Can the Voluntary Carbon Market Help Save Tropical Forests?
17 July 2024
What is Needed Now
Tropical forest protection is beyond urgent – we desperately need to protect standing forests if we are to have a chance of limiting global temperature rise to 1.5C. Annual levels of public and private finance currently going to forest protection are less than 1% of the estimated need. Leveraging all available mechanisms to finance forest protection – including voluntary carbon credits – is needed.
The potential for the voluntary carbon market (including high-integrity approaches) to provide much needed forest finance has been questioned due to legitimate concerns including, but not limited to: how baselines have been set; determinations of additionality; and defining permanence. These concerns have had a positive effect such that entities created to ensure the integrity of voluntary carbon markets (e.g., ICVCM, VCMI, TREES, and Verra) are responding through revisions to their guidelines and standards and increased collaboration.
Challenges to scaling voluntary markets remain. Based on Meridian’s experience facilitating initiatives focused on market approaches to forest protection and a number of interviews with buyers, sellers, and other experts, we offer these six observations. We hope they help stimulate thinking, spark discussion, and potentially help navigate market participants towards finding effective ways to mobilize forest finance.
- Traditional criteria for “offset-quality” credits used in other sectors (e.g., power) were not designed with nature in mind.
The additionality of carbon storage in forests is difficult to prove and inherently non-permanent, making the generation of high-quality credits challenging and undermining confidence in these types of nature-based solutions.
- To unlock private finance, priority attention needs to be given to defining and creating the conditions for a compelling value proposition for non-credit-based Beyond Value Chain mitigation (BVCM) contributions and claims.
There is a lack of clarity about what mitigation “contribution” can mean, how it might be defined, and how contributors can communicate this contribution beyond the purchase of high-quality carbon credits.
- Voluntary markets and private forest carbon finance can be better integrated into a broader approach to development finance given the multiple social, ecological, and economic benefits that can be derived from protecting forests at scale.
A growing number of companies recognize this and are increasingly interested in putting forest protection in a larger frame than climate mitigation, including ensuring that the benefits of finance equitably flow to Indigenous Peoples and Local Communities. This approach is more aligned with country needs and should include non-credit-based finance pathways as well.
- Tailoring finance mechanisms and carbon markets to the specific needs of buyers and sellers will better enable finance to flow.
These might include country-specific programs involving a trusted third party that enables the development of tailored marketable environmental assets for purchase by private sector, philanthropic, or donor countries with limited reputational risk. A variety of such alternative private forest finance mechanisms are already under development.
- Partnerships, rather than traditional market transactions, may be the preferred approach to enable effective and sustained private forest finance.
There is an inherent tension between the notion of the VCM as a transactional market for forest carbon credits and the partnership-based approach at the core of agreed upon goals and objectives of REDD+ internationally and nationally, which has to-date yielded the most sustained flows of forest finance. There are opportunities to appropriately integrate both public and private forest finance.
- The World Bank can play an important role in promoting and sponsoring greater forest finance, including through ongoing technical support to jurisdictions and models of integrating private and public finance.
The World Bank currently provides a carbon crediting platform with strong potential for a more integrated, holistic approach to forest and development finance. The World Bank’s resources and capacity for increasing the supply of high-quality credits could be further leveraged.
Strategic Advisors: John Ehrmann and Mike Lesnick
