Guidance on Voluntary Use of Nature-based Solution Carbon Credits Through 2040
This guidance was developed by a WRI working group focused on nature-based solutions and markets and represents the Institute’s latest collective thinking on the voluntary use of NBS carbon credits. It updates an earlier commentary on corporate financing of nature-based solutions, drawing on a working paper on the same topic. This Technical Perspective provides guidance on the voluntary use of carbon credits generated by nature-based solutions (“NBS credits”), particularly those credits generated beyond an organization’s value chain (i.e., its scope 1, 2 and 3 inventories). It is intended for multi-stakeholder processes seeking to shape a high-integrity voluntary carbon market and to provide guidance to organizations (companies and institutions) on the credible use of NBS credits.
While the primary focus is on the voluntary carbon market, it also represents best practice for how organizations could use NBS credits in compliance market contexts. Organizations could voluntarily adhere to this guidance on top of legal or regulatory requirements (though the design and implementation of market mechanisms in compliance contexts involves additional considerations that are beyond the scope of this guidance).
This guidance will be updated in response to market developments. It covers the period to 2040, during which time most organizations on an abatement pathway consistent with limiting warming to 1.5 degrees C (2.7 degrees F) will continue to have remaining unabated emissions in their value chains. It does not seek to address the use of carbon credits once net zero has been reached (e.g., for neutralization of residual emissions, which will be increasingly relevant as we approach 2050).
Done right, greater use of carbon credits generated by nature-based solutions (NBS) will help deliver the Paris Agreement goals, foster the protection and restoration of natural ecosystems, and secure the rights and livelihoods of Indigenous Peoples and local communities. However, achievement of these outcomes is contingent on two overarching principles:
- Credits must ensure environmental integrity and represent NBS that respect the rights and livelihoods of Indigenous and local communities while safeguarding biodiversity; and
- An organization should be on a mitigation pathway aligned with limiting warming to 1.5 degrees C, and its use of NBS credits must supplement, not reduce, the pace of emissions reductions in its own operations and value chain.
WRI recommends the adoption of “guard rails” to align voluntary use of NBS credits with the above principles. These guardrails are summarized in the table below and elaborated in more detail later in this article.
Table 1: Summary of Guard Rails for Responsible Use of NBS Credits
|Category and Purpose||Guard Rail|
|Supply-side: Ensuring that emissions reductions and removals are accompanied by positive results on the ground for affected communities and ecosystems||1. Organizations purchasing NBS credits should ensure the credits have environmental integrity and adhere to robust social and environmental safeguards.|
|2. Organizations purchasing NBS credits should ensure the credits respect and protect human rights, and that Indigenous Peoples and local communities receive a fair and equitable share of the benefits.|
|3. Organizations purchasing NBS credits should ensure the credits represent a net gain to biodiversity and ecosystem integrity.|
|4. Organizations should source jurisdictional-scale REDD+ credits when available, and in the meantime, seek advance purchase agreements for jurisdictional-scale credits.|
|5. Organizations should source NBS credits with greater climate, social and environmental benefits beyond carbon alone, when such credits are available.|
|Demand-side: Ensuring that purchases of credits are net positive for the atmosphere, by constraining an organization’s use of NBS credits to those consistent with limiting warming to 1.5°C and not reducing the pace of its own emissions reductions||6. Organizations should be on a transparent path to reduce scope 1, 2 and 3 emissions, aligned with limiting warming to 1.5°C, validated through the Science Based Targets Initiative or equivalent1.|
|7. Organizations should follow the requirements of the Greenhouse Gas Protocol and separately report: i) all scope 1, 2 and 3 emissions; ii) any removals; and iii) the volume and type of NBS credits purchased or sold.|
|8. Organizations should advocate for progressive climate policy.|
|Transactions: Supporting development and making use of credit issuing programs and market mechanisms with high integrity and robust governance||9. Organizations should purchase or trade NBS credits issued by programs with strong governance and high standards.|
|10. Organizations should transparently report on whether transacted NBS credits are backed by host country corresponding adjustments, and associated claims should be based on emerging best practice regarding the use of such adjustments.|
WRI envisions two broad categories of credible use of NBS credits that are generated beyond an organization’s scope 1, 2 and 3 inventories, with differing associated claims and applicable guard rails (Table 2). These are:
- Counterbalancing the organization’s unabated emissions; and2
- Contributing to a jurisdiction’s climate mitigation.
