Archives: Featured Articles

GLASGOW | 2 November 2021 | The United States has joined the High Level Panel for a Sustainable Ocean Economy (Ocean Panel), which is comprised of 14 nations representing nearly 40 percent of the world’s coastlines, 30 percent of its exclusive economic zones (EEZs), 20 percent of its fisheries, and 20 percent of its shipping fleet.

Members of the Ocean Panel coordinate policies with the goal of creating a “sustainable ocean economy” across their jurisdictions. The organization has endorsed sustainable management of wild fish stocks as well as the deployment of carbon capture and storage in the sub-seabed through growing and sinking massive kelp beds. Such strategies sequester carbon in sub-seabed geological formations, but there have been fears of unexpected consequences if they are not deployed properly and with international cooperation.

“I have long followed the work of the Ocean Panel, and I am in complete agreement that creating a sustainable ocean economy, informed by the latest science, is essential to secure a prosperous future for our communities and for our planet,”  said John Kerry, the US Special Presidential Envoy for Climate.

Co-chaired by Norway and Palau, the Ocean Panel includes Australia, Canada, Chile, Fiji, Ghana, Indonesia, Jamaica, Japan, Kenya, Mexico, Namibia, Norway, Palau, and Portugal.

The panel had earlier published a 24-page roadmap to achieving a sustainable ocean economy, with 100 percent of the oceans under their jurisdictions operating under Sustainable Ocean Plans by 2025.

The document sets several goals to be achieved by 2030, including the restoration of wild fish stocks to sustainable levels and the reduction of dead zones caused by excess agricultural runoff that nourishes massive algae blooms. The roadmap also calls for increased farming of seaweed for food, fuel, and sustainable plastic alternatives, in addition to carbon capture.

Genevieve Bennett: Hi Stephen! COP26 starts this weekend. How are you preparing right now? 

Stephen Donofrio: It’s been busy! After announcing last month that the voluntary carbon markets are on track to hit $1 billion for the first time in a calendar year in 2021, the Ecosystem Marketplace team has been greatly encouraged with incredible interest in our data and insights. This is both from our returning stakeholders, as much as from those who are new to carbon markets. 

I’ll be at COP for the full two weeks, presenting data and market developments on a number of panels (listed here – and for any readers of this blog who will also be in Glasgow, let’s find a time to meet!). In general, there seems to be conclusive awareness that in order to achieve the infamous 1.5 degree C Paris Agreement goal, companies and governments to invest in all types of carbon credit projects. And all the while, climate change has become impossible to ignore with as its influence on our natural world are becoming all too regular and familiar. It’s now at a point of “climate action or bust.” 

In response to this, we’ve officially activated our daily-capable on-demand online trade reporting for carbon credit sellers to update their Ecosystem Marketplace Global Carbon Survey profiles as trades occur. We have also pushed up our release date of two new versions of the EM Data Intelligence & Analytics Dashboard.  

We’re really excited to be able to offer our EM Respondents first access to the more advanced data filters and tools to create customized views of trades prices and volumes, as well as meta-registry issuances and retirements. Additionally, we have updated the public version of our data dashboard, fulfilling our mission of offering the public data, insights, and information. 

Article 6, which governs carbon trading, is the one of the last pieces of the Paris rulebook where an agreement still needs to be hammered out. What do we need to know about those negotiations?

In 2019 in Madrid, negotiations got a long way toward designing a pretty solid and transparent system under Article 6. But they didn’t finish, and honestly we’ve saved a lot of the hard stuff for COP26.  

The issues left to negotiate are pretty technical, but the gist of it is we need to decide, one, how to handle accounting around internationally traded emissions reductions to avoid countries and private actors “double counting” the same reductions, and secondly the question of how to wind down the CDM.  

These issues, by the way, come into play only with a centralized system for emissions trading, i.e., a global carbon market. There is a much clearer path forward for bilateral cooperation between countries, or regional carbon clubs.  

There is so much going on at these negotiations. We’re hearing how countries aren’t being ambitious enough, finance is inadequate, this country or that country is going to torpedo the whole thing. How big a deal is Article 6? 

Two thirds of countries have said they definitely are going to use Article 6 to meet their NDCs. So it’s important. The upside is I think that means there’s a sense of urgency among a majority of people at the negotiation table to get this done. 

With a working Article 6, you create incentives for countries to go beyond their NDCs because they can sell that extra mitigation to other countries. That opens up an express lane for climate solutions.  

