frameworks and international arrangements, although delegates said the wheel of government also turn lowly.

Article 6 of the Paris Agreement governs international carbon credits, and the implementation of three paragraphs – Articles 6.2, 6.4, and 6.8 – remains in limbo. Article 6.2 provides a framework within which countries can trade among themselves, bilaterally or multilaterally, and Article 6.4 provides a centralized mechanism administered by the UNFCCC. Article 6.8 covers non-market transfers.

With four days of talks remaining, negotiators are stuck on key definitions and how prescriptive the methodological guidance for removals should be under Article 6.4. Those rules will have major implications for whether nature-based credits are recognized under Article 6.4.

“Article 6 is sector agnostic, so it’s not saying from the outset that any sector can’t be included,” said Kelley Hamrick Malvar of The Nature Conservancy. “So if, for example, the guidance were to come out and say anything that has a risk of reversals must ensure permanence for a thousand years, then that would effectively cut out nature.”

Different Countries, Different Speeds

Speaking on a panel, Alick Muvundika, Acting Deputy Director of Zambia’s National Institute for Scientific and Industrial Research, pointed to several advances that his country has made in cooperation with the North Korean government but pointed out that different components of his and all governments work at different speeds.

Kenya, for example, has already updated its Climate Change Act to regulate carbon markets, offering clarity to regulators and project developers alike, while Zambia is working with ad hoc guidelines until legislation can be developed – possibly in the first quarter of 2024, according to Muvundika.

“Right now, we have benefit-sharing requirements, but they’re too subjective,” he said. “Some developers will go to a local chief, give them something, and then leave a bit to the community, but it’s not really a fair arrangement,” he said. “It’s been a headache.”

On the same panel, the think tank Climate Focus said it was finalizing an update to its 2020 publication, “The Landscape of Article 6 Implementation,” in cooperation with Perspectives Climate Group. The update will offer a comprehensive summary of several Article 6 readiness processes. A hard copy shared after the panel confirmed what we’ve seen anecdotally: dozens of governments moving forward with legislation, registries, and cross-border arrangements but reticent to offer too many details until other components of the domestic strategies are finalized.

Not surprisingly, the countries’ states of readiness reflect their past activities. Countries like Ghana, which has been working on REDD readiness since the mid-2000s, are significantly more advanced than others that have kept a more hands-off approach to voluntary carbon markets. The country has established eligibility criteria for projects within its borders and has developed jurisdictional crediting through ART Trees and the LEAF Coalition.

Common Themes

The upcoming Climate Focus/Perspectives document, which bears the same name as the 2020 publication, identifies several themes common to most of the countries it examined – such as steps to create a domestic registry, a willingness to establish eligibility requirements for Internationally Transferred Mitigation Outcomes (ITMOs), which will require corresponding adjustments, and a similar desire to prescribe activities allowed in the voluntary carbon market.


African private sector representatives are also here in force, and many expressed mixed feelings about moves to regulate voluntary carbon markets.

Many countries lack legislative frameworks related to carbon credits, even if they hosted significant emission reduction projects. Implementing Article 6 is prompting countries to adopt new regulations and update existing regulations, providing a more secure legal foundation for institutional and administrative arrangements. Legal frameworks are crucial not only for these arrangements but also for addressing the international legal treatment of carbon credits, facilitating standardized documentation for derivatives, and ensuring legal certainty for taxation and accounting purposes.

Rwanda in the Limelight

Rwanda has the highest profile of the countries present – largely because it authorized the first corresponding adjustment associated with an individual project.

To implement its Nationally Determined Contributions (NDCs), the country plans to raise $11 billion, with $5.7 billion for mitigation and $5.3 billion for adaptation measures. Of the total, $6.9 billion will come from international sources.

The country is developing a cap-and trade system, as well as a domestic registry, and it has signed cooperation agreements with Singapore and Kuwait for Article 6 implementation.

More on the Bionic Planet Podcast

For more on COP 28, visit the Bionic Planet podcast. Bionic Planet’s coverage from COP is being sponsored by Ecosystem Marketplace.

Analysis: Article 6.4 Talks Have Stalled in Dubai. Here’s What’s At Stake

5 December 2023 | Six days into year-end climate talks in Dubai (COP 28), we’ve seen promising headlines coupled with disappointing results in the negotiations around Article 6.4 of the Paris Agreement.

On the plus side, we’ve seen more ambitious targets from the United States and China, a concrete Loss and Damage Fund agreement, and a $30 billion dollar United Arab Emirates climate fund.  These events suggest it could be a landmark like the Paris meeting that yielded its eponymous breakthrough treaty by affirming countries’ right to economic development and prodding high-polluting industries.

But inside the halls, we’re hearing that talks have predictably bogged down as negotiations clash over conflicting views on what types of nature-based solutions to recognize in the recently-proposed methodology assessing removals.

As wonky as it may sound, we need the Paris Agreement’s Article 6.4 to make such an equilibrium a reality.

The audit, consultation, and transparency requirements starkly contrast with forest-carbon offset projects offered by some companies, which rested on misrepresented scientific data and cajoling local populations to buy the land necessary for the offsets. Furthermore, there is no agreed-upon international standard. Currently, there are 73 carbon pricing mechanisms globally. This patchwork of initiatives led to the emergence of Compliance Credit Markets (CCM) and Voluntary Credit Markets (VCM).

By 2021, the CCM was valued at $851 billion and the VCM at $2 billion. The combined global market grew to $980 billion last year. The VCM is forecasted to grow to as much as $40 billion by 2030, and the International Swaps and Derivatives Association (ISDA) estimates it could reach $1 trillion by 2038. Others estimate that the global carbon offset and credit market could reach between $1.6 and $2.7 trillion by 2028. The expected demand for carbon credits is forecast to be 200 metric tonnes (mt) of CO2, outstripping supply by as much as 170mtCO2 by 2030. This extremely tight carbon market will require finding high-quality and profitable products while avoiding greenwashing and reputational risk.

Despite the controversy driven by poor ethics, the carbon credit market emerged from a legitimate financial need. Incentivizing projects associated with carbon reduction had a notable impact. According to the Climate Policy Initiative’s 2022 report,  financial commitments needed to increase sevenfold from a 2019 baseline to reach the goals laid out in the Paris Agreement.  While climate finance only doubled between 2011 and 2020, it doubled between 2019/20 and 2021/22 alone. However, according to the latter 2022 report, climate mitigation and climate adaptation finance have been a vast mismatch. Article 6’s clauses were so important that COP 28 president Sultan Ahmed Al Jaber planned to raise it in his meetings with Brazil’s delegation to “incentivize higher mitigation ambition.”

Although the justified focus on carbon reduction might account for this, the United Nations Framework on Climate Change estimates we will have tapped 87 percent of the “carbon budget” to keep us in line with the Paris Agreement by 2030.

The time has come to focus more intently on climate adaptation efforts in the most vulnerable and developing countries with booming energy demands.

Even something as large scale as the Loss and Damage Fund is not enough. Pledges of cash at some undetermined date will not be enough to begin the hard yards of standing up the Article 6.4 framework needed to create a pipeline of projects in which $1.3 trillion of private capital is ready to invest.

Negotiators, whether in plenary sessions or sideline meetings, must move to operationalize the Article 6.4 framework detailed by the Supervisory Body in October. They must also fund its implementation and capacity building.

Article 6 allows countries to create voluntary carbon credits provided they meet specific transparency standards and tie to countries’ Nationally Determined Contributions (NDCs) reducing carbon emissions. Some experts have expressed hope that Article 6’s broad focus on cooperative measures will boost private financing for climate initiatives to avoid a dismal performance of a mere 10 percent reduction in emissions under current commitments.

Article 6.4 specifies that countries should establish said credits through sustainable development involving public and private actors. New regulatory documents issued by the United Nations lay out an extensive process by which governments create 6.4 project umbrellas to which individual “project participants” can then apply. The application involves a detailed plan involving extensive stakeholder engagement and a rigorous verification process to determine whether the project actually meets the country’s NDCs.

Projects must use a standardized baseline or receive authorization from the Article’s Supervisory Body to deviate from approved methodologies. Countries and independent auditors, known as  Designated Operational Entities (DOEs), are responsible for verifying the claims made in project plans (PDDs). Under this new system, those same documents must use the most conservative of available estimates for carbon savings, and the auditors themselves can lose accreditation if reviews by the Article’s main body find their verification techniques sub-par.

