Frances Seymour is a Distinguished Senior Fellow at WRI. In her individual capacity, Frances serves as Chair of the Architecture for REDD+ Transactions (ART) Board. ART did not have any influence over the content of this article, and the views expressed are only those of the author.
Private sector interest in integrating natural climate solutions into corporate emissions reduction strategies has surged in the last couple of years. Before the COVID-19 pandemic and its impacts on sectors such as aviation and oil and gas, the spike in demand for forest carbon offsets had rekindled a longstanding debate over the appropriate scale of crediting for emissions reductions from the forest sector: individual projects or entire jurisdictions?
As society eventually begins to recover from the public health and economic crises, attention will return to this question. The urgency of climate action remains undimmed. Policymakers and corporate leaders alike will soon refocus on the role of the land sector in getting to net-zero emissions.
There are compelling arguments on both sides. However, taking a jurisdictional approach is more likely to achieve the objective of reducing emissions from deforestation and forest degradation (REDD+). Here are four reasons why:
1. Governments have the authority to control land-use change.
Halting and reversing deforestation and forest degradation on a large scale usually requires actions that only governments can perform. Where forest loss is due to illegal activity, only governments can enforce the law. Where deforestation results from unclear land tenure, only governments can recognize rights to resources. Where forest conversion or degradation is due to licensing of concessions on state-owned land, only governments can suspend or better regulate such licenses. Where deforestation is happening on private land, governments can regulate land use and provide incentives and disincentives through fiscal policies such as access to credit and tax relief. Brazil’s success in dramatically reducing deforestation in the Amazon in the decade starting in 2004 provides an illustration of the effectiveness of concerted government action. Recent reversals in the trajectory of forest loss in Brazil similarly are linked to rollbacks in national government policy.
Political leaders need incentives to implement necessary actions. Although reducing deforestation and forest degradation may well be in a jurisdiction’s interest, even without taking into account global benefits of climate mitigation, political economy factors often support continued deforestation as usual. REDD+ finance can provide one incentive within a set of stacked incentives (including preferential commodity sourcing, reputational benefits) in favor of a transition to sustainable land use. While this proposition remains mostly untested due to lack of significant finance, the results of the current lack of incentives are clearly reflected in the upward trajectory of deforestation rates across the tropics, often linked to a failure of governments to enforce existing policies and regulations.
By contrast, needed actions are beyond the scope of project-scale interventions. A CIFOR study of the first generation of REDD+ projects highlighted the limitations of projects to deal with fundamental constraints such as insecure tenure. While some projects can be effective at addressing local causes of forest loss (through community-based fire-prevention efforts, for example), they provide few incentives to governments for broader changes in policy or implementation. It is difficult to see how awarding forest carbon credits directly to projects can lead to success in reducing deforestation at scale.
2. Access to international carbon markets for jurisdictional-scale emission reductions is an essential source of incentives for change.
In order to meaningfully challenge vested interests in deforestation as usual, the reward for jurisdictional performance must be significant, certain and near-term. Only private sector finance can meet those requirements. Although REDD+ finance from donor agencies is certainly part of the solution, public sector finance will never be sufficient to constitute a material incentive for change — especially for larger, emerging market economies. And the lengthy negotiations and high transaction costs often experienced by supplier jurisdictions in dealing with such agencies — including intrusive restrictions on how performance-based payments can be used — discounts the incentives on offer. A clear private sector demand signal for jurisdictional-scale forest carbon credits could revitalize the enthusiasm expressed by governors and heads of state at the time that REDD+ was first proposed.
However, given the choice, many companies would prefer to purchase project-scale emission reductions or invest in their own land-based projects to generate revenue from the sale of credits. Activities centered on specific areas lend themselves to communication of easy-to-understand objectives associated with iconic wildlife, protected areas and specific communities (as demonstrated by the successful fundraising efforts of large conservation organizations). Further, corporate buyers would prefer business-to-business transactions with individual project developers rather than having to engage with governments. Yet the recent launches of initiatives such as the Architecture for REDD+ Transactions (ART) and its associated jurisdictional TREES standard, and the Emergent Forest Finance Accelerator to facilitate transactions, promise to render it significantly easier for companies to satisfy their demand for emission reductions with purchases of jurisdictional-scale credits.
Project-scale activities — be they small community forest enterprises or larger forest and peatland restoration efforts — will require a part of the estimated USD 100 billion additional annual investment needed for nature-based solutions to transition towards a more sustainable food and land use economy by 2030. Ideally, private investments in such activities would be made profitable through domestic policy reforms such as ending illegal logging and repurposing agricultural subsidies toward climate-friendly land use incentivized in part by the prospect of jurisdictional-scale REDD+ payments. But to the extent that the business models for such investments depend on the sale of carbon credits, in the future those revenues will have to be mediated through jurisdictional-scale crediting based on equitable benefit-sharing arrangements. Otherwise, we run the risk of double-counting emission reductions.
While it would be difficult for governments to restrict legal voluntary transactions between willing buyers and sellers, governments can and should restrict crediting in compliance regimes to transactions more likely to serve the public interest. Crediting at the level of individual projects unnecessarily risks diverting new sources of private sector finance away from the demand signal needed to incentivize jurisdictional performance. In the absence of compliance markets, recognizing corporate claims to offsetting their fossil fuel emissions with the voluntary purchase of project-level credits, for example in meeting “net-zero” targets, would have the same effect.
