Can Carbon Finance Pay for the Protection of Forests?

Let’s celebrate Nature!

Last month the world celebrated Earth Day, 51 years after the first mass gatherings were held recognising the fundamental importance for human societies of our planetary life-support system. On the 5^th June we are urged by the United Nations Environment Programme to celebrate World Environment Day, being promoted as a chance for our generation to “make peace with nature”, by joining the #restorationgeneration.

There is no shortage of evidence, both scientific and anecdotal, about the importance of nature, and natural ecosystems, to human well-being. Ever since the Rio Earth Summit in 1992, successive reports have sounded the alarm about how damaging the loss of nature will be to our ability to live sustainably on the earth by highlighting the impacts that human activities have on the environment. More recently research organisations and economic analysts have sought to frame these impacts in more conventional economic terms, clearly demonstrating that economic growth and prosperity is contingent on global ecological health. And very few people are unaware of how important it is to mental and physical health for people to spend time in the outdoors surrounded by nature, an experience that needs no measuring or scientific proof!

Man vs Nature vs Climate Change?

And while protecting nature and its critical biodiversity is a specific challenge in its own right, it is inextricably bound up with the need to address climate change, which itself threatens to undermine the economic systems that support human societies. Some commentators have taken to attempting to separate the two issues, but this is no simplistic Godzilla vs Kong scenario! Protecting large, intact ecosystems such as coral reefs, freshwater marshes and natural forests is important as these systems provide the clean air, fresh water and fertile soils needed for human activities such as farming and manufacturing, but we have increasingly come to realise that they play a critical role in regulating our climate system through their role as carbon cycle sinks – as such nature is one of our most effective allies in the efforts to curb climate change.

Assuming that as a global community we take the need to protect and manage these ecosystems for our own benefit seriously, the fundamental questions is, “How do we pay for this?”

Financing the fight

Some of the recent reports on the issue attempt to put a value on nature, to determine how we might put a price on the services that nature provides and including this cost into our business models and economic policies and planning. In the realm of climate change this thinking has already taking a very strong foothold, and integrating the financial risks of the impacts (framed as economic costs) of unmitigated climate change is now core to most major government and large companies’ strategies. This has resulted in the current momentum behind significant financial commitments, by business, philanthropy and governments, to “invest in nature” as a key strategy to mitigate climate change. After years of under-investment in nature, the world has woken up and is now seeking to deploy previously unimagined amounts of capital to initiatives, companies, organisations and countries that can put this money to work in the service of protecting the environment.

A good example of this flow of capital can be seen in the Voluntary Carbon Markets where companies, that have committed to net-zero emissions strategies in order to contribute to the Paris Agreement target of limiting global temperature rise to 1.5 Deg C above pre-industrial levels, are seeking to finance activities that reduce carbon emissions from nature, funding so-called “Nature-based Solutions” to climate change. The options for such companies are nonetheless limited by the number of organisations and projects that are currently generating genuine climate impacts from natural ecosystems – demand far outstrips supply.

Paying for Nature’s services

As can be seen from the graphic below, produced by our friends at ClimateCare, there are two main ways for companies to transition to a net-zero situation. In reality most companies can be considered to be at the far left hand side of this graphic, that is to say, they are very much at the beginning of their net-zero “journey”, but the critical thing is that they are at least on the road! In the near to medium term the only way to deal with their emissions is to “offset” them through the purchase of carbon credits from activities that reduce and avoid carbon emissions (this includes avoiding deforestation and other habitat loss), and then later, as their total emissions decrease over time, other options for balancing out these emissions become available through the purchase of carbon credits from activities that actively remove carbon dioxide from the atmosphere (such as technological carbon capture and storage and nature-based carbon removal (sequestration), including tree-planting projects and forest restoration and regeneration). 

The key aspect of this schematic to note is that credits from sequestration can only be accessed later in the cycle because 1) carbon capture from technological means is not yet available at the required scale and 2) it is not possible to generate significant carbon removals from tree-planting and habitat restoration immediately – the credits from such activities will be produced after several years as the growth cycles of the trees progress.

The message here is that avoiding emissions from deforestation and other habitat loss offers the greatest short to medium potential for companies to deal with their emissions. Protecting natural, wildlife-rich community forests using the REDD monitoring mechanism for generating carbon credits is one way of achieving this, and relies on companies on a net-zero pathway buying the resulting carbon credits. Recently the validity of the carbon credits created in this way, and the subsequent right of companies to use these credits for net-zero claims, has been questioned through a report published by Unearthed. The article references findings of a scientific paper that identified some cases of overclaiming the effectiveness of forest protection in  the Brazilian Amazon, and its findings have been strongly rejected by VERRA, the organisation responsible for verifying the integrity of the carbon credits. 

Time to decide

The exchange goes to the heart of the question of how the protection of nature could, and should, be financed. As the title of the graphic indicates, those working to protect nature by linking it to the measurable climate change mitigation outcomes it provides know that in the short to medium term high integrity offset payments are an immediate and effective way to protect important biodiversity, often in the form of standing tropical forests, and as of now there are no other serious funding options being offered by the global community, so efforts to generate high quality, nature-based carbon credits which channel benefits to the local communities who live in and around these forests must be supported by companies that are genuinely committed to their net-zero pathways. 

While it should not be allowed for nature-based offsets to be used by companies that are simply greenwashing their carbon intensive operations, ignoring their effectiveness in dealing with the immediate challenge of forest loss and climate change would be missing a huge opportunity.

While projects employing REDD as their monitoring framework have enjoyed mixed success due to greatly varying contexts, pre-conditions and institutional capacity, this is no reason to dismiss  the validity of many current initiatives that are successfully generating emission reductions by protecting forests while also brining huge benefits to rural indigenous communities around the world.

Written by Jo Anderson – Carbon Tanzania Director of Finance and Sales

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