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Mongabay published a five-part series on carbon trade related to tropical forests. If you have the time, we can recommend reading the entire series, otherwise you can still get the most important information from this summary here. This summary draws on the articles published by Mongabay, while inevitably framing it from the perspective of the person writing. You are welcome to reflect upon and critically engage with ideas presented here.
After carbon credits and their use to offset emissions, continue to evoke criticism, it is worth taking a comprehensive look at the issue. A lot of those credits are linked to REDD+ projects (Reducing Emissions from Deforestation and forest Degradation). Norway had been quite engaged in those projects, as was also the topic of the second Tropical Forest Arena seminar.
Criticism has e.g. focused on justice issues (offsetting emissions from wealthy countries/ individuals /companies in the Global North, while shifting the burden of conservation and restoration work on the Global South), lack of transparency, scope of actually achieved reductions or negative impacts on local communities.
On the other side supporters of carbon trading schemes for the protection of tropical forests, argue e.g. that investments into conservation from the private sector are essential for avoiding the worst effects of climate change and that voluntary carbon trade is a way to achieve those investments.
As the debate has not been resolved yet, it is worth taking a closer look:
The origins of voluntary carbon markets date back to 1997 to the Kyoto protocol, which was the first treaty to require nations of the Global North to reduce their carbon emissions. An important mechanism within the Kyoto Protocol, the Clean Development Mechanism (CDM) brought up the idea that Global North countries could invest in emission reductions in the Global South or generally in other countries, achieving their emission targets while at the same time financing sustainable developments in the Global South. The concept of REDD was introduced in 2005 (and gained support on COP13 in 2007), by the Coalition of Rainforest Nations, bringing forward the idea of combing forest conservation and climate change mitigation and financially rewarding countries for protecting their forests. While originally envisioned as result-based payments for protection of forests, a more flexible idea of REDD+ projects was developed that would generate immediate payments and emission reductions. Consequently, new REDD+ projects were established in places where forests were under immediate threat, claiming credits for avoided deforestation. Instead of payments as originally envisioned, tradable credits for those avoided emissions were set up.
When at COP21 in 2015 countries were obliged to submit their nationally determined contributions (NDCs), a basis for a global carbon market as a tool to reach those NDCs was established. The trade in carbon credits was seen as a possible path to net zero. Under the Paris Agreement, carbon credits were issued as internationally transferable mitigation outcomes (ITMOs), more closely linked to the original idea of REDD. The voluntary carbon market continued to exist and grow alongside, though not being subject to the same requirements and oversight as the ITMOs.
Proponents of voluntary carbon markets, point out that these mechanisms provide funding for climate change mitigation and forest conservation, citing a figure of $2 billion as the market’s value in 2022.
Proponents taking a pragmatic stance, hold that we need all the tools we can get to for climate change adaptation and mitigation as well as forest conservation. With the seeming lack of an alteratives, efforts are made to increase the quality and integrity of the carbon market system by setting standards and improving guidelines.
Critics point out issues of double counting in unregulated voluntary markets, negative impacts on local communities and the questionable efficacy of those projects for climate change mitigation. Moreover, the question is raised whether cheap market-derived carbon offsets are an excuse for rich countries and companies to continue to pollute while providing little incentive for reducing emissions. While there have been attempts to prove that companies buying carbon credits also work towards reducing their own emissions, the concern remains that companies rarely address all the emissions linked to their value chain. Even with exaggerated baselines (another frequent criticism), the share of carbon that is actually captured in carbon markets only represents 0.3% of total global emissions from energy production (in 2022). Broader criticism questions the very idea behind market-based solutions, pointing out that the same way of thinking and model of capitalist extractivism is largely driving deforestation and greenhouse gas emissions. Moreover, the schemes can be seen as new forms of colonialism, justifying or enabling the continuation of carbon and resource intensive lifestyles and high profits in the Global North, while restraining Global South countries from pursuing their own development pathways and balancing their own emissions.
But what do these markets imply on the ground, for indigenous people and local communities (IPLCs)?
IPLCs are recognised as key actors for ensuring a protection of forests, as their stewardship often maintains various ecosystem services of the forests, preserves these habitats, and also promotes climate benefits. Indigenous lands hold about 80% of global biodiversity. Parts of the aims of REDD+ was to help forest-dependent communities. The idea is that carbon credits support local communities in averting threats to their forests, through carbon credits that can be generated from the reduction in emissions. The hopes are that REDD+ can help to recognise communities’ efforts to conserve their forests and supports them in this financially and generally in their development. However, there have been multiple reported cases of communities forced off their land, certain ways of using the forests that are essential to IPLCs’ livelihoods being banned and their voices are not really considered throughout the entire process and IPLCs not being treated as equal partners. Therefore, there is the risk that presumed climate solutions like REDD+ diminish rights of IPLCs living in the respective territories. The issue of carbon colonialism, mentioned above, also stands out, as in the world relying on IPLC to maintain the last remaining forests so that the wealthier countries and individuals can continue their carbon-intensive lifestyles.
