Can carbon markets stimulate nature-based solutions to climate change?

The market economy has done much to cause the climate crisis. But can they help solve it?

Carbon markets and the taxonomy of sustainable finance are two rapidly growing market mechanisms that promise an increase in climate finance and a simultaneous decrease in greenhouse gas emissions.

Yet these benefits can only occur with proper regulation and the inclusion of people living and working in the landscapes where carbon offsetting takes place. This hotly debated topic brought together hundreds of participants for a digital forum hosted by the Finance for Nature Platform, a joint initiative of the Global Landscapes Forum (GLF) and the Grand Duchy of Luxembourg.

The half-day event, held on March 30, discussed the ground realities of major decisions taken at last November’s COP26 climate summit. These included rules implementing Article 6 of the Paris Agreement on climate change – a legal provision that deals with carbon markets – and a commitment from world leaders to promote financing for sustainable use. lands. The significant increase in interest in nature-based solutions to climate change and the need for much greater funding to make them happen was also high on the agenda.

Speakers from finance, public policy and academia took part, including Gabriel Labbate, Head of the Climate Mitigation Unit and Global Team Leader of the UN-REDD Program at the United Nations United for the Environment (UNEP); Nathalie Roth, founder of 4Climate; and Ariel Brunner, Senior Policy Officer at Birdlife Europe and Central Asia.

“There is still a long way to go and efforts must be stepped up,” said Carole Dieschbourg, Luxembourg’s Minister for the Environment, Climate and Sustainable Development. “We must recognize that most of the flow of funds for nature-based solutions to climate change has been driven by a climate adaptation approach. Other key topics, such as biodiversity conservation and land degradation neutrality, deserve greater attention.

Solutions for solutions

Nature-based solutions to climate change can be broadly defined as the means by which nature is used to address societal challenges and achieve sustainable development goals. According to the United Nations Global Compact, nature-based solutions can provide more than a third of the climate change mitigation needed to meet global warming targets by 2030.

However, UNEP says more than $536 billion in funding will be needed each year by 2050 to meet climate, biodiversity and restoration targets. This is almost four times the current level of investment. Currently, $130 billion a year is invested in nature-based solutions, with public funds accounting for 86% and private funding 14%.

“Many companies want to be on the right side of history and want to do their fair share on the high ambition path to net zero,” said Anna Lehmann, director of global climate policy at Wildlife Works Carbon. “It’s exciting to see this being discussed in a more transparent way, about the integrity of the companies’ claims and what they’re actually doing with the carbon.”

How do they work?

Carbon markets can play a major role in financing nature-based solutions. Emissions trading encourages companies and countries to reduce their carbon footprint. Credits are generated by projects, such as solar farms or forest conservation, and by government cap-and-trade programs that put a price on emissions caused by major polluters.

Sellers in the carbon market create carbon credits by reducing their emissions, such as a farmer who adopts sustainable land use practices. The credits are then registered and sold, generating income for the sellers, who are often farmers and local communities. Buyers, usually companies or governments, get the right to emit a set amount of carbon dioxide per credit they buy at market price.

UNEP’s Labbate estimated that the voluntary carbon market – where organizations can choose to buy carbon credits to offset their emissions, as opposed to compliance through government regulation – will be between $10 billion and $40 billion. billion USD per year by 2030.

Local insights

Mixing species on plots of agricultural land can help maximize yields and carbon sequestration. Son Wasanga, CIFOR

The growth of the voluntary carbon market is partly driven by local demand for carbon finance. For example, Lehmann described how Colombian farmers are primarily driven by the health benefits that can come from carbon markets, either through market-driven activities that improve the health of their landscapes or through services they can then afford with the carbon money they receive. .

In Indonesia, farmers have a similar interest in these co-benefits, according to Paul Burgers of the Dutch social enterprise CO2 Operate BV. for the accumulation of wealth.

