At COP26, defining what good looks like for carbon credits

Encouraging news came out of this year’s annual climate conference in Glasgow when more than 100 countries pledged to halt deforestation by 2030, commitments backed by some $19 billion in public and private funding. That amount falls far short, however, of the estimated $700 billion that will be needed to reverse the loss of the world’s tropical forests, key to meeting goals set under the Paris Agreement.

Carbon credits offer a critical opportunity to fill that funding gap, and with demand surging experts say there is a need to help define quality credits that are bringing a positive impact for the environment and forest communities.

That was the focus of a panel held Friday in Glasgow on the sidelines of the COP 26 gathering. Co-hosted by Earth Innovation Institute (EII), Environmental Defense Fund (EDF) and Conservation International (CI), speakers examined the role of carbon credit mechanisms — including REDD+ and jurisdictional programs — in supporting the transition to forest-friendly development in tropical forest regions.

“We continue to lose about four million hectares of primary tropical forest per year and an additional eight million hectares of secondary forest,” noted Christine Ender, CI’s regional climate change advisor for the Africa region. “It is clear we need urgent action to reverse this.”

EII Executive Director Daniel Nepstad recalled the sense of optimism that followed the 2009 COP gathering in Copenhagen, when there was a sense that the market for climate finance may finally be coming together. In 2014, sub-national governments representing more than a third of all tropical forest regions joined in signing the Rio Branco Declaration, signaling their willingness to make the transition to low-emission growth and the partnerships and investments they would need to achieve this, few of which materialized.

“We need a new way of doing business to get finance flowing,” Nepstad noted, adding that today’s rising corporate interest in carbon finance offers “new partnerships that could be a piece of that long-awaited finance needed to drive the scale of change necessary for forests and forest peoples.”

Perú and the Brazilian state of Mato Grosso offer two examples of what that change looks like on the ground, and what is needed in terms of funding to make the necessary transition.

In Perú, where six regional Amazon governments have recently completed low-emission rural development (LED-R) strategies, deforestation is being driven largely by an expanding agricultural frontier populated mainly by smallholder farmers. Relying solely on command-and-control policies without providing positive economic incentives could exacerbate forest loss, driving farmers to illicit activities like coca cultivation to recoup lost incomes.

According to Nepstad, the cost for implementing Perú’s LED-R strategies amounts to $4.5 billion over the first five years, of which government funding would cover approximately half, leaving an additional $2 billion and change that could be covered through carbon credit mechanisms.

The case in Mato Grosso, Brazil’s largest agricultural producing state, is slightly different. The state has long been recognized as a pioneer in forest conservation, having achieved more than one billion tons in avoided emissions and with one of the world's most advanced jurisdictional REDD strategies in place. The government recently announced its commitment to achieve carbon neutrality by 2035, the culmination of years of work to define a long-term vision for the state in consultation with a broad array of stakeholders, including producers, indigenous peoples, and the private sector.

“We know the pathways that lead to this decarbonization. We know what needs to be done, and in fact these are actions that already happening,” said Fernando Sampaio, executive director of the Produce, Conserve, Include (PCI) Institute, which works with the state to improve land use and territorial governance issues in Mato Grosso. “What we need is to finance this transition in the field, to increase efficiency, to preserve the forests we have and restore the forests we need.”

According to Sampaio, the cost for this effort comes to $38 billion over the next 10 years, of which some portion would be covered by available mechanisms, including government budgets, rural credit lines, and private investments. “We see carbon finance as one of these instruments,” Sampaio explained.

Ruben Lubowski is the chief environmental economist with EDF. Speaking to the growing surge in demand for carbon credits, he pointed to the high degree of inconsistency between what constitutes a good credit, and the “need to develop a consensus for companies of what good looks like.”

According to Nepstad, that question of what good looks like has to be seen through the “lens of rural development,” through which providing high quality credits has to be prioritized right alongside bringing benefits on the ground, including poverty alleviation and an agenda focused on inclusion.

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