By Federica Bietta, Managing Director, Coalition for Rainforest Nations.

July 24, 2022, New York

Last month, the African nation of Gabon reported it would be coming to market with a multi-million-ton offering of emissions reductions, achieved since it endorsed the Paris Agreement in 2015, under the United Nations Framework Convention on Climate Change (UNFCCC) REDD+ mechanism.

These credits showcase the benefits of REDD+ — they are national in scale, UNFCCC-verified, tracked in a national registry, accounted for under the Paris Agreement, and fund communities and forest-preservation programs that need them. Socially conscious corporate buyers should educate themselves on these new sovereign carbons products entering the carbon markets and weigh the benefits of sovereign credits against the voluntary or project market-based alternatives in meeting this goal.

There is a long history of debate around carbon credits resulting from forest preservation.

Most concerns arise legitimately around project-scale developers. Sovereign credits, using national scale monitoring and verification, are designed to address such concerns.

Setting differences aside, most can agree the world needs forests to keep the 1.5 degrees Celsius goal of the Paris Agreement alive. And many can follow the logic that rainforest countries can’t do the work for free. Companies, polluters and developed countries should reduce their emissions to the extent possible and fund rainforest preservation for the part they are not able to reduce. In an interview with Bloomberg, Gabon’s Environment minister, Lee White, reinforced this urgency by saying:

“Preserving forests is almost a moral responsibility and a matter of national security. The Congo Basin forest sends rainfall to the Sahel, Ethiopia and beyond, and a plunge in precipitation elsewhere could destabilize parts of Africa.”

The UNFCCC REDD+ mechanism produces sovereign credits. It was designed to compensate developing nations for reversing deforestation and eventually conserving their forests, and comes with a strict set of requirements to be met by each nation before sovereign credits can be issued. Reported data include measurements of a country’s forest reference level and creation of a national greenhouse gas inventory. Reported data, which can be seen here on the UNFCCC Information Hub, are subject to a rigorous process of technical review by the UNFCCC.

Nations such as Gabon that issue credits under the mechanism must have a National REDD+ Strategy. This aligns incentives to preserve forests and ensures that the proceeds from sales will go to communities. The benefits of this process are that the emissions reductions are at a national scale. And the payments received are used to reduce threats to forests, such as illegal logging. National scale activity also helps ensure the integrity of the credit by assuring there is no leakage. This means buyers can be confident countries are not saving one part of the forest while cutting down another.

“Nations should benefit, not foreign project developers.”

Sovereign issuance is increasingly complemented by the buildout of infrastructure, such as carbon registries supported by S&P Global, and financial vehicles to handle carbon market proceeds, supported by EY.

Many potential buyers may be surprised to learn the effectiveness of this program. In the case of Gabon, national scale governmental oversight regulates logging, and 88 percent of the country is forested. As a co-benefit, biodiversity thrives, and the country is a stronghold for endangered wildlife, like the African forest elephant.

One pitfall of so-called project-based carbon credits, which by definition cover smaller geographies, is that the credits they produce pay for potential, not actual, removals. Voluntary project developers all too often say, "Here’s a piece of land, we assume 100 percent of it will be deforested over the next 30 years." And then, as demonstrated in several high-profile cases, it turns out the land is slated for preservation and not at risk at all.

The other very real problem is the offshoring of proceeds, meaning most of the money from the sale of forest credits ends up in the pockets of developers and very little in the pockets of the people living in the forest. This is turning rainforest nations against the voluntary market.

The REDD+ mechanism is designed to help developing countries solve this problem. Increasingly, rainforest countries are seeing its advantages over piecemeal project-based or sub-national alternatives. This is the reasoning behind recent moves by rainforest nations including Indonesia and Papua New Guinea. Both have chosen to put voluntary carbon project development on hold. Richly forested Honduras placed a moratorium on voluntary standards.

In a recent interview, Malcolm Stufkens, Vice Minister of Energy, Environment and Mines for Honduras, told S&P:

The Honduran State is active in the multilateral climate change regulatory development process to combat climate change. We believe the Paris Agreement is the appropriate framework to reduce or remove greenhouse gas emissions. Our main concern is our people and their livelihood. Therefore, we need to transparently tackle the potential social, environmental and economic risks and conflicts associated with the recent escalation in the sale of forest carbon credits in the national territory at unfair and obscure prices. Speculators can no longer engage in unregulated carbon trading activities that leave our rural people with a few dollars a ton while accumulating forest carbon credits to later settle them for over $20 a ton.

Honduras is setting a strong example for regional peers by creating a coordinated action plan to build human capital to measure and report forest-related data. Preserving the forests helps guarantee that fresh drinking water, which the forest ecosystem provides and filters, remains available for rural communities. This will also help reduce emigration outside the country.

Coalition for Rainforest Nations member countries know that preserving forests is expensive. The developed world can’t expect them to do this for free. Making sure trees are worth more alive than dead means competing against the opportunity cost of logging, raising cash crops such as oil palm or grazing cattle.

Developing nations have enough challenges just providing adequate public services such as health and education infrastructure. It is the coalition’s position that nations should benefit, not foreign project developers.

The UNFCCC REDD+ mechanism rewards nations for achieved and verified emissions removals at scale necessary to keep the 1.5 C goal alive. Its standards are rigorous, require continuous improvement, and are embedded in the Paris Agreement. Rainforest nations and their local communities see its virtues, and with a little education, national and corporate buyers will, too.

Courtesy of Greenbiz.