“It is to give [local people] the tools to be flexible, to react to changing environments, and to continue to earn a good living,” Burgers said. “Listen to the farmers first and start working from their point of view. We should implement carbon finance by looking at local community targets, so they can build resilient livelihoods. They want stable profits, not maximum profits. They don’t want to get rich.

4Climate’s Roth, however, noted challenges for growth, including scalability, which is hampered by limited farmer participation. The concept of additionality – if an intervention leads to “additional” emission reductions that would not have occurred in the absence of such a project – is also important for them to gain market eligibility. carbon, while it is difficult to persuade farmers to abandon their land – using habits in favor of new business models.

“We need to work to educate farmers about this potential new revenue stream and move them higher up the carbon value chain, not just the commodity value chain,” Roth said. “Community education really helps get funding on the ground, and that’s a bit lacking at the moment.”

beyond the forests

Palm nut fruits harvested in an agroforestry landscape in Jambi, Indonesia.  Tri Saputro, CIFOR
Palm nut fruits harvested in an agroforestry landscape in Jambi, Indonesia. Tri Saputro, CIFOR

The first panel, moderated by carbon finance consultant Till Neef, examined how carbon markets can drive finance beyond forests to include other land use sectors, and how these markets offer farmers from southern countries opportunities to participate at the local level.

Rabobank’s Jelmer van de Mortel described the bank’s Acorn program, which offers an agroforestry-based carbon removal system for smallholder farmers who want to sequester carbon on their land by planting trees on their farms. The aim is to give them access to the low-cost carbon market, he said, noting that 80-90% of revenues accrue to farmers.

A viewer from Zimbabwe then asked how to monetize his carbon footprint through a bamboo plantation, raising the challenge of additionality: how could he prove that his property had captured emissions justifying carbon credits? Burgers suggested planting new bamboo forest in open areas occupied by livestock, leaving little room for questions about whether the landscape was more climate-sensitive than before.

tax time

The EU Green Deal sets out strategies for the group of nations to collectively be net zero by 2050. Joachim Aspenlaub Blattboldt, Flickr
The EU Green Deal sets out strategies for the group of nations to collectively be net zero by 2050. Joachim Aspenlaub Blattboldt, Flickr

The second panel focused on the taxonomy of sustainable finance, which involves national or regional rules that determine whether an investment is sustainable or not.

Speakers mainly focused on the EU’s green taxonomy, which entered into force in July 2020. Its first delegated act on sustainable climate change mitigation and adaptation activities applies from 1 January 2022. This act defines the technical criteria for selecting economic activities in nine categories, including forestry, which can make a substantial contribution to climate change mitigation and adaptation, according to the EU

Birdlife’s Brunner gave a presentation outlining the EU taxonomy, which is part of the region’s Green Deal aimed at mobilizing €1 trillion in sustainable investment over the next decade. He discussed the problems with the first delegated act, in particular the lack of carbon removal requirements for the agriculture and forestry sectors, as emissions continue to rise from the burning of trees and the clear cut.

“Taxonomy can bring more clarity and standardization while channeling more investment into the forest sector,” said Anna Begemann, a researcher at the European Forest Institute. “However, this taxonomy is not an obligation to invest more sustainably.”

In its closing speech, Luxembourg-Dieschbourg announced that the 6th GLF Symposium on Investment Cases will again be organized by the Luxembourg-GLF Finance for Nature platform in December 2022.

“It will highlight ways to increase funding for nature-based solutions and catalyze private sector engagement,” Dieschbourg said in conclusion.

To learn more, apply for the Carbon Finance Learning Program, a series of four webinars in May, July, September and November 2022, hosted by the GLF’s Landscape Academy online learning platform. Each webinar will feature up to three experts and is designed to build the capacity of local policymakers, ecopreneurs and landscape project developers to mobilize carbon finance, while introducing young professionals and students to related concepts. ..

Teresa H. Sadler