Carbon market mechanisms help you seek out lower cost solutions. There’s economic analysis showing that with the cost savings you can get from markets, if you reinvested those into climate mitigation, you could double climate ambition at no extra cost.  

Second, you create a demand signal that will pull in more private investment into mitigation projects, with huge potential implications for sustainable development. This is a huge opportunity to drive a wave of green finance to countries and places that really need it.  

Let me put you on the spot. Are we going to see an Article 6 agreement in Glasgow? 

These are tough negotiations, but again there’s a sense of urgency this year. But also there’s a sense that it needs to be the right agreement or you create all these loopholes that undermine the whole Paris effort. So there’s potentially a tension there between getting it done and getting it right.   

A lot of people watching this would agree that no agreement would be better than a weak agreement. Especially since you can accomplish quite a lot outside of the UN framework in the meantime even while Article 6 remains unresolved. 

Yes, it doesn’t seem like the private sector is waiting on the UNFCCC. That’s been a really interesting dynamic in the last couple of years. For me, honestly a little unexpected too – that despite these delays, despite the global pandemic, that so many companies and cities and universities have grabbed the baton and kept moving forward on their own plans for action.  

Absolutely – in the purely voluntary carbon markets we are seeing an incredible surge in demand.  

Companies have set ambitious net zero targets, and a lot of them are using carbon credits to tackle that last five percent or so of emissions that are really tricky to address. Things like emissions from business travel, or coming from elsewhere in your supply chain that you don’t have direct control over. 

We projected in September that this would be a billion-dollar year for voluntary markets for the first time ever. Demand is higher than we’ve ever seen in the sixteen years we’ve been tracking markets. And that’s starting to move prices upward.  

Personally, I think that’s a very good thing. We’re seeing emitters willing to pay more for emissions reductions, and especially for credits that come from projects with all of these other benefits for sustainable development, whether that is protecting forests in the Amazon, or getting clean cookstoves to families in Africa – which especially is good for women – or sustainable agriculture, or so on.  

Carbon markets are becoming a bigger and bigger driver of finance for sustainable development. I think that sometimes gets missed in all of this focus on the technical aspects of COP negotiations or the market opportunities that everyone’s excited about in London and New York.  

• Tropical forests are a key tool for near-term emissions reductions as part of a larger strategy to meet Paris climate targets.
• A portfolio of market-based mechanisms including REDD+ and carbon markets can channel finance to cost-effective emissions reductions right away, and help ensure companies follow through on their long-term net-zero commitments.  
• These mechanisms have matured over the past two decades – now it is time to scale them quickly, while maintaining the highest level of environmental and social integrity.  
• REDD+ can’t work in the absence of inclusive and just partnerships with indigenous peoples and local communities, the planet’s best guardians of forests. 

The world is not on track to meet the Paris target of stabilizing warming in the 21st century at 1.5°C or lower, and there is very little time to change our trajectory. The IPCC estimates that global CO2 emissions in 2030 must be 40-50% lower than they were in 2010 in order to avoid the worst effects of climate change. This is still possible. 

Carbon markets allow us to lower the cost of cutting greenhouse gas emissions. When buyers can use markets to seek out the most cost-effective offsets, their savings can – and should – be used to “buy” even greater emissions cuts. This mechanism enables countries and companies to increase ambition, moving the world as close as possible to the 1.5°C target. 

Carbon markets also allow hard-to-abate sectors to play their part in achieving net zero emissions quickly. Where emissions are directly controlled by the emitter (“Scope 1” emissions) or can be cut by sourcing electrical generation, heating, or steam (“Scope 2”), this should be done. But where emissions come from elsewhere in the value chain (“Scope 3,” including for example: upstream or downstream transportation, agricultural supply chains, waste disposal), offsets may be the best option for quick action. In some cases, cutting emissions requires substantial operational, technological, and/or financial transitions that will take many years. Offsetting projects often provide immediate or short-term carbon storage. Carbon markets therefore offer companies an opportunity to immediately become carbon neutral while also pursuing a longer-term net-zero goal.  

When it comes to nature-based solutions, avoided deforestation needs to be the priority.  

REDD+ credits, generated through efforts to reduce emissions from deforestation and forest degradation, allow us to drive finance to tropical forests and their stewards. Preventing tropical forest loss is critical not only for climate stability but also for maintaining global biodiversity values, sustainable development goals, and indigenous and traditional cultures. 