The operationalization of Article 6.4 can accelerate blended finance deployment by providing an improved framework. Under these provisions, there will be a steady pipeline of projects, an enhanced focus, and financing. These projects will involve sovereign countries in the approval process, provide an alternative to loans, and improve coordination between multilateral financial institutions, states, private sector projects, and private sector finance.

The effective coordination of these various elements has been identified as a challenge in the Triple B Framework developed by Dr. Gillian Marcelle. She analyzes impeding factors and recommends breaking down psychological and financial barriers to capital deployment, correcting biases, and adequately allocating climate resources. This has proven particularly important for frontline countries where the TBF is being applied.

Private sector engagement and climate finance for frontline communities, such as Ghana’s Environmental Protection Agency’s Public Private Partnership with Integrated Recycling & Compost Plant, LTD (IRECOP), which will generate Internationally Transferrable Mitigation Outcomes (ITMOs) from four composting facilities, have been vital themes leading up to COP 28. The Conference of the Parties can leverage Article 6.4 to integrate global financial capital into climate mitigation and adaptation efforts further. If successful, they will take a significant step forward on a problem that has vexed the international community since the watershed Paris Agreement.

Shades of REDD+
Burdened by unverifiable policy assumptions: The decision on when to apply corresponding adjustments to voluntary carbon markets

4 December 2023 | The debate on whether “Corresponding Adjustments” (CAs) must be applied to VCM transactions has created significant policy and integrity uncertainties that put VCM project and program investments at risk. Insecurities around the impact of VCM projects have led government officials in host countries to re-evaluate their policies and created significant worries as to whether VCM investments could complicate the achievement of host countries’ Nationally Determined Contributions (NDCs). COP28 negotiates the first “Global Stocktake” of carbon emissions. This global accounting raises questions about how emissions are counted and the political and scientific implications of accounting tools, including CAs.

In Climate Focus’ freshly released study on “Double Claiming and Corresponding Adjustments,” we fill a critical analytical gap by identifying and analyzing instances of double claiming of emission reductions and removals (ERRs), analyzing them in the context of mitigation incentives, and discussing CAs as a tool to enhance the overall integrity of carbon markets and mitigation action. Our study reveals that the discussion around CAs is less about accurate accounting and more about differing behavioral and policy assumptions. Where greenhouse gas (GHG) accounting rules are used as political instruments to achieve certain policy outcomes, it is essential to assess the underlying assumptions of the particular project, program, or policy to avoid undesired outcomes (i.e., less climate change mitigation rather than more).

Corresponding Adjustments and the quality of the VCM

CAs are an accounting tool designed to avoid double counting of ERRs transferred under Article 6 of the Paris Agreement. If ERRs are transferred internationally under Article 6, then a CA must be applied to the accounts of the host country to ensure that those ERRs are only counted by one country towards its NDC. While the Article 6 rules do not require the application of CAs to ERRs transferred in the context of the VCM, some stakeholders argue that “double claiming” of ERRs by countries and corporates is unacceptable. Double claiming is a form of double counting where the same ERRs are counted toward two or more different mitigation pledges that are reported under different GHG accounting systems. Other stakeholders argue that applying such adjustments to VCM transactions would create more harm (and less emissions mitigation) than benefits. The problem is that the two camps substantiate their opinions from their vantage point and within the logic of their argument but fail to satisfactorily respond to the concerns of the other camp.

Since obtaining CAs is not easy, the demand for “correspondingly-adjusted” carbon credits in the VCM pours cold water on an already struggling market. The availability of adjusted carbon credits depends on host countries having legal frameworks in place to issue the required authorizations as well as institutions and accounting capabilities to make the adjustments. It also depends on the willingness and capacity of host countries to invest in additional mitigation actions for each of the carbon credits they authorize: the ERRs represented by an adjusted carbon credit cannot be counted toward the host country’s NDC, meaning that the country will need to invest in more mitigation to achieve its NDC.

Consequently, whether investors and policymakers request that host countries authorize CAs for VCM projects and programs has significant policy implications for both for host countries’ NDCs as well as for the functioning of the market.

Accounting should facilitate and encourage climate action; each case is unique

Before rushing to authorize CAs for VCM transactions (or deciding not to), policy makers and VCM participants should consider two key questions:

Question 1. Is there a risk of doubleclaiming?

Many VCM ERRs can be transferred without risk of double claiming, and governments and market participants should analyze whether a risk of double claiming exists. The assumption that the use of carbon credits in the context of corporate GHG goals leads to double counting between the host countries’ NDCs and corporate targets is a simplification of the accounting realities. GHG accounting systems used by governments, corporates, and VCM mitigation activities have different purposes and follow different rules with different baseline and monitoring methodologies, equations, indicators, and parameters to calculate ERRs. This results in GHG reporting overlaps between public and private GHG reporting frameworks.

Whether there is an instance of double claiming depends on whether corporates and host countries indeed report and “claim” the same ERR towards their mitigation targets. The quality of NDC accounting depends on, among other factors, the quality of GHG inventories. The quality of many GHG inventories is low, and while data quality is improving, accounting for emissions often depends on relatively rough estimates. This means that bottom-up VCM project ERRs are often not captured in GHG inventories and, consequently, left out of NDC accounting. The quality of VCM ERRs depends on conservative estimates combined with strong and independent validation of assumptions. This means that while GHG measurements may be more granular at the project level, the integrity of ERRs depends, to a large extent, on conservative baseline setting. Overall, this means that ERRs measured and reported in national inventories and by VCM projects were calculated following distinct approaches and often VCM ERRs are not reported as part of NDC achievement.

Establishing whether there is a risk of double claiming between the VCM and a host country’s NDC is especially relevant for policymakers from developing host countries who may be considering using the VCM as a tool for achieving or exceeding their NDCs. When CAs are offered without sufficient prior consideration, host countries may have to “pay double” for the transferred credit: first in the form of a CA within their NDC accounting and, second, in the form of an additional ERR that needs to be achieved within their NDC. In this way, the application of CAs can place an unnecessary obstacle in a host country’s path to NDC achievement. Table 1 summarizes the likelihood of VCM and NDC double claiming of ERRs.

Table 1. The likelihood of VCM double claiming in the context of NDC accounting.

Question 2. What are the implications of CA authorizations in the context of national policies and circumstances?

Like public climate policy, the accounting rules of the VCM and the Paris Agreement seek to influence the behavior of those using carbon crediting systems. Authorizing CAs sends policy signals that may encourage or discourage enhanced mitigation action. It is therefore important that decision-makers consider CA authorizations in the context of national policies and circumstances.  In contrast to the broad agreement that double counting and double claiming of ERRs between companies or across companies and governments is permissible, opinions are not aligned on the issue of whether CAs should be applied to avoid double counting in the VCM. Table 2 lists arguments for and against using CAs in the VCM.

These arguments cannot be assessed in general terms. Instead, it is important for policymakers and VCM stakeholders to consider the arguments in the context of national policies and circumstances. Whether CAs will incentivize or disincentivize climate change action depends on a country’s NDC, the accuracy of its inventory and measurement, reporting, and verification (MRV) system, and its plans, finances, and progress in implementing national climate policies. Whether CAs should be applied to VCM ERRs also depends on beliefs, assumptions, and hypotheses in relation to the effect that CAs have on mitigation action. These are easier to assess in specific national contexts rather than at the global level.

Table 2. Summary of policy arguments regarding CAs used in the VCM.

The risk of double claiming must be weighed against the risk of forgoing VCM investments

In sum, VCM investors should consider forgoing the option to use VCM carbon credits for compensatory or offsetting purposes – these uses are controversial because they do not generate additional mitigation benefits. However, market participants may establish that there is limited risk of double claiming. Investors should ensure that their engagement leads to additional, scalable, and long-term ERRs and mitigation actions. While the theories and assumptions as to how to achieve this may differ, investors should engage in dialogue with host countries and local actors to ensure that their VCM investments lead to long-term climate benefits. These actions are far more significant than short-term concerns about double claiming of emissions. In the end, accounting rules and mechanisms should facilitate – not create barriers for – mitigation action.