Table 2: Recommended Organizational Uses of NBS Credit
|Area of Ambition||Organizational Use of NBS Credits||Permissible Organizational Claims||Applicable Guard Rails|
|Mitigate annual unabated emissions for organizations on a Paris Agreement-aligned, science-based pathway||To fully or partially counterbalance the organization’s annual unabated GHG emissions.||On a net-zero-aligned pathway and X% carbon or climate neutral (or positive) for the year.||All|
|Contribute to climate mitigation in a specific jurisdiction||To contribute to a jurisdiction’s climate mitigation, but not to counterbalance or offset any of the organization’s own emissions.||Have purchased NBS credits representing X tonnes as a contribution to climate mitigation efforts in [name jurisdiction].||Supply-side guard rails only.|
Supply-side Guard Rails for NBS Carbon Credits: Ensuring Good Results on the Ground
1. Organizations purchasing NBS credits should ensure the credits have environmental integrity and adhere to robust social and environmental safeguards.
Ensuring the environmental integrity of NBS credits requires that they result in additional emissions reductions or removals (i.e., the GHG mitigation would not have been implemented in its baseline scenario, and/or they are lower than in the baseline). There should also be systems to manage risks such as leakage (when an activity that causes emissions — such as deforestation or land degradation — is displaced to another location outside of the NBS accounting boundary, thereby causing new emissions elsewhere), reversal (when a previously credited emission reduction or removal is re-emitted, such that no net reduction has occurred) and double counting (an instance in which the same emissions reductions or removals are counted by more than one entity). Table 4 in this WRI working paper outlines how such risks can be managed.
These approaches are being embedded into NBS carbon crediting standards and associated verification systems. Organizations purchasing credits should be prepared to conduct additional due diligence to address known weaknesses in current crediting systems, such as overestimation of deforestation reference baselines under some project standards and verification processes.
2. Organizations purchasing NBS credits should ensure the credits respect and protect human rights, and that Indigenous Peoples and local communities receive a fair and equitable share of the benefits.
NBS credits should be verified against standards that require those planning or implementing NBS activities to respect internationally recognized human rights, including the rights of Indigenous Peoples, local communities, workers and others who may be affected. This principle encompasses the need for those implementing NBS activities to: actively engage stakeholders and respect their rights to meaningful and effective participation in decision-making about matters that may affect them; prevent or mitigate adverse human rights impacts; provide grievance mechanisms that are designed and adequately resourced to address harms to human rights; provide for or cooperate in providing remediation where they have caused or contributed to adverse impacts; and protect the security of environmental and human rights defenders, whistle-blowers, complainants, and community spokespersons, and protect their confidentiality and, when requested and lawful, their anonymity.
Equitable benefit-sharing for Indigenous Peoples and local communities is predicated on their full and effective participation in decision-making processes related to the design and implementation of NBS activities and requires Free Prior and Informed Consent (FPIC) to NBS activities on or affecting their territories. Because rights and benefit-sharing aspects of many NBS-related standards are relatively new and/or are under revision, organizations purchasing NBS credits should be prepared to conduct additional due diligence to assure adherence to this guard rail.
3. Organizations purchasing NBS credits should ensure the credits represent a net gain to biodiversity and ecosystem integrity.
This guard rail is derived directly from Criterion 3 of the IUCN Global Standard for Nature-based Solutions. NBS strongly depend on the health of an ecosystem. Biodiversity loss and ecosystem change can have significant impacts on the functioning and integrity of the system. Therefore, NBS design and implementation must avoid undermining the integrity of the system and instead proactively seek to enhance the functionality and connectivity of the ecosystem. Doing so can also ensure the long-term resilience and durability of the NBS. Where the standard under which a credit is issued does not require adherence to this guard rail or similar criteria, organizations purchasing NBS credits should be prepared to conduct additional due diligence or rely on additional certification under a standard addressing biodiversity and ecosystem services.