Protecting existing carbon sinks from damage or conversion delivers twice as much greenhouse gas mitigation as any other nature-based strategy, including reforestation. New research also indicates that there is an asymmetry in changes to atmospheric CO2 concentrations between emissions and removals. In other words, compensating for an emission requires a greater amount of CO2 removal than avoiding that emission in the first place.  

It is especially hard to imagine how companies in hard-to-abate sectors can meet their net-zero commitments without REDD+. Tropical forests remain one of the largest – and still mostly untapped – potential sources of offset supply, and probably the only one that could be ramped up quickly enough to meet offset demand in the next decade without driving a major spike in the price of carbon. Avoided tropical forest conversion holds the potential to provide at least three gigatons per year of cost-effective emission reductions – which would cover one-fifth of the gap we need to close by 2030 to keep warming under 2°C. 

The decline of tropical forests, our planet’s great carbon sinks, thus represents an enormous stumbling block to delivering on the Paris Agreement. The longer tropical deforestation goes on, the worse the problem gets. In Amazonia, for example, mature forests more than mitigated the fossil fuel emissions of every single national economy in the region, with the exception of Venezuela, between 1980 and 2010. For most nations (Bolivia, Colombia, Ecuador, French Guiana, Guyana, Peru, Suriname) the sink probably additionally mitigated all anthropogenic carbon emissions from Amazon deforestation and other land-use change. But today that sink is in decline. Deforestation pressures from forces including land grabbing, logging, cattle ranching, agribusiness, and fires are being aggravated by climate change. This combination of forces is flipping the Amazon to a net carbon source instead of a sink, although scientists say recovery is still possible. 

There is also a moral argument for focusing climate finance on REDD+. Tropical forests cover 10% of the earth’s land area, but hold two-thirds of global biodiversity, much of which western science has yet to measure or understand. These forests are the source of livelihoods for millions of people. Many of who – particularly indigenous peoples – have always defended forests, and thereby the world’s climate future, with no recognition and in the face of violence and extreme pressure. Climate justice demands that we acknowledge the debt we owe these communities, and recognize all the values of living forests, not only the ones that can be measured by our economic system.  

We must guarantee REDD+ integrity through transparency and inclusion. 

REDD+ cannot work without a meaningful commitment to – and accountability for – participation by indigenous peoples and local communities (IPLC), given their role as the main stewards of the world’s carbon sinks and biodiversity. This commitment must include supporting IPLC in securing land tenure and carbon rights, and guaranteeing Free, Prior, and Informed Consent (FPIC). It also means that climate finance mechanisms need to do more work to incorporate indigenous perspectives and economic development strategies (as laid out through Life Plans or other tools). 

Likewise, carbon markets on the whole cannot deliver on their promises without transparency and a strong commitment to integrity. Our Ecosystem Marketplace initiative was founded with this mission: as an objective, not-for-profit information platform providing the kind of trustworthy and timely information that carbon markets and other climate finance mechanisms need to function effectively. 

We see a role for multiple REDD+ mechanisms to attract different types of funding and fit different contexts. 

One issue that seems to be dividing this space is whether resources and attention should be focused on jurisdictional or project-based REDD+. Our position is that we need more of both.  

Jurisdictional REDD+ can deliver the large-scale supply and demand signals that are needed. It can also guarantee higher floor prices for REDD+ credits at a large scale. Jurisdictional approaches are uniquely equipped to incentivize governments to address many underlying drivers of illegal deforestation: weak enforcement of environmental protections, perverse economic incentives, such as taxes and subsidies that drive conversion for agriculture, and so on. 

Meanwhile project-based approaches have a long history of innovation in the voluntary carbon markets, with knock-on benefits for the entire carbon finance sector. Scaling up demand for REDD+ via the voluntary carbon markets should be an additional source of finance on the road to achieving jurisdictional outcomes, especially if nesting can provide a bridge between the innovation and targeted finance that projects can deliver, and the scale needed from jurisdictional REDD+. 

Moreover, territorially based REDD+ projects developed in partnership with IPLC are often well positioned to deliver benefits directly to IPLC. These benefits are not necessarily small-scale in nature, either; project-based REDD+ can reach significant scale considering the large territories owned by IPLCs. In the Amazon alone indigenous peoples control over 210 million hectares.  