Why we need to invest in natural climate solutions now

There is a growing tide of negative sentiment towards nature-based solutions (NbS). If this groundswell of negativity continues unabated, there is a very real risk that nature-based solutions lose the investment so desperately needed for their success. This would be nothing short of disastrous for the climate, for local ecosystems, and for the people most vulnerable to the effects of climate change.

This article first appeared on the Taking Root website.

This is not just our opinion. The facts are clear. Research shows that nature-based solutions can provide up to 37% of the emissions reductions needed by 2030 to keep global climate goals in reach. If this is to be realised, investments into NbS need to double by 2025, and triple by 2030. As it stands, we need more investment into nature-based solutions, not less. Activities such as forest restoration are not just ‘nice to haves’; they are essential.

Why are nature-based solutions under attack?

Why, then, are nature-based solutions under attack? The answer lies in the human tendency to focus on the bad, rather than the good.

One of the most effective ways NbS have been financed to date is through the carbon markets. In recent years, the voluntary carbon market has experienced a huge influx of investment, having leapt from a value of $520 million in 2020 to $2 billion in 2021. This rapid growth has attracted greater scrutiny and demands for transparency. This is a good thing. Scrutiny and transparency are exactly what’s needed to raise the bar on quality so greater impacts can be achieved.

However, in placing the VCM under the spotlight, it has become apparent that NbS projects vary in type, scope, and quality. There are initiatives that are creating truly meaningful impacts to the benefit of climate, nature, and local communities. Yet they are being overshadowed by those which do not meet the necessary standards, prompting some factions to discount the concept of nature-based solutions entirely.

This is completely the wrong approach. Instead, what society should be doing is recognising those high-quality projects, learning from them, and investing funds so that we can both grow and replicate them. Ultimately, the question should not be whether to invest in nature-based solutions. That should be an unequivocal ‘yes’. Rather, the question should be: what are the right projects to invest in?

What do quality nature-based solutions look like?

That leads us to examine the hallmarks of a high-quality NbS project. From our experience in developing forest restoration projects such as CommuniTree, we know that first and foremost, there must be a focus on improving people’s livelihoods. In building for livelihoods, landowners and land managers are not only incentivised to grow trees, they are also incentivised to keep those trees in the ground. This promotes the durability, and therefore the success, of a forest carbon removal project. When building for livelihoods, equitable benefit sharing is just one of the components that must be delivered, along with mechanisms to provide value over time, be it through access to local value chains or global commodity markets.

Woman wearing a blue top smiles at the camera as she leans against a tree trunk.
Through high-quality forest carbon removal projects, smallholder farmers such as Arminda Troche can improve their livelihoods by growing trees.

Beyond livelihoods, forest restoration initiatives must work in service of nature. That means growing native tree species, encouraging natural regeneration, and carefully selecting land that is suitable for restoration. Interventions should be based on robust science-based carbon forecasting, and progress regularly monitored and reported so that outcomes can be tracked transparently. Third-party validation and verification provide further confirmation as to a project’s legitimacy.

Then there is the matter of variability. Forest carbon removal projects work with people and nature. Trees will die. Parcels will not grow as intended. Landowners will sell up and leave the project. Such situations are entirely normal and do not constitute ‘failures’. What’s important is that the project design accounts for these scenarios to ensure that the impacts claimed are realised.

NbS projects that deliver on these hallmarks of quality achieve so much more than carbon impacts. Yes, removing carbon from the atmosphere is an important outcome. But by investing in nature-based solutions such as forest restoration, funders and investors are also contributing towards a range of socio-economic and environmental impacts in communities and landscapes often most vulnerable to the effects of the climate crisis. This includes rehabilitating ecosystems, improving water security, creating jobs, and promoting biodiversity.

A man stands next to a well full of water.
In photo: CommuniTree farmer Ernesto Cedeño Mendoza next to his well, which he says was “always dry” prior to joining the program.

How do we finance NbS to scale impact?

Having set the standard for quality, the next step is to identify the initiatives that meet this standard and provide them with the necessary funding to facilitate growth and amplify their impact. There are various funding mechanisms available, with carbon financing being one of the most viable options. However, creating high quality carbon removals and reductions through nature-based solutions depends on upfront financing, be it through initial investment or the purchase of ex-ante or forward order credits.

Ex-ante or forward order credits represent a removal activity that will take place in the future. They are often seen as less valuable than ex-post credits, where the removal has already taken place. But the sale and purchase of ex-post credits alone will not enable climate goals to be attained for one simple reason: project economics.

Take a forest restoration project, for example. Depending on the context, it can take 20+ years for carbon sequestration targets to be fully achieved. In the meantime, project developers must cover the cost of establishing a project, managing operations, and providing value to those implementing climate solutions at a local level. Projects need support from corporates and investors to cover these upfront costs to fully commit to local communities over long timeframes. If this support is lost, there won’t be enough money to grow trees and communities may come to see NbS as another failed promise for economic prosperity. So, if we don’t invest in growing trees now, we lose a high-potential solution to the address the climate and biodiversity crises.

A forest.
In photo: A forest grown through the CommuniTree Carbon Program. The impacts created are entirely additional: they would not have happened without upfront financing.

Investing in high quality projects for meaningful impacts

Research shows that companies that engage in the carbon market are nearly twice as likely to be decarbonising their operations year-on-year. Those that use higher quality and more expensive credits have better emissions performance. There is, therefore, a clear correlation between investment, quality, and impact. This reality should not be overlooked as we navigate the growing pains of the nascent voluntary carbon market. We have narrowing window of opportunity to mitigate the worst effects of the climate crisis and restore nature. Nature-based solutions can sequester carbon, restore ecosystems, and improve livelihoods. These solutions are available to us now, with huge potential for scale. If we are to secure a nature-positive future, support must be galvanised for NbS, and that support must be galvanised with immediate effect, for the benefit of us all.

What to Watch for Voluntary Carbon and Article 6 at COP 28

Year-end climate talks are focused on the global stock-take, which involves more than just taking stock of past actions. The primary agenda is to create mechanisms for dramatically scaling ambition up for the next five years.

Earlier this month, the government of Rwanda attached a “Letter of Authorization” to carbon credits purchased by German nonprofit Atmosfair. In it, the government agreed to deduct emission reductions from its national greenhouse gas inventory equal to the number of associated credits exported, and to add those emission reductions to the national account of whichever country buys them.

It marks the first time a “corresponding adjustment” has been applied to an individual carbon project under Article 6 of the Paris Agreement – although similar transactions have occurred between countries, such as Peru and Switzerland.

Under Article 6, corresponding adjustments are required for “Internationally Transferred Mitigation Outcomes” (ITMOs), which are emission reductions transferred from one national account to another. That means in the eyes of the UN they are required for compliance transactions but not for voluntary transactions. That’s because compliance credits are, by their very nature, applied to the emission caps of importing countries, although the exporting, or “host,” country, does have the option of requiring them.

What’s on the Agenda This Year at COP?

On paper, this won’t change at year-end climate talks (COP 28) in Dubai. Negotiators have their hands full with the global stocktake (GST) and pressure to chart a roadmap to significantly deeper reductions by 2028.

While calls for more ambitious targets will inevitably turn to talk about the role of markets, the actual agenda items within the negotiating tracks are limited. A big one is the move to create methodologies for carbon removals under Article 6.4, which is governed by the 24-person Article 6.4 Supervisory Body (A6.4 SB).

The A6.4 SB meets throughout the year, and it serves countries that don’t want to develop their own markets and methodologies. This means it is tasked with the complex task of doing so, but its decisions must also be approved at the COP. They submitted guidance for removals in mid-November.

Most activity is expected to take place through Article 6.2, which covers bilateral transactions among countries. That can involve trading national surplus reductions, or linking Emissions Trading Systems (ETSs), which are already regulated. This makes Article 6.2 simpler.

Article 6.4 credits can also be traded via 6.2, but the issuance of new credits under 6.4 could prove challenging.

“There is a risk that methodologies developed under 6.4 will be too political. Specifically that some methodologies will have to be revisited too often, or that credits will be ‘temporary,’ as was the case under the Clean Development Mechanism (CDM),” says Jos Cozijnsen, a former Dutch negotiator now serving as a carbon specialist with the Carbon Neutral Group.

