13 October 2020 | Demand for nature-based carbon credits is growing. This is encouraging. But progress is threatened by conflicting views on how best to design carbon credit schemes to stamp out deforestation. At one end of the debate are those arguing that governments must lead the way through policy. At the other end is a view that private sector investments in site-scale activities, or projects, are key to protecting forests.

This ideological debate stands in the way of the action the world urgently needs. In fact, if this debate keeps being conducted in a partisan manner, it risks turning off potential buyers of high-quality nature-based credits. This could, for example, result in a situation where planting new trees in developed countries is prioritized over avoiding the loss of biodiverse, carbon-rich, primary forests in developing countries.

Companies and civil society should not act on the basis of dogma but on the basis of evidence. And when looking at the evidence, the world needs both policies and projects.

The right governmental policies and incentives are essential to stopping deforestation. When policies and regulations are used to tackle climate change, they can lead to demonstrable and enduring results. A good example is the recovery of Costa Rica’s forests as a result of the government’s policies in the 1990s.

While policies are key, projects also have distinct advantages. Large-scale landscapes are complex and dynamic, inhabited, and used by many different stakeholders with different interests; from private land to government-issued concessions, from protected areas to indigenous territories. Project developers have the potential to be nimble, flexible, and innovative. They can adapt to local circumstances and tailor interventions to tackle specific causes of forest loss and with sensitivity to specific local contexts. And even though their scope and area might be more limited, there are places where they represent the only efforts to support local communities with alternative livelihoods and to safeguard biodiversity hotspots.

There is, however, more that needs to be done to ensure that every carbon credit from forest projects legitimately stands for the avoidance or removal of one metric ton of carbon dioxide. There are many carbon accounting standards. Most have been subject to a thorough process of development. But there are still gaps and opportunities for standards to improve. For example, there needs to be greater scrutiny over baselines (a prediction of the emissions that would occur in the absence of that project) particularly for projects that avoid deforestation.

So how best can policies and projects co-exist or, better yet, complement each other? There is no one size fits all approach – countries need to structure approaches based on their specific circumstances.

Work is underway. Countries with forests, such as Peru, Colombia, Guatemala, and Cambodia, are developing national policies to address deforestation and are looking to integrate projects into national schemes – often referred to as nested systems. This is positive. These governments should be in the driver’s seat in determining how this nesting will occur. Foreign donors and companies should encourage these efforts and provide support as appropriate.

What role should the private sector play? For its part, Shell has launched a program to invest in natural ecosystems. Shell aims to invest up to $200 million between 2020 and 2021 in initiatives that support nature while reducing CO₂.

In addition to providing upfront finance to protect or expand ecosystems and, in return, receiving carbon credits, Shell also purchases carbon credits directly. Today, Shell only off-takes from projects as there are no jurisdictional forest carbon credits available.

Jurisdictional programs – where emission reductions are accounted at, for example, national scale – are built on the concept that government policies are critical to tackling deforestation.  It is unclear at the moment how a company, such as Shell, could invest in a jurisdictional program in a way that provides predictable returns.  This is a key reason why we find the project-based approach attractive.  At project scale, companies can gauge investment risks and, importantly, also manage a range of safeguards, such as ensuring community rights are respected and sensitive ecosystems are protected.

Looking ahead, we see four factors that are critical to a decision to purchase credits from jurisdictional programs.

First, crediting should respect the land tenure, forest governance, and land management system of each country and the resulting carbon rights

Second, carbon credits must be permanent. If our customers use credits to offset their emissions, we need assurances that the emission reductions will be long-lasting. At larger scales, such as national level emission reductions, this requires stable policies that cannot be easily reversed, for example after an election. In addition, there should be a robust insurance mechanism or legal liability, to compensate for unforeseen reversals. For projects, such mechanisms are available – for example, the Verified Carbon Standard buffer pool includes credits from a diverse portfolio of more than 150 projects across dozens of countries.

Third, credits should always be additional. For jurisdictional programs, this means emission reductions are a result of government-led structural changes, such as new policies, laws, or regulations.

Finally, emission reductions must be measured accurately. A real challenge at larger scales is the uncertainty of estimating these reductions. If not adequately addressed, the credibility of such units may be in question.

So how to move forward? Nature-based carbon credits have a critical and immediate role to play in limiting global warming when used in addition to other efforts that avoid and reduce emissions – like solar, wind, and hydrogen.

For a positive impact now, we need both policy-based and site-specific activities, and neither approach should hold the other hostage. Reforming forest governance takes time; it is challenging to overcome powerful interests that are often behind forest destruction. Projects can move more quickly and, as such, should contribute now to national climate targets and national aspirations for the forest sector. Truly successful projects build constituencies for complementary national policies. In the debate about jurisdictional and project credits, neither side should win – rather, the winner should be nature and the planet if both approaches work together.

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This is the first in a continuing series of articles focused on REDD+. We invite you to post comments or propose your own submissions as the series evolves.

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