Innovations are still needed both in jurisdictional and project-based nested REDD+ to channel finance to areas with high forest cover and historically low deforestation (HFCLD), given that many of those places are increasingly at risk. REDD+ mechanisms need to better engage and benefit IPLCs with a track record of successfully protecting their forests. One path forward is for HFCLD to be seriously considered as a category for jurisdictional and project-based REDD+, although we recognize this requires resolving a number of technical limitations, particularly around how to treat additionality. 

REDD+ can’t work in the absence of inclusive and just partnerships with indigenous peoples and local communities, the planet’s best guardians of forests. 

First and foremost, jurisdictional REDD+ programs must take seriously the history of mistrust and conflict between IPLC and governments, and lingering concerns about whether governments will be good partners to IPLC. The mission to protect tropical forests, including REDD+, depends very much on IPLC: One-third of tropical forest carbon stored aboveground in the Amazon Basin lies within indigenous territories. In MesoAmerica, that share rises to nearly one-half, 31.4% in the Democratic Republic of Congo, and 36% in Indonesia. Not taking the time to build reciprocal relationships would be a substantial missed opportunity for both IPLC and jurisdictional programs, and a blow to global efforts to protect tropical forests.  

What does good partnership look like? It depends on the community, but some general principles can be established. Jurisdictional systems must clearly define, respect, and directly compensate the carbon ownership rights of IPLCs through benefit sharing mechanisms that are co-designed with IPLCs, including strong safeguards and FPIC. Jurisdictional mechanisms’ funding and policies cannot criminalize IPLC by forced removal from their lands, and must recognize and respect (via safeguards) traditional knowledge and cultures of indigenous peoples. REDD+ performance metrics also need to be culturally appropriate and co-designed with IPLCs. In addition, jurisdictional systems must provide for independent grievance mechanisms for IPLCs and other stakeholders. 

There are other ways in which jurisdictional REDD+ can better encourage IPLC participation. For example, clarifying whether indigenous territories can themselves be jurisdictions under many existing standards. Jurisdictional systems can also find ways to decrease the complexity and cost of validation and verification standards so that more IPLC territories can participate, so long as these efforts are delivering high integrity emissions reductions and fulfilling the Cancun safeguards. Doing so would  reduce the high barrier to program entry and increase the area of forest eligible for credible offsets.  

Finally, although jurisdictional REDD+ is shifting toward performance-based payments, donor governments must keep investing in governance and readiness in IPLC. Significant support is still needed to increase the capacity of IPLCs to adequately respond to REDD+ opportunities. The cost of this capacity building cannot be expected to come solely from philanthropic cooperation, but rather be a central cost in architecture and design of jurisdictional programs. 

Project-based REDD+ should of course abide by similar principles of FPIC, recognition of IPLC carbon rights and cultures, appropriate compensation, and including IPLC in design and implementation of benefits-sharing when their projects involve IPLC territory.  

More to the point, if IPLC believe their best opportunities lie in designing, implementing, and benefitting from their own REDD+ projects nested within or independent of jurisdictional programs (with questions of carbon accounting being appropriately addressed), they have every right to do so.  

Looking forward, our team will remain active partners and participants in the REDD+ space – providing data, thought leadership, opportunities for consultation and coalition-building between diverse stakeholders, demonstration where appropriate, and sustained and creative advocacy with key decision-makers in climate finance. We welcome new collaborators in this work, always. REDD+ is too important a piece of the climate solution portfolio; we need to get it right. 

(This blog first appeared on Forest Trends’ blog: Viewpoints on 25 August 2021)

The economic disruption to many sectors from the COVID-19 pandemic is a strong reminder that consumer markets can change drastically in response to social and environmental drivers. COVID-19 has caused major financial losses for some industries, while driving demand for products like hand sanitizer, toilet paper, and chocolate. If you’ve been feeling a stronger-than-usual inclination to drown out stress in some sweet, chocolatey goodness this past year, you’re not alone. Chocolate sales rose by over 5% between March and August of last year, and sales of premium chocolate increased by almost 13% compared to sales in 2019, according to the National Confectioners Association.

Unfortunately, chocolate purchases have inherent consequences for their far-reaching global supply chains. At the source, poverty is endemic in cocoa farming communities, almost all of which are smallholders. These smallholders, while integral to chocolate production, receive only 7% of profit from end product chocolate sales (compared to the 44% and 35% received by manufacturers and retailers, respectively). The COVID-19 pandemic hasn’t helped matters as the global recession drives down cocoa prices. Poverty drives socially and environmentally harmful practices, such as deforestation and child labor in cocoa farming communities, which can have long-term negative impacts on financial performance and resiliency and for both cocoa farmers and corporate buyers.