“They may also decide that carbon removals have to be additional to Nationally Determined Contribution (NDC) targets instead of recognized as a tool for meeting NDCs, and this could delay action on removals, where companies invest in a lot these days, and incentivize countries to make less ambitious commitments,” he adds.

COP President Sultan Al Jaber has explicitly stated that “Better-functioning voluntary carbon markets can also channel additional financing to developing countries and support local economies.”

He has pledged to push for “end-to-end” integrity of all carbon transactions, even as UAE-based project developer Blue Carbon inks massive MoUs with African countries and no discernable methodologies. Al Jaber has also called for dramatic reduction in the use of fossil fuels, even as his own country’s negotiating team stands accused of using the event to forge new oil and gas deals.

Beyond the immediate negotiations, the Voluntary Carbon Markets Integrity (VCMI) initiative is contemplating guidance requiring corresponding adjustments on voluntary carbon transactions, although that won’t happen until next year.

Voluntary Demand: Quality is King

Ecosystem Marketplace’s recent State of Voluntary Carbon Markets Report shows that the overall volume of carbon credits transacted have fallen from a 2021 peak – but at the same time, credit prices rose dramatically. Buyers have shifted away from projects perceived as having lower quality and towards those with less uncertainty around emission reductions and more verifiable co-benefits – a good omen for efforts such as Verra’s SD Vista and the Gold Standard for the Global Goals, both of which aim to quantify impacts related to the Sustainable Development Goals (SDGs).

Forests and Markets

Most participants argue that REDD+ (Reduced Emissions from Deforestation and Degradation, plus enhancements of carbon stocks in developing countries) is included in the Paris Agreement, even though the acronym is nowhere to be found. That’s because of two related Articles: Article 5 recognizes the need to cooperate on forest conservation, while Article 6 recognizes the transfer of mitigation outcomes.

The rules for implementing Article 6 weren’t finalized until six years after the landmark Paris Agreement, at COP26 in Glasgow. Sluggish talks at COP27 in Sharm El-Sheikh the following year left key details undefined and open to interpretation. Agreeing on the practical details remains one of the main objectives of COP28.

Beyond the major question of methodologies for removals under Article 6.4, negotiators will consider rules for linking trading systems under 6.2 and nitty gritty issues such as the creation of reporting templates and how countries will submit transactions to the UN for review.

Experts from The Gold Standard says there are already 40 bilateral Memorandums of Understanding (MoUs) under Article 6.2, but only three country-to-country deals have been authorized – all involving Switzerland as a buyer.


Steve Zwick of Bionic Planet is reporting live for Ecosystem Marketplace throughout COP28. Check back for more coverage, and follow EM and Steve (here’s his LinkedIn) on social media.

NEW! State of the Voluntary Carbon Markets 2023 finds VCM demand concentrating around pricier, high-integrity credits

New research published by Ecosystem Marketplace finds evidence of a market-wide shift in the voluntary carbon markets (VCM), with demand concentrating around high-integrity, high-quality carbon credits that have holistic co-benefits beyond the mitigation of greenhouse gas emissions.  

Transaction data analyzed in the report show a massive 82% leap in average carbon credit prices between 2021 and 2022, paired with a drop in overall transaction volumes. These dynamics suggest a market consolidating around a smaller but committed set of buyers willing to pay premium prices for higher quality credits. Demand is particularly high for nature-based credits that are certified for co-benefits and Sustainable Development Goals, according to the report’s authors.  

Key findings from the report: 

  • Average VCM credit prices are higher than they have been in 15 years, while overall trade volumes are down from a 2021 peak. While the volume of VCM credits traded dropped by 51%, the average price per credit skyrocketed, rising by 82% from $4.04 per ton in 2021 to $7.37 in 2022. To date in 2023, the average credit price is down slightly to $6.97 per ton.

  • This price hike allowed the overall value of the VCM to hold relatively steady in 2022, at just under $2 billion.

  • Credits connected to nature-based solutions were a primary driver of high market value. Nature-based projects, including forestry and land-use and agriculture projects, made up almost half of the market share at 46%. From 2021 to 2022, the average price of these kinds of credits increased by 75% and 14%, respectively. Credits from agriculture projects also increased in volume by 283%.

  • Credits that certified additional robust environmental and social co-benefits “beyond carbon” had a significant price premium. Credits from projects with at least one co-benefit certification had a 78% price premium compared to projects without any co-benefit certification. Experts interviewed by Ecosystem Marketplace emphasized that these certifications are increasingly becoming required by buyers, and many are preferentially seeking them out. Projects working towards the UN Sustainable Development Goals also demonstrated a substantial price premium at 86% higher than projects not associated with SDGs – yet another indicator of buyer emphasis on carbon credits that do more for people and the environment.

  • Newer credits are attracting higher prices, indicating that buyers are seeking newer vintages with more robust recent methodologies, or are paying more for credits that align with their current emissions years as much as possible. The premium for carbon credits with a more recent vintage, representing more recent emissions reductions activities, was 57% above older credits, compared with a 38% recency premium in 2021, using a historical five-year rolling cutoff date from the year of transaction.

  • CORSIA-eligible project credits gained market value, driven by a 126% increase in price. This notable growth of CORSIA in the VCM in 2022 indicates a growing relationship between compliance markets and the VCM, a key consideration for market participants because, 1) quality criteria set by CORSIA have been incorporated by the Voluntary Carbon Markets Integrity Initiative (VCMI) until the Integrity Council’s core carbon principles are implemented, 2) CORSIA enters its first compliance phase in 2024, and 3) countries are beginning to implement Article 6 of the Paris Agreement.

According to Stephen Donofrio, Managing Director of Ecosystem Marketplace, “This is a critical moment for the voluntary carbon markets. While the data do not show the same type of growth by volume present in previous reports, our market analysis shows a critical, increased shift in market behavior towards integrity and quality, shown by an impressive uptick in average credit price. Buyers in the voluntary carbon markets are becoming increasingly sophisticated, and they want to know the true impact of their dollars.” 

The new report from Ecosystem Marketplace analyzes self-reported carbon credit transaction data from over 160 respondents to their annual market survey, representing credits from 1,530 projects and over 130 project types traded worldwide. Respondents typically include project developers, investors, and intermediaries. Data on project registrations and credit issuances and retirements were sourced from project registries. 

The full report, Paying for Quality: State of the Voluntary Carbon Markets 2023, is available for download here. 

Shades of REDD+
Harmonized Biodiversity Claims as a Solution for Fragmented Biodiversity Markets

22 November 2023 | Interest in market-based approaches to support of biodiversity conservation and restoration has grown significantly since December 2022, when the Parties to the United Nations’ Convention on Biological Diversity (CBD) adopted the Kunming-Montreal Global Biodiversity Framework (GBF.) The GBF sets a financial target of mobilizing at least USD 200 billion per year by 2030 for biodiversity protection and restoration. Since public finance will fall short of this target, the GBF recognizes that “innovative schemes such as payment for ecosystem services, green bonds, biodiversity offsets and credits, and benefit-sharing mechanisms, with environmental and social safeguards” (GBF Target 19) may be needed to close financing gaps.

In October, Climate Focus published Biodiversity Credits Markets: Charting Pathways for Early Investment and Sustainable Market Growth, a paper that provides guidance to investors by categorizing different ‘biocredit schemes,’ i.e., frameworks that seek to create tradable, non-offset biodiversity certificates. The findings of the paper make clear that, so far, there is no promising emerging approach that could channel significant amounts of private finance to high-biodiversity value ecosystems in the Global South. One way to create incentives for private finance to flow via biodiversity conservation in the light of multiple and mostly localized biocredit systems is the formulation of a set of headline contribution claims that recognize financial contributions to biodiversity. Such contribution claims would be non-tradeable confirmations of financial contributions to biodiversity protection by private actors. Standardized biodiversity contribution claims would allow corporates to communicate and report support for biodiversity protection, and governments could recognize such contributions in support of GBF Target 19.