3. Incentives for jurisdictional performance can better protect the social and environmental integrity of emissions reduction credits.
The inclusion of any type of land-based emissions reduction credits in compliance markets has been hindered by concerns over the degree to which they represent “real” emissions reductions and protect affected communities from harm, compared to emissions reductions from other sectors. A jurisdictional approach helps alleviate many of these risks:
- Non-additionality: If credited emissions reductions would have happened anyway, they are not additional and do not reflect benefits to the climate. The best way to ensure additionality is to set a conservative reference level against which performance is measured. Jurisdictional reference levels based on recent historical experience are reasonably good predictors of future trends. Project-level baselines, however, are often inflated. Effective “nesting” of project-scale crediting in jurisdictional-scale accounting would require adjusting the baselines of many projects downward, and effective regulation of such nesting would require the development of government capacity equivalent to that needed for jurisdictional-scale crediting, reducing the attractiveness of project-level crediting.
- Leakage: Leakage occurs when an activity that would have caused deforestation or degradation is simply displaced to another location. The larger the area covered by a REDD+ initiative, the lower the leakage risk, making jurisdictional-scale implementation more effective over project-scale interventions. Project-scale interventions cannot address direct causes of forest loss that are easily displaced to nearby forests, while jurisdictional-scale programs can address a broader range of deforestation drivers.
- Reversals: A reversal occurs when a previously credited emission reduction is undone due to a natural disaster or a change in policy. Because of their larger area, jurisdictions are less likely than projects to have their forests’ carbon stocks decimated by a single windstorm or fire event. Both jurisdictions and projects are vulnerable to policy reversals (for example, community-based projects are at risk if the government stops enforcing the law against encroachment by outsiders), but only jurisdictional-scale crediting provides countervailing incentives directly to governments.
- Threats to indigenous rights: A persistent concern from the earliest days of REDD+ is that it would incentivize private sector actors and governments to violate the rights of indigenous communities in order to claim the carbon credits from their customary territories. This concern was bolstered by a few early examples of “carbon cowboys” seeking to trick local leaders into signing away their rights. While both project and jurisdictional-scale REDD+ efforts now include safeguard procedures to manage this risk, including the principle of free, prior and informed consent, jurisdictional-scale initiatives uniquely offer the opportunity to advance the indigenous rights agenda at the policy level.
Due to concerns about environmental and social integrity, project-scale crediting is likely to increase opposition to inclusion of any forest carbon offsets in compliance markets. Many environmental activists are skeptical of offsets in general and forest carbon offsets in particular, fueled by examples of poor-quality project-scale credits that lack social and environmental integrity. It is noteworthy that a November 2019 Open Letter to the Green Climate Fund Board opposing an IFC proposal called project-scale crediting as “the most controversial form of REDD+,” and that more recently designed compliance regimes (California’s cap-and-trade system and ICAO’s CORSIA) are considering inclusion of only jurisdictional-scale REDD+ credits.
4. Official climate negotiations and public and private supply chain initiatives are converging on the jurisdictional scale.
Privileging jurisdictional REDD+ credits in compliance regimes and voluntary markets are ways to follow through on consensus reached in international negotiations and to align with complementary private sector initiatives.
REDD+ implementation at the national and subnational jurisdictional scale has been negotiated under the UNFCCC and incorporated into the Paris Agreement. Supplier jurisdictions have made significant investments in meeting eligibility requirements for crediting within this framework, often with support from the UN system and bilateral and multilateral donor agencies. Supplier jurisdictions can reasonably expect the international community to follow through on providing the results-based finance at scale that has been promised for their efforts.
Now would be a particularly inopportune time to reopen the possibility of project-scale crediting with negotiations on Article 6 of the Paris Agreement (which governs international trade in emission reductions) still underway. Experience with the Clean Development Mechanism under the Kyoto Protocol has demonstrated how project-scale crediting risks locking in vested interests, as the holders of such credits will make every effort to maintain their value in future compliance regimes.
In the meantime, public and private initiatives to get deforestation out of commodity supply chains have migrated toward a jurisdictional approach. The European Union’s Forest Law Enforcement, Governance, and Trade initiative to stop illegal logging adopted an approach based on licensing timber eligible for export to the EU using national timber legality systems. Companies involved with forest-risk commodities such as palm oil, beef, soy and cocoa have learned that private voluntary efforts to stop deforestation one corporate supply chain at a time are ineffective. Initiatives such as the Tropical Forest Alliance are turning to the so-called jurisdictional approach, which involves companies partnering with local governments to improve land-use planning and implementation.
As mentioned above, market incentives such as preferential sourcing can be combined with results-based REDD+ finance to build a value proposition for sustainable land use that provides an attractive alternative to deforestation as usual to leaders of supplier jurisdictions. It would be profoundly ironic if international REDD+ efforts were to abandon the jurisdictional approach just as it is being embraced by the global movement for deforestation-free commodity trade.
Although the current public health crisis and associated economic downturn have understandably diverted attention from this set of issues, the question of how natural climate solutions fit into corporate climate mitigation strategies is not going away. We should use the current pause as an opportunity to map out an orderly transition for incorporating project-scale activities into REDD+ programs, with performance credited at the jurisdictional scale.