What’s in your chocolate bar

Though cocoa originated in the rainforests of South America, today close to three-quarters of the world’s supply is grown in West Africa. Partially driven by cocoa production, many of the forests in West Africa have been cleared in the past 30 years, and what remains is a biodiversity hotspot (the Guinean Forests of West Africa), which is home to endemic and endangered species, like chimpanzees and forest elephants.

Poverty drives many farmers to employ their children (and occasionally trafficked child migrants from neighboring countries) on their cocoa farms, despite much of the work being dangerous and labor-intensive. Though child labor and deforestation may increase short-term income, these actions ultimately erode the resiliency and well-being of cocoa farming communities by damaging ecosystem services and future generations’ education prospects.

Companies that produce and sell cocoa products – especially public-facing consumer goods companies – have become wary of negative publicity linking their supply chains to deforestation and child labor. This publicity erodes public trust, has repercussions for the company’s purchasing relationships with vendors or clients and may create legal trouble. Several chocolate brands have already faced lawsuits over child labor in their cocoa supply chains.

Proliferation of promises with mixed follow-through  

A growing number of influential companies are taking steps to assess and mitigate the business risks posed by deforestation and human rights abuses in their cocoa supply chains. In a new report by Supply Change, Trends in the Implementation of Ethical Supply Chains, more than half of the 65 companies reviewed have made commitments to address deforestation or other sustainability issues in their cocoa supply chains. However, many companies have a way to go to implement these goals in ways that 1) cover all operational and souring locations, all suppliers, and all product lines, 2) are linked to ambitious time-bound targets to achieve zero gross deforestation, and 3) use appropriate cut-off dates for how recently cocoa produced on converted forestland is acceptable for the supply chain.

Eliminating deforestation in cocoa supply chains is particularly challenging the further down the supply chain you go. Cocoa farmers are typically separated from cocoa exporters and grinders by multiple intermediaries (e.g., cooperatives, small local traders, etc.). Traceability (tracking commodity volumes through different stages in the supply chain) and supply chain mapping (identifying all supply chain actors) are important components of cocoa policies, but identifying the individual farms and ensuring no deforestation or human rights abuses have taken place is still difficult for companies to achieve. Results from the new Supply Change report reflect this: just over half of companies (36) were aiming to achieve traceability to the farm level.

A menu of solutions

Credible certification systems with robust no-deforestation and human rights criteria are one way companies address this and ensure they are sourcing environmentally and socially responsible cocoa. Companies sourcing certified cocoa often require fewer resources to achieve farm-level traceability, monitoring, and supplier engagement goals. The largest certifier of cocoa, Rainforest Alliance/UTZ, certified over one million metric tons of cocoa in 2019. Their process includes regular evaluations and audits of the farmers they certify to ensure that they abide by environmental and social standards that align with sector-wide expectations for best practice.

However, many companies choose to trace cocoa supplies to the farm level and/or engage with suppliers on sustainability issues on their own, rather than relying on a certification standard alone. In fact, Supply Change found that 68% of companies (44/65) engaged with their suppliers and encouraged compliance with trainings and workshops or high-quality resources (e.g., cocoa trees, fertilizer, etc.). Although about one-third of companies had policies for responding to suppliers that were not compliant with their commitment, few disclosed detailed criteria for suspending, excluding, or reinstating suppliers, and few required time-bound resolution plans for suppliers to achieve compliance.

The Cocoa & Forests Initiative (CFI) is one collaboration that is driving action on cocoa-driven deforestation, especially through farm-level traceability and supplier engagement. CFI is a multi-stakeholder platform established by the World Cocoa Foundation and the IDH Sustainable Trade Initiative, which brings together the national governments of Côte d’Ivoire, Ghana, and recently Colombia; 35 companies (almost all of which are major cocoa buyers, including Mars – see below); and various environmental organizations to collaborate and implement complementary actions to eliminate cocoa-driven deforestation.

Civil society groups are working to provide tools that companies can use to develop and implement policies to address cocoa-driven deforestation beyond collaboration with CFI. For instance, the environmental advocacy organization Mighty Earth is supporting companies by addressing monitoring and traceability gaps through its interactive Cocoa Accountability Map of over 2,000 cocoa cooperatives in Côte d’Ivoire and proximate deforestation. A growing number of companies are using the Accountability Framework to identify and align their cocoa policies, commitments, and actions with the best practices recommended by leading civil society groups. In fact, Supply Change identified six companies – including top cocoa buyers like Cargill, Barry Callebaut, and Mars – that explicitly described using the Accountability Framework to align their definitions and approaches on supplier engagement, traceability, and measuring progress. It is suspected that more companies are doing the same without public disclosure.

