More and more companies are embracing natural climate solutions to meet their climate commitments, giving rise to a wave of unrealistic expectations regarding the extent REDD+ can be funded by corporate demand for carbon credits. While companies’ pursuit of offsets can help protect some of the world’s forests, they cannot be the savior that many hope.
7 December 2020 | Increasing numbers of companies are taking steps to address climate change – such as reporting on greenhouse-gas emissions (GHGs), adopting Science-Based Targets, or making other GHG-reduction commitments. Many are encouraged by recent studies that highlight the cost-effective mitigation potential from forests, agriculture, and other land-based interventions. The result is a tidal wave of corporate interest in carbon offsets to achieve their climate goals – especially those generated through “nature-based solutions” or “natural climate solutions” (NCS), including REDD+.
Most of the near-term supply for these nature-based credits will have to come from offsets generated through “avoided deforestation”. This is because halting deforestation leads to rapid reductions, while newly planted trees don’t grow fast enough to satisfy the short-term corporate appetite for carbon offsets. At the same time, offsets generated through forest management, blue carbon, or enhancements to agricultural soils face challenges related to additionality, aggregation, or a lack of methodologies to generate emission reductions or removals at scale.
Current nature-based carbon credits come from projects accredited by independent carbon standards. In the future, some countries may also be able to generate carbon credits via jurisdictional, government-driven programs. However, carbon markets can only achieve a fraction of the mitigation potential from stopping forest loss.
In other words, offsets can finance some forest protection, but its reach is limited.
Supply from REDD+ Projects
Projects can address deforestation in scenarios where reducing deforestation or forest degradation requires local solutions. Projects can support activities with communities at the forest frontier, building sustainable economic alternatives, ensuring free, prior, and informed consent, and equitable sharing of benefits. Such work is painstaking and entails direct engagement with local stakeholders and operational capacity on the ground.
Forest carbon crediting at project scale cannot, by itself, tackle global commodity drivers — the leakage risks would be too high, making such projects ineligible under credible standards. About half of tropical deforestation is caused by globally traded commodities such as palm oil, soy, beef, timber, rubber, and cocoa. Production of these agricultural goods that lead to deforestation is often funded directly or indirectly by large agri-business with demand and prices set by global markets.
Where deforestation is driven by corporates or linked to government approvals to deforestation, confronting these drivers requires a combination of host government policies, responsible corporate and consumer engagement, and policies by importing countries, such as prohibiting the trade of illegally produced commodities. For example, this is how chocolate companies, governments, and donors are tackling cocoa-driven deforestation in West Africa through the Cocoa and Forests Initiative.
In sum, projects can save forests in areas with local drivers where government policies are slow to incentivize change. They cannot confront larger economic forces and mobile drivers that are responsible for most deforestation.
Supply from Jurisdictional Programs
Projects tackling local drivers cannot generate the amount of emission reductions from forests that are needed to achieve the Paris Agreement goals. In response to this, initiatives such as the Green Gigaton Challenge suggest that corporate buyers could channel funds into efforts led by national and subnational governments to arrest deforestation. Those that promote this vision tend to discard projects, arguing that projects “risk diverting new sources of private sector finance away from the demand signal needed to incentivize jurisdictional performance”.
The logic behind that argument is (i) that there is a predetermined amount of REDD+ finance available and (ii) that governments will react faster to halt more deforestation if the financial reward – the carrot – is only big enough.
The current spikes in voluntary carbon markets, however, show that private funds react to market signals. They come and go, but they are not depleting a finite amount of funding.
Likewise, offering carrots to governments has been tried in the past with limited success. Since 2009, for example, Brazil has been offered over $2 billion for REDD+ results, but market forces and politics have resulted in deforestation rising this year to its highest level since 2008. In other countries, the disbursement of such carrots can be slow. In 2010, Norway pledged to pay Indonesia up to USD$1 billion to reduce deforestation, with the first results-based payment of $56 million only announced earlier this year for reductions that occurred over 2016 – 2017.
Tropical forest governments are often unable to adopt policies or implement measures that reduce deforestation in the shorter term. In many cases, forest loss is driven by a need to generate economic activity to combat poverty, which means that efforts to reduce deforestation need to be embedded in rural development measures. Or, it is a result of large levels of illegalities, conflict, and corrupt practices in countries with weak governance. Where governments wish to reduce deforestation and put in place policies — such as moratoriums against cutting forests, delineation of protected areas, or systems to normalize land tenure — they often lack the technical, human, and operational capacity to fully implement and enforce such laws. Strengthening local institutions requires long-term investments that take time to translate into reduced deforestation.
Furthermore, many countries lack the technical capacities to generate market-ready credits at a jurisdictional scale. Country-level GHG reporting to the United Nations Framework Convention on Climate Change (UNFCCC) is neither “fit for purpose” for carbon credits, and often does not meet integrity requirements for offsets, which require greater accounting precision at scale than many countries currently possess. They also need upfront finance and the prospect of future, results-based finance may fall flat if budgets do not allow the financing of policies and incentives today. Finally, governments may also find it hard to convince local constituencies of the merits of government-led sale of carbon credits, in particular in countries where forest carbon rightfully belongs to a mix of landowners, communities, and indigenous peoples.
The Solution: Public Policies and Private Investments
It is without any doubt that only governments can reduce deforestation in the long term and that stable and sustainable land systems need to be backed by sound policies. There is also no alternative to governments fighting illegality and corruption, and only governments can grant full rights of indigenous communities and ensure transparent and enforceable land titles. As mentioned above, these issues take time and likely require direct non-carbon market assistance.
Meanwhile, companies investing in carbon credits can support projects that protect some of the world’s last remaining and important primary forests; this can help hold the line against forest loss, but not lead to the economic transformation needed to stop tropical deforestation. Companies involved in commodities that drive deforestation should clean up their supply chains, reduce their GHG footprints, and act as responsible corporate citizens. And importing countries should consider policies to reduce the trade of illegally produced goods to support producer country policies.
Ideally, projects and jurisdictional programs work hand-in-hand – with projects, supported by corporate investment, supporting jurisdictional frameworks that are taking a holistic approach to protect forests. Companies may also purchase jurisdictional credits, but only where these are robustly quantified, protect carbon rights, and have low reversal risk—it is likely that there will be few such available credits in the near term. To ensure the integrity of carbon accounting as well as the alignment of projects with policies and countries’ monitoring and reporting, projects can be nested into national systems.
There is a useful but limited role for carbon crediting to support forest protection. Focusing corporate attention on jurisdictional offsets undermines the more important and harder work that companies should engage in on the ground to reduce deforestation, whether that is in improving supply chains that are responsible for the main drivers of deforestation, or working with communities to tackle local drivers or restore ecologically important forests. And finally, there is an enduring and important role for non-market results-based payments, and investments, that provide incentives and support for government policies that are needed to halt deforestation.
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