4. Organizations should source jurisdictional-scale REDD+ credits when available, and in the meantime, seek advance purchase agreements for jurisdictional-scale credits.
The voluntary carbon market is currently comprised exclusively of credits generated by project-level activities, but must rapidly shift toward crediting based on performance at the jurisdictional scale. The jurisdictional approach to REDD+ (Reducing emissions from deforestation and forest degradation and the role of conservation, sustainable management of forests, and enhancement of forest carbon stocks in developing countries) has a number of strengths over project-level crediting. Jurisdictional approaches can incentivize governments to make decisions and perform actions that only they have the authority to implement (such as policy reform, recognition of Indigenous rights, and enforcement of the law), incentives that are necessary to protect forests and other natural ecosystems, drive restoration and incentivize productivity gains on working lands. The voluntary carbon market should create incentives for approaches that fully “nest” the accounting for project-scale activities (i.e., site-specific activities that generate carbon credits based on an independently established baseline) within jurisdictional baselines, alongside regimes that provide equitable benefit-sharing, especially with respect to rights-holders such as Indigenous Peoples for project-scale investment and performance. To encourage a shift to jurisdictional-scale credits, organizations should follow the preference hierarchy and guidance in Table 3 when sourcing NBS credits.
Table 3: Hierarchy of Preferences and Guidance for Sourcing NBS Credits
|Rank Order Preference for Buyers||Characteristics of Jurisdiction from Which Credits Are Being Sourced||Guidance to Buyers|
|1||Jurisdictional REDD+ program is already or expected to be registered and validated by an internationally recognized standard and offering credits in the near-term (within 2 years)||Purchase jurisdictional-scale credits issued by jurisdictions or fully nested projects when available on the market; in the meantime, enter into future purchase agreements for the same.|
|2||Jurisdictional REDD+ program is progressing (has at least a forest reference emission level, forest monitoring system, and preliminary benefit-sharing plan) and is expected to offer credits under an internationally recognized standard in the medium-term (within 3-6 years)||
Purchase project-scale credits from projects showing evidence of good-faith efforts to accelerate the transition to full nesting, including alignment with jurisdictional-scale reference level and contractual arrangements that encourage rather than impede the transition.
Requires additional due diligence to secure evidence that the baseline reflects a conservative share of jurisdictional performance and evidence of progress toward nesting project baselines into jurisdictional reference levels.
|3||Jurisdictional REDD+ program not in place and not anticipated in the near- to medium-term||
Restrict purchase of project-scale credits to those with exceptional qualities (e.g., benefits for Indigenous communities and/or biodiversity).
Requires additional due diligence to secure evidence that the baseline reflects a conservative share of jurisdictional performance.
Adapted from Draft Consensus Statement on High Quality Tropical Forest Carbon Credits
5. Organizations should preferentially source NBS credits with greater climate, environmental and social benefits beyond carbon alone, when such credits are available.
Not all NBS credits are equal in terms of their impacts on climate mitigation and other environmental and social objectives. Some will contribute more than others to immediate mitigation, climate change resilience or non-carbon climate cooling services. Some will provide stronger support to securing the rights and livelihoods of Indigenous Peoples and local communities and/or have more equitable benefit-sharing arrangements. Some will offer more benefits for ecosystem services and biodiversity. Others could cause land competition due to leakage that could put local food security or native ecosystems elsewhere at risk. The relative impact of a given NBS will vary according to local context and the time scale of the intervention. Organizations should differentiate NBS according to their impacts and risks, prioritize NBS interventions with higher benefits and lower risks, and be prepared to pay a price premium for carbon credits associated with higher positive impacts (see Table 1 in this WRI working paper for more details on the benefits and risks of different NBS). Of particular importance is the near-term prioritization of high-quality emissions reduction credits over removals credits (e.g., credits generated through tree-planting efforts such as reforestation and afforestation) in places where deforestation continues unabated. Organizations may also invest to scale up restoration efforts within jurisdictions where jurisdictional programs are in place and emissions from deforestation and degradation are declining, to support integrated land-use management.