Company Spotlight: Mars

Mars, one of the largest manufacturers of chocolate products in the world, sources around 400,000 metric tons of cocoa annually, or about 8% of the cocoa produced worldwide in 2020-2021. Mars is also one of the largest privately-owned companies in the United States and manufactures well-known chocolate brands like M&Ms, Snickers, and the eponymous Mars Bar.

The company has prioritized addressing deforestation and child labor in its cocoa supply chain in recognition of the fact that cocoa is integral and irreplaceable to its brand; Mars has a target to source 100% from deforestation-free cocoa by 2025, plus goals to improve cocoa farmer incomes, eliminate child labor, and reduce greenhouse gas emissions in its cocoa supply chain.

Nonetheless, Mars still has areas in which it could improve its cocoa policies. The 2021 Easter Chocolate Scorecard, which was produced by Green America, Mighty Earth, and Be Slavery Free, acknowledged Mars’ above progress but noted that they needed improvement in areas such as transparency and traceability, agroforestry, and livable incomes for farmers.

A key aspect of Mars’ strategy is supply chain mapping and tracing all cocoa volumes from the final product back to individual farms. In 2019, Mars released the names of all of its direct (“tier 1”) suppliers, and in 2020, the company released the names of all the farm groups (“tier 2”) in its supply chain. As of 2020, Mars was able to trace one-third of its cocoa to a farm boundary, allowing satellite monitoring and third-party auditors to detect forest loss and protected area encroachment.

Mars’s actions to address deforestation have been facilitated by the growing infrastructure of tools and initiatives. Mars is a signatory to the Cocoa & Forests Initiative, and is currently taking steps to achieve the targets laid out in its action plan. The development of their cocoa policy, including definitions and best practices, were also informed by the Accountability Framework.

What’s Next for Ethical Cocoa?

Though not as sudden or drastic as the changes inflicted by the COVID-19, environmental and social factors from cocoa production are shifting consumer markets for cocoa and chocolate products. The new report by Supply Change indicates that a number of influential companies have no-deforestation commitments for their cocoa supply chains, and are implementing strategies to trace their cocoa supply, engage with suppliers, and source certified-sustainable cocoa. However, company actions often fell short of full alignment with the best practices outlined in the Accountability Framework. For many companies, opportunities to improve their alignment with the Framework will involve more detailed reporting on approaches for assessing risk and resolving non-compliance issues with suppliers, time-bound targets for achieving no-deforestation, and establishing cut-off dates for forest conversion.

Alignment with the Accountability Framework, which recommends best practices for addressing commodity-driven deforestation in supply chains, is a useful benchmark for companies to know that they are approaching cocoa-driven deforestation effectively. As pressure grows from consumer preferences and due diligence requirements by import countries, companies that can demonstrate success in achieving ethical supply chains will have a competitive edge in consumer markets and incur fewer costs from issues such as regulatory fines and lawsuits.

Given the complexity and opacity of cocoa supply chains, individual company actions can only go so far in reducing negative impacts on forests and farmers. Thus, corporate engagement with multi-stakeholder initiatives, such as the Cocoa & Forests Initiative, that boost collective development of farm mapping, satellite monitoring tools, and programs to help farmers is key for all companies to achieve their commitments. This harkens the proverb, “if you want to go fast, go alone; if you want to go far, go together.”

Compared to the palm oil and timber sectors, awareness and engagement from companies on deforestation from cocoa production are still nascent. Unsurprisingly, there is a learning curve for companies making and implementing commitments in cocoa supply chains, as shown by the mixed uptake and reporting around best practices. Though there are a growing number of tools and initiatives to support companies, many are in their first few years, and the impacts are still unclear. As companies make progress toward building ethical cocoa supply chains, tools like the Accountability Framework will be crucial to driving positive outcomes for people and forests in cocoa-producing regions.

To learn more about how the Accountability Framework has been used in the two years since its launch, visit https://accountability-framework.org/2-year-anniversary/

The author would like to thank Kate Ellis, Philip Rothrock, Stephen Donofrio, and Leah Samberg for their contributions. This post is the first in a series on the cocoa supply chain. Look out for the next installment in the coming weeks!