A fundamental point why REDD+ projects often do not work for supporting IPLCs’ efforts to preserving their forest, is the very design of the market-based mechanism. To qualify for a REDD+ project, the forest in question must be under threat. If IPLCs are already doing a good job protecting the forests, the criterion of additionality is no longer fulfilled, meaning that the emission reductions can be attributed to the project and would not have happened anyway. If IPLCs are already protecting their forests, they do not receive money for that within the current mechanism. When we recognise the role that IPLCs play for the protection of forests and if that is supposedly the aim of forest carbon trade, then there is a fundamental flaw. It may even lead to discouraging actions taken by governments and IPLC. What is also frequently pointed out by IPLC is that carbon markets are focused on one very specific valuation of forests while many other dimensions, values and also benefits from the forests, are not captured.
But if it is not the local communities who are really benefiting from the carbon markets, who is then?
The voluntary carbon market has attracted quite a number of different players, often as intermediaries linking the projects generating the carbon credits and potential buyers. In a positive view they can be seen as lowering transaction costs and helping communities to focus on the actual protection of the forests without having to deal with all the trading and negotiations as well as absorbing market risks. In a more negative way, these are profit-driven players, not equipped with expertise related to actual forest conservation or climate change mitigation, doing a bad job in informing local communities or assisting them to avoid potential pitfalls, but instead making them sign disadvantageous agreements being just after money for their own interest. The presence of all these intermediaries also makes it difficult to actually deduce how much of the value of the carbon credit price actually goes into conservation or restoration activities, especially since 90% of intermediaries do not disclose how much they charge for their services.
The presence of intermediaries could also suggest that the matter is indeed complex. A contested issue is for example the carbon accounting methods used to calculate credits. One carbon credit is supposed to represent one metric ton of carbon dioxide removed. For determining how much deforestation has been avoided, projects rely on a baseline rate of deforestation against which the performance of the project can be compared, in order to calculate the carbon avoided. This issue has frequently been criticised, often combined with the question about permanence of the carbon-saving activities. The US-based organisation Verra has often been in the centre of the debate, as it certifies about two thirds of carbon credits traded in voluntary markets. In early 2023, a report by the UK newspaper The Guardian, the German newspaper Die Zeit and SoureMaterial uncovered that more than 90% of credits produced did not have the claimed climate impact. Their analysis was based on different recent studies, the most prominent among them by West et al. (by now published in Science). That study analysed 26 REDD+ projects on three continents. Instead of using the counterfactual methods they compared projects with “synthetic” controls (different places with shared characteristics with the project site). They claimed that REDD+ projects heavily overestimated the hypothetical deforestation, thus exaggerating the impact of the project and the number of associated carbon credits. West et al. concluded that more than two thirds of the examined projects did not lead to significant reductions in deforestation. The authors do admit that their methodology isn’t perfect either, which has also been pointed out by numerous reactions to their findings, and rather advocate for rigorous robustness checks. In the meantime Verra issued several updated guidelines (that were apparently already planned before the Guardian investigation). Those are supposed to contain the issuing of too many credits, stating that it is a continuous process of improvement, aiming for the best standards and methodologies available at the time. Proponents of the carbon markets also point out that if standards are too high to be reasonably met, there will not be any market at all and subsequently no private finance for forest conservation.
Where to go from here?
What should be the future of forest carbon credits and voluntary markets? Can they be a tool to halt deforestation? What is their potential, and limits? Is it a good idea that needs to be improved a bit in its implementation or is the whole idea inherently flawed? Is it the best we have got, and we should better use it or does it, on the contrary, hinder other more effective mechanisms? What about local communities? What about justice? And does it actually make sense for the climate and tropical forests? Do we have time for all these doubts or should we rather take whatever we get as funding for the urgent protection of the remaining forests?
We invite you to reflect a bit on the points mentioned in this article. If you would like to express your thoughts, you can do so in the comments below. You are also welcome to bring them into debates, e.g. at our next Tropical Forest Arena seminar!Of course, we are also happy to provide a summary of the aspects mentioned by Mongabay on the future of voluntary forest carbon markets, together with some own thoughts, further sources and reflections in an upcoming article.
Further reading:
Mitchard, Edward and Carstairs, Harry and Cosenza, Riccardo and Saatchi, Sassan S and Funk, Jason and Nieto Quintano, Paula and Brade, Thom and McNicol, Iain and Meir, Patrick and Collins, Murray and Nowak, Eric, Serious errors impair an assessment of forest carbon projects: A rebuttal of West et al. (2023) (December 12, 2023). Available at SSRN: https://ssrn.com/abstract=4661873 or http://dx.doi.org/10.2139/ssrn.4661873
West, T. A. P., Wunder, S., Sills, E. O., Börner, J., Rifai, S. W., Neidermeier, A. N., Frey, G. P., & Kontoleon, A. (2023). Action needed to make carbon offsets from forest conservation work for climate change mitigation. Science, 381(6660), 873–877. https://www.science.org/doi/10.1126/science.ade3535