Demand-side Guard Rails: Ensuring an Organization’s Use of NBS Credits Is Consistent with Limiting Warming to 1.5 Degrees C and Does Not Reduce the Pace of its Emissions Reductions
6. Organizations should be on a transparent path to reduce scope 1, 2 and 3 emissions, aligned with limiting warming to 1.5 degrees C, validated through the Science Based Targets Initiative or equivalent.
Organizations should be on a transparent and science-based path to reduce scope 1, 2 and 3 emissions that aligns with limiting warming to 1.5 degrees C. Under the Science Based Targets Initiative (SBTi), organizations can have their targets validated by either signing on to sector-specific decarbonization pathways or by delivering “sector agnostic” emissions reductions (4.2% annually for 1.5 degrees C, 2.5% annually for well-below 2 degrees C). Any purchased NBS credits would then be “supplementary” — above and beyond reducing scope 1, 2 and 3 emissions. Figure 1 below shows our recommended approach. The organization adheres to the science-based reduction pathway and purchases carbon credits to mitigate emissions beyond what is required to meet their own science-based reduction pathway.
7. Organizations should follow the requirements of the Greenhouse Gas Protocol and separately report: i) all scope 1, 2 and 3 emissions; ii) any removals; and iii) the volume and type of NBS credits purchased or sold.
Organizations should measure, report and independently verify progress towards their science-based GHG reduction target for all scope, 1, 2 and 3 emissions (including all 15 scope 3 categories) and their emissions-reduction pathway, and they should separately report the volume and type of NBS credits purchased or sold. Such reporting should be consistent with the GHG Protocol Corporate Accounting and Reporting Standard, Scope 2 Guidance, Scope 3 Standard and forthcoming Land Sector and Removal Guidance.
8. Organizations should advocate for progressive climate policy.
Organizations should publicly recognize the importance of policy to incentivize or mandate emissions reductions across society; support local, national and international policies that seek to reduce GHG emissions; and encourage investments in NBS and other climate mitigation approaches. This includes both organizations’ own advocacy efforts and refraining from financing industry trade groups or other entities that oppose progressive climate policy. Such advocacy should include support for robust compliance markets (see Guard Rail 10).
Transaction Integrity Guard Rails: Supporting Development of and Making Use of Credit-issuing Programs and Market Mechanisms with High Integrity and Robust Governance
9. Organizations should purchase or trade NBS credits issued by programs with strong governance and high standards.
The governance of the programs issuing NBS credits and certifying their quality is as important as the standards for the credits themselves. For example, such programs need to have procedures to ensure the competence of verifiers and to avoid conflicts of interest. They also need to manage transparent registries to avoid double counting of credits.
WRI endorses the NCS Alliance’s Guidelines for High-Quality NCS Projects and Programs and Credits, as set out in its guidance on Natural Climate Solutions for Corporations, covering transparent crediting program governance, public participation provisions, robust verification requirements, strong legal underpinning of issued credits, and tracking in a publicly available registry. These guidelines are based on and align with the CORSIA Emissions Unit Eligibility criteria and ICROA Code of Best Practice guidance.
10. Organizations should transparently report on whether transacted NBS credits are backed by host country corresponding adjustments, and associated claims should be based on emerging best practice regarding the use of such adjustments.
The relationship between the voluntary carbon market, compliance markets, host country NDC ambition and achievement, and the role of corresponding adjustments is a complex, evolving topic that stakeholders should monitor over time to ensure their practices remain aligned with emerging standards/policies. Depending on the specific dynamics at play, the availability of finance from the voluntary market could either support or displace host government climate ambition.