A new report from Ecosystem Marketplace, in collaboration with the Forest Carbon Partnership Facility of the World Bank, released today shows that funding to conserve and increase carbon stored in forests around the world has more than doubled between 2016 and 2019. But authors say forest carbon finance still falls far short of what’s needed to counter global forest loss and support increased climate ambition.  

Unless tropical forest loss is addressed in the next decade, the Paris Agreement goals are likely not achievable, according to the Intergovernmental Panel on Climate Change. The new report reviews a variety of forest carbon finance mechanisms that channel funds to forest protection and restoration. Research shows that forests and other natural climate solutions (NCS) are capable of cost-effectively providing up to one-third of climate mitigation needed by 2030, yet NCS currently receives less than 3% of climate mitigation funding. 

The report, State of Forest Carbon Finance 2021, which was supported also by Arbor Day Foundation and New Forests, provides a comprehensive overview of the current scale and outlook for three main mechanisms for forest carbon finance: compliance and voluntary carbon markets, and REDD+. In compliance carbon markets, parties buy and sell carbon offsets to meet regulatory obligations from governments. Voluntary markets also exist for actors who want to buy offsets to voluntarily reduce their carbon footprint. REDD+, which stands for “Reducing Emissions from Deforestation and Forest Degradation,” is a framework created by the United Nations Framework Convention on Climate Change to channel funding and support to developing countries to protect their forests. 

Key findings 

• Funding for forests as of the end of 2020, channeled through carbon markets and results-based payments for REDD+, has more than doubled since Ecosystem Marketplace last reported in 2017. At least $5.9 billion flowed to forest carbon offset projects around the world, with an additional $1.3 billion disbursed or contracted for “REDD+ readiness” to support developing countries in protecting their forests. 
• Compliance-driven forest carbon markets, such as New Zealand’s emissions trading system and the California-Québec cap-and-trade program, have driven more than $3.9 billion to forests and sustainable land use through the end of 2019.  
• Over the three years 2017-2019, almost $400 million was generated in global voluntary carbon market transactions trading 105 million metric tons of carbon credits (MtCO2e) from Forestry and Land Use, also referred to as NCS. Voluntary carbon markets have generated nearly $1.4 billion to date in demand for NCS offsets, which dominates other offsets categories (such as Renewable Energy) in terms of overall transaction value.  
• Voluntary carbon markets (VCM) are expected to soar over the coming years. The Taskforce on Scaling Voluntary Carbon Markets has estimated the VCM need to grow 15-fold by 2030 and 100-fold by 2050 in order to meet Paris Agreement ambition. Forest carbon finance from compliance-driven carbon markets is expected to reach even greater heights in the coming years, driven by new compliance mechanisms including the international aviation industry’s new carbon market, known as CORSIA, and international markets still under negotiation under Article 6 of the Paris agreement.
• Despite the clear link between deforestation and climate change, and the financial risk posed by these issues, just 6% of companies researched by Ecosystem Marketplace of Supply Change data, its counterpart Forest Trends initiative, have integrated emissions reduction strategies with their deforestation commitments. 

Forest carbon finance outlook 

• A stronger price signal is required to drive new development. The report shows that current prices range from $3 to $4 per ton for REDD+ credits in voluntary markets, $5 per ton via some compliance or REDD+ mechanisms, and up to a $10 floor price offered by the new LEAF Coalition. But authors say that prices will need to increase materially to drive the supply needed to meet expected demand. 
• In the years ahead, REDD+ funding is poised to increase, with $3.5B in committed funding yet to be disbursed and an additional $1 billion pledged by the LEAF Coalition. The majority of these funds are dedicated for results-based payments, not readiness. New jurisdictional REDD+ offers potential for greater scale than traditional project-based approaches. But authors say that more needs to be done to ensure that jurisdictional mechanisms provide benefits for indigenous and local communities. 
• The potential of forests within Nationally Determined Contributions (NDCs) to meet Paris Agreement targets remains largely untapped. Analysis shows that integrating climate cooperation through carbon markets into Article 6 and including REDD+ could almost double emissions reductions for the same total cost as a non-cooperative scenario for NDCs.  
• Some in the environmental and business communities are concerned that a private-sector emphasis on removals (e.g., afforestation and reforestation projects) over reductions (e.g., avoided emissions via forest protections) could discourage a focus on stopping tropical deforestation. The report authors say that the environmental community needs to do more to address conflicting advice regarding the legitimacy of reduction-based credits to support private sector investment in REDD+.  