Challenges and risks of a global biodiversity market

Global markets in certified biodiversity credits modelled after carbon markets has been touted as a solution to mobilize funding from private sources. However, biocredits markets come with important caveats:

  • First, while offsetting environmental harms with environmental goods is contested but often accepted in carbon markets, offsetting is simply unacceptable in global biodiversity markets. Carbon markets trade offsets because reducing greenhouse gas emissions may, to some extent, be fungible, but nature is definitively not fungible. Biodiversity is highly context specific: the loss of species in one place cannot be compensated by creating new habitats in another.
  • Second, finding metrics that apply to conservation or restoration outcomes in widely differing habitats is close to impossible. Therefore, generating biocredits requires the definition of ecosystem-specific indicators, which makes the standardization of a biocredit unit difficult.
  • Third, markets may disproportionately allocate funds to conservation over restoration to prioritize short term crediting of “uplifts” or investments into “charismatic” species’ habitats over long-term conservation goals.
  • Fourth, biodiversity restoration requires engagement over long timeframes, which makes the year-to-year verification and financing required for biocredits challenging.

As an alternative approach to biocredits schemes, biodiversity markets could be tagged to carbon markets and companies could be encouraged to invest in carbon credits with positive biodiversity impact attributes. The advantage of this option is that the Sustainable Development Verified Impact Standard (SD Vista) and the Gold Standard for the Global Goals (GS4GG) already offer certification systems for biodiversity attributes. However, such attribute certifications also limit biodiversity investments to projects that have reducing greenhouse gas emissions or enhancing carbon removals as their primary goals. This means that attribute biodiversity finance will not be able to mobilize financing for the conservation of high-integrity ecosystems because emission reductions or removals credits cannot be generated from projects in ecosystems that are not under threat. Additionally, tying biodiversity investments to carbon markets with their uncertain future also creates risks for the future of biocredits markets.

National and local incentive schemes can be more targeted

An increasing number of national and local payment-for-ecosystem services (PES) systems that value biodiversity investments are emerging. These include government-driven initiatives such as the Australia’s Nature Repair Market Bill or the UK’s Nature Markets Framework, private initiatives such as NaturePlus credits designed by GreenCollar in Australia, and Voluntary Biodiversity Credits designed by Terrasos and ClimateTrade in Colombia. National schemes have the advantage that they can be tailored to specific ecological contexts and promote specific national conservation goals. Government-driven regulatory systems have the additional advantage that they link credit generation to mandatory compensation rules, which create demand for investments into biodiversity by allowing liable entities to fulfill their obligations by purchasing credits. Local PES systems can be even more targeted because they rely on simpler protocols than national schemes or international markets, and can be more specific in the definition of biodiversity-related action. Both national and local systems can be more easily aligned with countries’ policies than international schemes.

A significant disadvantage of local and national systems is that because they are specific to ecological and policy contexts, their metrics are often not comparable, and these systems are unlikely to produce standardized credits that can be transferred internationally. These systems may be limited in scope and scale, and they rarely mobilize international finance. National and local schemes are also confusing for international investors, who have little appetite to appraise dozens of different systems and schemes. Even if investors decide to explore national or local markets, evaluating equivalence between benefits generated in different countries is a daunting task.

Creating internationally accepted claims in lieu of credits

While lacking the versatility of a global biodiversity credit market, a preliminary solution to the biodiversity financing challenge may be the definition of a set of standardized biodiversity claims that recognize investments into biodiversity and contributions to Target 19 of the GBF without requiring the transfer or “use” of biocredits. Such harmonized contribution claims could create incentives for international investors to support a range of approved local or international biodiversity supporting PES or crediting systems. Instead of certifying credits based on biodiversity outcomes, an international governance body could focus on certifying credible biocrediting schemes that meet a set of minimum requirements (e.g., policy alignment, clear definition of biodiversity outcomes, and verification of such outcomes.) In other words, a system of claim governance would focus on accrediting biodiversity supporting systems that could be supported by international investors.

A set of recognized nature-related contribution claims could enhance the appeal to corporates of investments in biodiversity and fill the gap in investment incentives left by the absence of harmonized international biocredit schemes. The proposed claims could be recognized by The Global Goal for Nature as fulfilling nature-positive goals, the Science Based Targets Network as meeting science-based targets for nature, or the Taskforce on Nature-related Financial Disclosures. The claims would ensure international recognition of local biodiversity investments while navigating and avoiding the challenges that come with biodiversity credits markets. The proposed claims could

  • be linked to investments in national biodiversity credits schemes as well as in emerging international systems that meet a set of minimum program requirements set by the contribution claim framework
  • reflect the amounts invested, the approved biocredit scheme, and the country of investment
  • recognize biodiversity investments as valuable contributions to Target 19 of the GBF
  • require the retirement of biocredits that are linked to the proposed claims; should credits be issued by an approved program they would have to be retired
  • be linked to criteria for a company’s biodiversity performance and require companies to demonstrate positive biodiversity outcomes across their value chains as well as mainstreaming of biodiversity concerned throughout the entire organization.

A solution?

In sum, global markets for biodiversity credits face significant, possibly prohibitive, challenges. Encouraging investments in “co-benefits” of carbon projects enhances the value of such projects but is unlikely to mobilize investments into biodiversity at scale and limits investment to a very narrow set of GHG mitigating activities. Investing in emerging national or local systems is unlikely to appeal to international investors because they have to navigate a thicket of different contexts. One way forward may be a set of nature-related claims that are recognized by national governments as positive contributions to the GBF and allow corporates to communicate their commitments to biodiversity conservation and restoration.

The proposed contribution claim approach could be implemented relatively quickly and would avoid multiple entities getting stuck in lengthy, costly, and competitive processes to develop frameworks, registries, and other infrastructure required for biodiversity credits markets. The proposed claims could be reported in a fully transparent and comparable way and reward companies with recognition for their international engagement in biodiversity protection.

Photo credit: Michael Philips

What role can carbon markets play in preserving forests?

14 November 2023 | Ever since REDD+ (reducing emissions from deforestation and forest degradation) burst on to the international scene at the climate change negotiations in 2008, market-based transactions of forest carbon have been envisaged as a way of transferring billions of dollars of climate finance. The hope was that funds would flow not just to the governments of tropical-forested developing countries but further on to indigenous peoples, forest-dependent local communities, and those protecting forests.


To date, this has not happened. Of the market-based climate finance that has flowed during the past 15 years, it has been primarily through REDD+ projects in the voluntary carbon markets (VCMs). This has not been anywhere near sufficient to ensure the preservation of the world’s great forests biomes. After slowing slightly in 2021, this year’s Forest Declaration Assessment reports that global deforestation rates increased in 2022. Some 66,000 square kilometers of forest were lost, putting the world 21% off track to meet the goal of ending deforestation by 2030 set by more than 140 countries at COP26 in Glasgow (after previous pledges of ending deforestation by 2020 were already missed).

With the rapid increase in companies setting net-zero targets and committing to offset their emissions, there was great hope that VCMs, through REDD+ projects, would drive climate finance to forests. However, since an article published in The Guardian in January this year revealed that “more than 90% of rainforest carbon offsets by the biggest certifier are worthless,” there has been a steady stream of news reports questioning the integrity – indeed, the validity – of REDD+ VCM credits.

In mid-October, The New Yorker published a long exposé on the Kariba mega-project in Zimbabwe – one of the largest REDD+ projects. Forest carbon projects like this are responsible for about a third of all carbon credits certified by Verra, the world’s leading standard setter for VCMs. Now with the reported collapse of the Kariba project and the price of REDD+ project carbon credits at an all-time low, project-level REDD+ offset credits are mortally wounded.

In addition to the issues raised in the press, it is becoming clear that transition plans to net zero that are considered “high integrity” will only allow a small proportion of a company’s value chain emissions to be offset with forest carbon project credits. So, while REDD+ project credits might continue to be developed as offsets for residual emissions within value chains, and while project methodologies, monitoring, and carbon accounting data will continue to improve, such credits are unlikely to be highly rated. What’s more, there will always be questions regarding the integrity of these carbon offsets.

Yet REDD+ is essential if the global community has any chance of meeting the Paris Agreement targets by 2030. There is certainly a need to reward tropical-forest developing countries for the efforts they make in reducing deforestation and forest degradation. Are there market mechanisms other than project credits that can direct desperately needed climate finance to these countries to support their Paris Agreement ambitions (referred to as nationally determined contributions, or NDCs) and help preserve forests?