As WRI works with other market stakeholders to close knowledge gaps and advance good practice, the current lack of credits backed by corresponding adjustments should not impede the urgent near-term need for significant investment in NBS, including via advance purchase agreements for jurisdictional scale credits (see guardrail 4), which can make a critical contribution to climate, nature, and people goals. Assuming all other guardrails are met, claims following the issuance of jurisdictional-scale credits purchased in advance should adhere to best practice at the time of Emission Reduction Purchase Agreement (ERPA) signature. At this time, best practice means organizations purchasing credits without a host country corresponding adjustment should a) communicate that the underlying mitigation also contributes toward the host country’s NDC (provided it occurs under a covered sector) and b) be transparent in all reporting and communications related to credit use.
Counterbalancing: An organization’s use of NBS credits to mitigate some or all of its unabated emissions over a given period, while on a Paris Agreement-aligned, science-based emissions-reduction pathway.
Contributing/contribution: Use of credits that comply with the supply-side guard rails to contribute to a specific jurisdiction’s emission reductions, but not to counterbalance or offset any of the corporation’s unabated emissions for the purpose of calculating the corporation’s net emissions over a given period.
Double claiming: Situations in which the same carbon credit or mitigation outcome is claimed by two different entities. Under the Paris Agreement, this can occur when the host country where the credit was generated claims the outcome for its Nationally Determined Contribution (NDC) while it is also claimed by another recipient country following international transfer. Double claiming would also occur if the host country claims the mitigation outcome for its NDC while it is simultaneously claimed by another non-state actor for compliance purposes or for the purpose of counterbalancing emissions.
Fully nested projects: Project-scale activities that have crediting baselines integrated into the accounting of emissions reductions and removals at the jurisdictional level, and that are aligned with jurisdictional-scale programmatic strategies.
Jurisdictional approach: A government-led, comprehensive approach to forest and land use across one or more jurisdictions, occurring at the national-level or the state/provincial level immediately subservient to the national level. The Warsaw Framework for REDD+ negotiated under the UNFCCC established rules for the monitoring, accounting and results-based payments for national and subnational forest-based emissions reductions and removals.
Jurisdictional-scale REDD+ credits: Emissions reductions and/or removals quantified according to performance measured relative to a Forest Reference Emission Level (FREL) for an accounting area defined at the jurisdictional scale. In a jurisdictional REDD+ crediting system, credits might be generated directly by the jurisdictional program (which could then channel these or associated proceeds to projects) and/or by fully nested projects within the jurisdiction.
Nature-based solutions (NBS): Actions to protect, conserve, restore, sustainably use and manage natural or modified terrestrial, freshwater, coastal and marine ecosystems which address social, economic and environmental challenges effectively and adaptively, while simultaneously providing human well-being, ecosystem services, resilience and biodiversity benefits.
Pankaj Bhatia, Cynthia Cummis, Kevin Moss and Javier Warman also contributed to this article.
1 Company GHG accounting must align with the Greenhouse Gas Protocol standard and target must cover full value chain emissions at the 95% threshold. Science-based 1.5°C pathways should be based on no- and low-overshoot Integrated Assessment Modeling Consortium (IAMC) scenarios that:1) do not exceed the transient climate response to emissions (TCRE) budget of 990 GT CO2e prior to achieving net-zero; 2) in which peak emissions occur before 2025; and 3) that are more ambitious than the 20th percentile of the scenario envelope. [Reference: Foundations of Science-based Target Setting]
2 We acknowledge that there are multiple terms that could be used to describe what we are calling “counterbalancing” (which differs from traditional “offsetting” in that it requires adherence to all of the above guard rails). “Compensating” has been the most commonly used; however, the Science Based Targets initiative is moving away from this term in favor of “Beyond Value Chain Mitigation,” which currently has a much broader definition than we propose here. What’s ultimately important is the definition rather than the name. We will seek to align our terminology with that of other relevant initiatives.
Editor’s Note: WRI updated its guidance on 9/21/22 to better reflect the ongoing nature of discussions related to Article 6 of the Paris Agreement and the voluntary carbon market, and clarify current best practice under Guardrail 10.