“Forest carbon finance is poised for tremendous growth in this decade, and yet in many ways, the marketplace and investment opportunities remain opaque, complex, and characterized by too much misinformation,” said Stephen Donofrio, Director of Ecosystem Marketplace. “This is the report to have on your desk to make sense of where this space stands currently, and where it’s moving.” 

“Carbon offsets are not a panacea,” says Patrick Maguire, Senior Manager of Ecosystem Marketplace. Companies and countries are certainly not going to offset their way out of the climate crisis. But they are a tool we can’t afford to underinvest in, especially if we’re going to meet interim 2030 targets. We know more public and private finance for forest carbon is urgently needed. This report shows it’s beginning to pick up, but also that we are still leaving a lot of potential on the table.” 

Download the report:

https://www.ecosystemmarketplace.com/publications/state-of-forest-carbon-finance-2021/

Media Contact:

Genevieve Bennett  |  +1 202 298 3007  |  gbennett (at) forest-trends [dot] org

07 May 2021 | This framework leverages the strengths of both scales of implementation. Governments create enabling environments and the right incentives for forest protection. REDD+ projects tend to be more nimble and effective at delivering services to local actors, including communities, and addressing local drivers of deforestation.

Jurisdictional and project-based REDD+ efforts are also likely to tap into different pools of capital. Jurisdictional REDD+ efforts are more likely to be of interest to buyer/donor governments given the larger scale of reductions that can be achieved. And while some corporates may be interested in that scale, REDD+ projects are more likely to appeal to the private sector who will want to have a clear story to tell (e.g., “we helped protect this forest and these species”) and may prefer having a specific counterparty.

What Is Different?

To strengthen the rules for this integration of project-based REDD+ with jurisdictional efforts, several updates were made, most notably:  

• Updates to ensure high-integrity accounting of emission reductions at the jurisdictional level that reflect the latest science and best practice;
• Project baselines will be set on the basis of jurisdiction-wide Forest Reference Emission Levels (FRELs) and risk of deforestation and/or forest degradation; 
• These FRELs will need to be updated more frequently, from the current 5-10 year timeframe down to a 4-6 year interval. Additionally, the FREL historical reference period was shortened from 8-12 to 4-6 years. 

Different Ways of Accounting

These updates are made with the primary goal of driving high-quality greenhouse gas emission reductions at multiple scales and ensuring that the accounting of emission reductions at the project level is aligned and harmonized with government accounting. This does not mean that the old project-based approach was invalid. All existing projects followed the requirements and the accounting methodologies that were in place when they were registered, and which were developed taking into account best practice, lessons learned, the latest scientific findings at the time, and extensive stakeholder input. Given those projects followed the Verified Carbon Standard (VCS) program requirements and the respective accounting methodologies, including having the project design validated and the results verified by independent auditors, their emission reductions are real and permanent.

The new approach to setting baselines (based on Forest Reference Emission Levels, FRELs and risk of deforestation and/or forest degradation) is a different way of doing this, but does not mean that the previous approach was inaccurate. Indeed, many experts suggest that jurisdictional accounting by itself may not adequately reflect  the level of threat faced by particular patches of forest. In addition, it is important to note that, before the emergence of FRELs, projects had to establish baselines without the benefit of jurisdiction-wide data. Now that many countries have established FRELs, they can be used as the basis for accounting across the entire jurisdiction, including to help establish project baselines that are fully aligned with government-led accounting and the risk of deforestation and/or forest degradation. Together, this will allow high-integrity approaches across multiple scales that both facilitates accounting and helps ensure finance can flow to where it is most needed — from national to project levels.  

This change is analogous to some of the technological developments that we have seen in audio. As a result of progress in this area, we now have technologies like mp3 files and satellite radio. However, vinyl records still exist and produce excellent sound quality, even though they may not be as simple to store and are not as readily shared as electronic formats. But just because most of us rely on electronic formats for listening to music, this does not discount the value of vinyl. At the end of the day, both electronic formats and vinyl records produce music, and both previous and current approaches to setting REDD+ project baselines generate real and permanent emission reductions. 

REDD+ has demonstrated that finance can be effectively channeled to long-term forest conservation by helping local communities thrive without having to destroy the surrounding forest. The task at hand is now to make sure that the lessons learned over the last decade are incorporated into evolving frameworks behind REDD+, and that means integrating projects and emerging government efforts so that we can leverage as much finance as possible to protect the world’s remaining forests.