Jurisdictional REDD+ offset units

Under the United Nations Framework Convention on Climate Change (UNFCCC), REDD+ does not include project-level methodologies. VCM REDD+ projects took off separately while the UNFCCC approach was still being negotiated. The UNFCCC takes a “jurisdictional” approach (J-REDD+), where reductions in emissions from deforestation and forest degradation are measured against national, historical levels based on the government’s national greenhouse gas (GHG) inventory.

Many of the integrity concerns raised with REDD+ VCM credits are better addressed at the jurisdictional level – for example, leakage, inflated baselines, inflated methodologies, or lack of additionality (GHG reductions are not considered additional if they would have happened anyway without a market for offset credits). Moreover, tropical-forest developing countries have been building their capacities to deliver J-REDD+ results for the past 15 years. J-REDD+, therefore, has the potential to supply the largest volume of high-quality, nature-based climate results.

The market for J-REDD+ is just getting going, with the creation of an international standard for J-REDD+ credits called TREES. There has been initial interest from the market for TREES units, as evidenced by the LEAF Coalition. Hopes are therefore high that jurisdictional approaches could be a game-changer in the carbon market, with the potential to deliver large-scale, high-quality issuances.

However, J-REDD+ still faces issues – such as carbon rights and permanence – that make it hard to scale up as offsets. The first TREES units were only issued at the end of 2022 (for Guyana) and these were a particular type of TREES units called “high forest, low deforestation” (HFLD) units – for which there are questions about the appropriateness of using as offsets. No other TREES units have been issued yet. Furthermore, the TREES standard is not universally accepted. The Coalition for Rainforest Nations has tried to introduce competing “REDD.plus sovereign credits”. There have been few buyers for these units, but it has caused confusion and added to the uncertainty about REDD+ in the offset market.

Forest ITMOs

“Internationally transferred mitigation outcomes” (ITMOs) were created under Article 6.2 of the Paris Agreement to allow countries to collaborate on achieving their NDCs (referred to as “cooperative approaches”). What is unique about ITMOs is the requirement to include a “corresponding adjustment” during the transaction – meaning the emissions reductions or carbon removals are deducted from the host country’s NDC when they are added to the purchasing country’s NDC. Some think corresponding adjustments can solve the integrity concerns associated with forest carbon, making J-REDD+ a perfect match either for sovereign buyers needing to meet their NDC targets, or even for companies looking for “Paris compliant” credits.

Blue Carbon, a sovereign-backed private company based in the United Arab Emirates, has actively entered the market looking to buy forest ITMOs. It has signed memorandums of understanding with several African countries and has had discussions with Suriname – the first country to announce it will be putting forest ITMOs on the market (4.8 million tonnes of CO2e HFLD units).

Some debate continues as to whether forests are included within the ambit of an ITMO. This speaks to the esoteric nature of UNFCCC COP decisions. While there are no specific Article 6.2 eligibility limitations, ITMOs still need to meet requirements to ensure the environmental integrity of the mitigation outcome. This includes the requirement that ITMOs are real, verified, and additional – and manage risks of non-permanence. This could make it hard for forest ITMOs to be considered as high integrity.

Although there is currently very little “case law” for either J-REDD+ or forest ITMOs, neither solves the fundamental limitations of forest carbon (especially emissions reductions) being used as offsets. Whether it is a country wishing to use forest carbon offsets to meet its NDC target, or a company wishing to use forest carbon offsets to achieve its net-zero target, both will continue to face the same “greenwashing” risks that have already been exposed with VCM REDD+ projects. It’s hard to avoid the conclusion that forest carbon credits are simply not suitable as offsets.

Beyond value chain mitigation

Is there another market-based approach for forest carbon? There is an emerging concept of “beyond value chain mitigation” (BVCM) contributions as complementary to offsets. BVCM is where a company contributes to the collective global effort to reach net-zero emissions. The mitigation action is not used to offset the company’s emissions. Instead, the buyer makes a “contribution claim,” representing a contribution to both the company’s climate goals and to global mitigation efforts.

The rationale for BVCM is that:

  • companies should be thinking about their role in the global net-zero transition, beyond abating their own emissions
  • companies that do not take clear, credible climate action today – and go beyond commitments, to delivering on targets in line with the goals of the Paris Agreement – risk having their corporate reputation hit
  • there are important sources of emissions outside corporate value chains, such as those linked to subsistence agriculture
  • government policies are not yet sufficiently ambitious to deliver a 1.5°C future

In this way, a company would not be purchasing J-REDD+ credits to offset its own emissions. Instead, it would decarbonize its own value chain and use the purchased J-REDD+ credits to demonstrate that it is making a contribution beyond its own value chain.

This concept is being advocated by the Science Based Targets initiative (SBTi), widely considered to be the main driver of high-integrity, net-zero targets. SBTi states:

“Companies should take action or make investments outside their own value chains to mitigate GHG emissions in addition to their near-term and long-term science-based targets. Examples include purchasing high-quality, jurisdictional REDD+ carbon credits that support countries in raising the ambition on – and, in the long-term, achieving – their nationally determined contributions.”

BVCM is perfect for forests. When J-REDD+ credits are not being used to offset actual value-chain emissions but are being claimed as a “climate contribution,” debates such as whether to use emissions reductions versus carbon removals become moot. It also makes the inherent risks (permanence, baselines) more acceptable and questions such as who owns the carbon rights under J-REDD+ more manageable, as a tradeable, commoditized asset is not created.

It is not yet clear if there is a demand for BVCM, but a strong case can be built if BVCM claims are recognized and rewarded. An analysis conducted by Systemiq for SBTi in 2021 found that almost 70% of surveyed companies felt that the private sector should be doing more than abatement of value chain emissions.

If BVCM climate contributions take off, we may finally have found a role that carbon markets can play in preserving forests – and a way to reward tropical-forest developing countries if they can halt deforestation by 2030.

Punish the Leaders, Reward the Laggards?

9 November 2023 | Imagine you worked for a company where staff were asked to innovate, to bring in new clients, to increase sales, to, in short, make more money and do things better for the company. Now imagine that in that company those people who were trying new things, measuring their successes and failures, and achieving modest gains were punished and called out for not doing enough. All while those who did nothing, who literally sat at their desks, didn’t measure any progress, and continued wasting money as they did before, experienced no repercussions.  

How quickly do you think that company would achieve its goals? Not very quickly I would venture. And yet, that is exactly what we are doing with businesses and their climate commitments. Companies that reduce emissions and go beyond those reductions and use offsets are criticized for not doing enough, or even sued, while their peers who are not doing anything, who continue emitting as they always have, not even measuring their progress, get praised (or at least are not bothered). This is no way to make progress.  

To get a sense of how dysfunctional the offsets debate has become, all one has to do is read recent criticisms of carbon markets in Bloomberg, the Guardian, the New Yorker, or even Last Week Tonight with John Oliver. The criticisms have been flying fast and furious. It has been a tough year for voluntary carbon markets (VCM). There have been accusations that offset projects aren’t real or as good as they claim, criticisms that offsets are just greenwashing, and even lawsuits – the litany is long.  

The effects of this barrage of negativity have been chilling; companies who a few years ago were trying to reduce their emissions have now hit the pause button. Data on activity in the carbon markets indicate that demand has decreased markedly. The thought likely crossing companies’ minds is, “Why bother doing anything if I am likely to be crucified in the press or even sued for my trouble?” It is incredibly discouraging for companies to be leaders in climate action if the leaders get pummeled and the laggards skate on by. And it is certainly heartbreaking to watch.   

Now compare this to recent research on how companies that participate in the VCM actually behave. For instance, earlier this month, Forest Trends’ Ecosystem Marketplace launched their report,  All in on Climate: The Role of Carbon Credits in Corporate Climate Strategies. Overall, they found that companies buying carbon credits are actually doing more to reduce their own emissions than those who aren’t.  

Using available data from thousands of companies, they found that, far from being greenwashing or a distraction, participation in the VCM is a leading indicator of climate action. In other words, companies that participate in the VCM are far more likely to be reducing emissions than their peers. In fact, they spend three times more on emissions reductions than those who don’t participate in the VCM. Not only that, but they are far more likely (3.4 times more likely) to have science-based climate targets, and they are more transparent about their emissions than their peers. This report, and others like it, injects a dose of data and realism into a very fraught space. 

In short, companies involved in offsets and the VCM aren’t the worst actors on climate; they are the best of an admittedly slow bunch. But even if it is a bad bunch, as some might argue, how is that bunch going to get better at reducing their emissions if we keep executing the leaders while the laggards bask in their inaction? Let’s not smother what little progress there is.  

Far from being sued, corporate leaders need to be supported. They need the creative space to take risks, invest in carbon projects, and develop emissions reductions strategies. They need the VCM. We should be pushing them to do more, not beating them into submission such that they ultimately do less. Indeed, we should be shifting our criticism to the laggards instead. Participants in the VCM are at least trying to do something about climate change and, based on Ecosystem Marketplace’s research, many are even succeeding.  

All of this is not to say that offsets and the VCM shouldn’t be criticized. Not at all. We should do better. We NEED TO DO BETTER. In fact, an array of VCM “integrity initiatives” are working hard to come up with ways to do just that. But let’s not cripple or even dismantle this system! It may be, to paraphrase Winston Churchill, “the worst of all possible systems,” but it is better than all the others. I mean, sure, if only we could stop emitting and if only we had functional governments that came up with sensible legislation to address climate change, then maybe all would be great and we could do without offsets or the VCM. But come on, is any of that happening? Who are we kidding? Can we really afford to do without the VCM?  

As we approach the critical deadlines of 2030 and 2050, should we really chide corporate leaders for trying to do something when so many of their peers do less than nothing? Is this a good strategy for progress? Can we really afford to shame those who are doing best at addressing this problem? Lord knows that there is already precious little progress in the battle against climate change. Let’s not smother what little there is. There is too much baby in that bath water.  

New EM Insights Briefing: State of the Voluntary Carbon Markets 2023

In the lead-up to COP28, Ecosystem Marketplace is excited to publish its flagship report covering the latest prices, trends, and insights related to international voluntary carbon markets.

During this webinar on Tuesday, November 28 @ 10 am ET / 1500 GMT+1, EM’s Managing Director, Stephen Donofrio, will present the key findings from its new report, and guest speakers will share their reflections on the analysis, followed by Q&A.

Guest speakers:

Register here:

Support for Ecosystem Marketplace’s State of the Voluntary Carbon Markets work is provided by:

New carbon credit integrity guidelines could boost buyer confidence in agriculture

1 November 2023 | (First published on EDF’s Blog: Climate 411 on 26 October 2023) Voluntary carbon markets are a source of much-needed finance to help the agriculture sector realize its potential for climate mitigation. Still, carbon credit buyers face challenges in differentiating carbon credits that represent real and verifiable climate impact, based on the latest science and best practices in a crowded marketplace. It takes due diligence to get this right, and changes are underway to make the process easier.  

New guidance on high-integrity carbon credits from an independent governance body has important implications for all credit categories, including those generated by the agricultural sector.  

The Integrity Council for the Voluntary Carbon Market, also known as the ICVCM, recently launched its Core Carbon Principles, known as CCPs, a set of definitive global threshold standards for carbon credit quality. Soon, the ICVCM will begin an assessment process to determine whether carbon-crediting programs meet the CCP criteria, and whether certain carbon credit categories can be fast-tracked for CCP-approval or need to be more deeply evaluated to determine their eligibility.   

The ICVCM will issue CCP-approval labels for carbon credits, a demarcation intended to build trust in the voluntary carbon market and unlock investment by making it easier for buyers to recognize and put a price on high-integrity carbon credits. 

While CCP-approval decisions have not yet been made for agriculture credit types, the recently released guidance provides insight into key considerations for making those determinations.

Here’s what their criteria may look like in practice for the agriculture sector.

1. Carbon credits for agroforestry, agricultural soil carbon sequestration, and grassland and rangeland management mitigation activities may be eligible for the CCP-approved label but with elevated safeguards to mitigate the risk of releasing stored emissions. 

The past several years have seen a boom in credit issuance and purchasing for activities that take greenhouse gases out of the atmosphere and store them, including enhanced soil carbon sequestration on agricultural lands. However, buyers should bear in mind that the ICVCM determined that agroforestry, soil carbon sequestration on croplands and grassland/rangeland management — along with strategies to store and protect other natural carbon reservoirs — have a substantial risk of reversal or non-permanence of climate benefits. This could be due to a change in land use or management or uncontrollable climate events such as droughts, floods, warming temperatures and fires.

The ICVCM guidance requires project developers to monitor, report and compensate for reversals for a minimum of 40 years to account for such reversals. This would not play out at the individual farm level, but rather by maintaining and managing an aggregate project-level buffer pool of robust backfill carbon credits, which would be held on reserve as an insurance mechanism against the loss of stored carbon. Per the CCP guidance, buffer pools would need to meet credit composition, transparency and other management requirements.  

Such safeguards against reversals could potentially open the door to the CCP-approval label if other quantification and verification issues are also addressed, giving buyers more confidence in these credit categories. Some crediting programs already follow these requirements, while others will need to make improvements for their credits to qualify for the label.

2. Categories of carbon credits that prevent or permanently reduce methane emissions from livestock operations are likely to be eligible, with a chance of being fast-tracked for CCP-approval.  

Buyers should be aware that there is an urgent need to mobilize capital to fund practices and technologies that avoid livestock methane emissions. Livestock operations are a major contributor to global methane emissions, a potent greenhouse gas that has more than 80 times the warming power of carbon dioxide over the first 20 years after its release. 

Another independent assessment body for carbon crediting methodologies — the Carbon Credit Quality Initiative, a collaborative initiative between EDF, World Wildlife Fund and Öko-Institut  — already found that there is a strong need for carbon market revenues to make projects such as industrial-scaled and household-scaled biodigesters fed with livestock manure financially viable for farmers. 

Given the clear economic need and permanence of these avoided emissions, these credit categories may be eligible for a fast-track to the CCP-approval label.  

There are critical opportunities within the agriculture sector to avoid and remove climate-warming emissions and quality assurance guardrails are essential to creating confidence in a carbon market that works for farmers, credit buyers and all entities in between. By purchasing high-integrity agricultural carbon credits that align with ICVCM’s Core Carbon Principles, credit buyers have the opportunity to help the agriculture sector fulfill its potential as a key climate solution.  

California Aiming to Improve the VCM

24 October 2023 | A primary point of contention within the voluntary carbon market (VCM) centers on its transparency, or the lack thereof. Greenwashing and transparency issues permeate multiple facets of the VCM, spanning the disclosure of base-line calculation methodologies used, the credibility of offset projects, the availability of project performance data, transaction visibility, pricing, and numerous others.

This article first appeared in the Gordian Knot Strategies “Sliced Newsletter

Part of the transparency problem is that companies who voluntarily purchase carbon credits have previously not been required to disclose their purchases.

As of this month, California has initiated measures aimed at addressing that exact detail with the goals of enhancing transparency and combatting greenwashing.

On October 7, California Governor Gavin Newsom approved Assembly Bill (AB) Number 1305. The bill – the Voluntary Carbon Market Disclosures Business Regulation Act (VCMDA) – mandates VCM disclosures. It was written by Assemblymember Jesse Gabriel and co-written by State Senators Lena Gonzalez and Monique Limón.

The new law impacts entities inside the state of California that fall into the following categories:

  • Entities marketing or selling carbon offsets (Section 44475)
  • Entities buying or using carbon offsets and making net-zero or emission reduction claims (Section 44475.1)
  • Entities making net-zero or emission reduction claims (Section 44475.2)

All entities must now provide critical information on their websites, such as details about offset projects (e.g., locations, timelines, protocols, etc.), credit calculation methods, and data for independent verification of emission reduction estimates. The full list of information that must be listed on the entity’s website can be found in Section 44475 here.

It is important to note that these disclosure requirements do not affect entities that:

  • Are not based in or do not operate within California
  • Do not purchase or use carbon offsets within the state
  • Do not make net-zero or emission reduction claims within the state

For context on the scale of activity within the state, the Berkley Carbon Trading Project, as of May 2023, lists 167 carbon offset generating projects in California across the voluntary registries American Carbon Registry (ACR), Climate Action Reserve (CAR), and Verra (VCS).

For anyone who has tried to explore a carbon registry in search of details about credit purchasers and their associated transactions, they often encounter limited information. ACR, for example, which lists approximately 15 Californian project developers and 40 Californian projects (at various stages of development), does keep tabs on the retirement of offsets. However, it does not require offset entities to reveal their identities. As a result, it’s not unusual to come across entities listed under generic identifiers like “Company 974” or “Company 786.”

So, the 15 Californian project developers will now be obligated to provide the essential details on their websites specified by AB 1305. And should an entity like “Company 974” operate within California or purchase credits from a Californian project and assert a reduction in their greenhouse gas (GHG) emissions as a result, it is also required to publicly disclose project-related information.

The law, which goes into effect January 1, 2024, carries a hefty violation fee.

Violators can be charged a penalty of up to $2,500 per day for each day of non-compliance or inaccurate information on their website, not exceeding a total of $500,000. This penalty can be enforced through legal action by the Attorney General or local authorities in California. Disclosures must be updated on the entity’s website at least once a year.

It’s worth mentioning that AB 1305 is in addition to other significant California bills recently signed into law by Governor Newsom. Just this month, he stamped his name on Senate Bill-253 and Senate Bill-261.

California’s Senate Bill (SB)-253 mandates regulators to establish disclosure rules by 2025 for companies with annual revenues exceeding $1 billion, impacting approximately 5,300 corporations, including major players like Apple, Chevron, and Wells Fargo. Starting in 2026, these companies will need to publicly disclose their operational and electricity-related carbon emissions. By 2027, they must also report “scope 3” emissions, including those from their supply chains and customers.

SB-261, will extend these obligations to businesses with over $500 million in yearly revenue, starting in 2026.

California is genuinely stepping up its role. Collectively, these measures hold the potential to substantially enhance aspects of transparency across the VCM. Given California’s frequent position as a trailblazer in advocating policy and regulatory reforms, it’s probable that its initiatives will influence and extend to other states, regions, and countries.

Perhaps Governor Newsom heard our recent call for a global climate finance hero?

Shades of REDD+
Reforming the International Financial Systems to Value High-Integrity Forests

19 October 2023 | Next week, the Republic of the Congo will host the Three Basins Summit of the Amazon – Congo – Borneo – Mekong – Southeast Asia tropical forest basins. These three basins account for 80 percent of the world’s tropical forests, which house two-thirds of terrestrial biodiversity and play an essential role in regulating the global carbon balance. Rarely has there been an event where forests play a more central role than the forthcoming meeting in Brazzaville. The Summit provides a unique opportunity to make the case for a reform of the rules of global public finance to value tropical forests as global climate and biodiversity assets.

The international financial system fails to recognize the value of tropical forest systems as global assets that are essential for a safe and healthy environment for all people.  Countries located in the three basins are developing or emerging economies that face the challenge of combining conservation with development goals. These countries often depend on external finance – private and public – to invest in the institutions, capacities, policies, and infrastructure that are essential components of sustainable development. Such finance often demands investments in activities that promise stable and fast returns. As a result, the international financial system continues to favor short-term exploitation of land and resources over conservation and sustainable use to the detriment of our climate and ecosystems.

A reform that effectively supports vulnerable countries is overdue, and another crisis is looming.

The call for a reform of the multilateral financial system is spearheaded by Mia Mottley, the Prime Minister of Barbados. In September 2022, Mottley issued a passionate warning that vulnerable developing countries were unable to meet the triple crisis of climate change, debt, and increased costs of living. Mottley left no doubt that the international financial system fails small island states that need greater liquidity to react quickly to climate-induced hurricanes and other catastrophic weather events. Multilateral finance organizations do not offer developing countries the tools to effectively respond to crises and invest in sustainable development and human, economic, and climate resilience. Small island states and other developing countries also need increased long-term finance to build climate-resilient economies. Mottley’s call for action resulted in the Bridgetown Initiative. This Initiative advocates for changes to the international finance system with the goal of increasing liquidity and access to resources for countries that suffer from an acceleration in the number and increase of severity of climate-induced disasters.

There is another urgent challenge for which the multilateral finance system needs to find an answer before it is too late. The world can only achieve climate and biodiversity goals if tropical forests are conserved. Protecting and maintaining them cannot be done by forest countries alone; instead, it is a global task that needs to be honored and supported through systems that recognize and value the essential ecosystem services that these forests deliver.

The international community is liable to help countries that face frequent destruction through catastrophic weather events. However, it is also liable to allow countries to pursue sustainable development without clearing their forests.

Global finance needs to be reformed and ‘grey’ finance needs to be ‘greened.’

It will be difficult to impossible to protect tropical forests if mainstream development finance is not reformed to account for climate action and nature conservation. The current multilateral finance architecture fails to value countries’ natural assets as global public goods. In the context of the UN climate and biodiversity regimes and the principle of “common but differentiated responsibilities,” the international financial system must create development incentives linked to the conservation – not the consumption – of forests.

This can be done by adopting the calls by the Bridgetown Initiative with amendments to reflect the needs of countries that administer tropical forests. The following proposed amendments would benefit countries in all three tropical forest basins.

First, since the protection of tropical forests involves safeguarding essential global ecosystem services that all people depend on, multilateral development finance organizations should agree to assign a monetary value to these forests that factors in the roles forests play in stabilizing the global climate, regulating the water cycle, and providing biodiversity resources—among other services. Considering forests to be national (and, in fact, international) assets would drive mainstream financial organizations to invest in long-term conservation. Valuing the roles of forests in the long term could replace the short-term perspective of the current financial system that emphasizes exploitation with a system that incentivizes managing forests as essential government assets.

Efforts to value the forests of the Congo Basin are already underway and can provide important input to the proposed reform of public debt management systems.  Proposed debt reforms call for the international financial system to account for the value of standing forests when establishing the debt limits of countries, their eligibility for finance, and the conditions under which they can access finance.

Second, public sector financing for forest countries — in particular those of the Congo Basin, which are often overlooked when it comes to allocating climate finance — needs to be scaled. This can be achieved by establishing a new funding window under the Resilience and Sustainability Trust administered by the International Monetary Fund. This funding window would provide vulnerable forest countries access to immediate and long-term financing in the face of the climate crisis. The funding window would make large-scale funds available for budget support and policy reform for forest countries to implement forest-friendly development strategies. Such a funding window could offer results-based payments in the form of grants to poorer countries that would be disbursed against the achievements of policy goals in addition to concessional loans with longer-term maturity and grace periods that enable countries to make investments into sustainable infrastructure and land use.

Action is particularly urgent in the Congo Basin

Multilateral finance organizations and other global financial institutions should value all high-integrity tropical forests. However, proper consideration of forests is particularly urgent in the Congo Basin, an expanse of 180 million hectares of forests that includes the world’s largest area of high-integrity forests. Although relatively undisturbed in historical terms compared to other tropical forests, the Congo Basin forests face severe risks. Deforestation in the region is increasing. In 2021, a total of 636,000 hectares were deforested across the six Congo Basin countries, amounting to nearly 10 percent of global deforestation.[1] This represents a 4.9 percent yearly increase in deforestation relative to the average annual deforestation in the Congo Basin in 2018-20 (606,000 ha/year).

Today, the climate and forest finance received by the countries of the region Congo is neither commensurate to the finance needs of the region nor reflective of the ecosystem and climate services that the region provides. Despite hosting the second largest forest area worldwide, the finance for forest and environmental protection in the Congo Basin is just about 4 percent (USD 40 million between 2017 and 2021) of the amount received by the Amazon Basin and Southeast Asia (around USD 1 billion each) in the same period.

Figure 3 – Finance targeting two forestry-related sectors (Forestry and general environmental protection sectors) received by three high-forest regions between 2017 and 2021. Source: OECD Creditor Reporting System (CRS) database.

In sum, the international financial system must be reformed to increase liquidity for developing countries by reducing debt burdens, resourcing climate-resilient economies, providing budget support, and recognizing the economic value of ecosystem conservation. The goals of such reforms are to address shortcomings of the international financial system, which currently make it impossible for developing countries to respond to global climate, biodiversity, and economic challenges, and to ensure sustainable development and green growth. Policymakers convening in Brazzaville should take a deep breath and seriously consider the financial needs of the Congo Basin and other forest countries and design a new fiscal framework that must establish continued incentives to protect those forests that are essential for all of us.

Hero image photo credit: Valdhy Mbemba on Unsplash

[1] Forest Declaration Assessment Partners. (2022).