Co-authored article by Jen Stebbing and Ben Simonds – this article first appeared on the Climate Advisers website
2022 was a big year for nature. Natural climate solutions (NCS) continued to gain prominence within the broader climate narrative, and the deal struck at COP15 for a new global biodiversity framework, while not perfect, exceeded most peoples’ expectations. 2022 was also a big year for carbon credits as more and more attention and interest turned to these market-based solutions.
At the intersection of these two worlds sit nature-based carbon credits, which represent a large percentage of the overall market. While there is much enthusiasm, there is also much concern. Where there is increasing clarity, there is also considerable confusion, some of which is rooted in the large number of stakeholders entering the space with different agendas, and the equally large number of contested positions.
All these factors have certainly played out in the last couple of weeks on forest carbon credits specifically, but while we wait for the dust to settle on that, and understand what the communications challenges for REDD+ this year are, here are 6 topics to keep an eye on in 2023 that will influence the narrative around nature and markets.
1. Integrity
If we were to pick just one word to define 2022 in the world of the voluntary carbon market, it would be integrity. We don’t expect this to change in 2023. While a steady stream of reports and recommendations were published throughout the year providing guidance on what constitutes both supply and demand side integrity, it is clear that definitions are still elastic and inconsistent. The good news is that there are a number of initiatives pointing the path forward.
On the supply side, there is more focus than ever before on what constitutes “quality.” While it is fair to say that there is still some debate on the finer points of this question, there is certainly increasing consensus on what constitutes poor quality in the market. In the year ahead, all eyes are on the Integrity Council for the Voluntary Carbon Market (IC-CVM) and the development of its Core Carbon Principles (CCPs). We are hopeful that these will help buyers better understand the criteria for high-quality credits and choose accordingly, although we recognize that the IC-VCM team certainly has its work cut out for it as it attempts to balance an extreme diversity of opinion, perspectives, and interests (especially around REDD+). Whether or not the various stakeholders in the VCM can all get behind the CCPs is an open question at the moment.
On the demand side, there is an emerging coalescence of views around the concept of beyond value chain mitigation (BVCM) as a replacement for the more traditional concept of “offsetting”. With BVCM, the idea is that while companies must adopt and implement science-based pathways for internal emissions reductions as a priority, they must also support action outside of their value chains, including through the purchase of high-quality carbon credits. It is a “both/and” proposition, while offsetting has been interpreted by some as more of an “either/or” approach. One of the main challenges here will be if businesses understand and endorse this conceptual shift, and feel that the claims they can make are strong enough to support an internal business case.
A specific challenge on the claims front is a widespread interpretation that SBTi’s Net Zero Guidance doesn’t allow the use of carbon credits within companies’ net-zero journeys, except for the use of removal credits at the end of the journey to neutralise any impossible-to-abate emissions. While SBTi published a series of blogs to try to clarify its position on BVCM and has promised additional guidance this year, it clearly must work harder if it is to prevent this narrative from further taking root within corporate boardrooms. On top of that, the work being led by the Voluntary Carbon Market Initiative (VCMI) couldn’t be more important for providing companies with claims that give them a strong business case for investment in high-quality credits.
Yes, it’s possible that some companies might do less to reduce their own emissions if they know they can make up any shortfall with carbon credits. However, that danger pales in comparison to the existential threat we face today from failing to mobilise the finance needed to drive ambitious climate action, including much-needed support for NCS.
In the meantime, there has been a range of helpful guidance produced for companies from the likes of We Mean Business, the NCS Alliance, WRI and others that seek to help them navigate the space.
2. Nature Positive
While the term “nature positive” predates 2022, it certainly hit the main stage last year, gaining prominence at both the COP26 and COP15 as the bridge between the climate and biodiversity agendas.
The nature-positive movement is underpinned by the Global Goal for Nature. Given the novelty of the space, there is not yet clear guidance on whether “nature positive” is a claim or commitment that can be used to describe a company’s individual actions or targets. However, for companies that want to think within a nature-positive frame – aligned with their net-zero commitments – the emerging consensus around the underlying steps they should take is coming into clearer focus. As in the climate space, the idea of setting science-based targets for nature is taking root.
Linked to this rising nature-positive agenda is a new buzz around biodiversity credits or “bio-credits.” (Examples here, and here.) The 30×30 agreement made at COP15 will need substantial funding to succeed and bio-credits are one increasingly touted option. While there is still a lot of technical work that needs to be done before these are ready to go mainstream, even at this early stage, it’s clear that some are looking to promote biodiversity credits by attacking carbon credits. Given the growth of the voluntary carbon market (VCM) in the past few years, pitting the two credit types against each other in this way is not only unhelpful but also potentially detrimental to global climate action which requires climate and nature challenges to be addressed in tandem.
3. Working *with* Indigenous Peoples and Local Communities
IPLCs have unique knowledge of conservation and land management and are, by one estimate, responsible for conserving 80% of the world’s biodiversity. It, therefore, seems deeply unjust that these same people are on the front lines of climate change. Co-existing with nature, IPLCs’ daily lives are generationally interwoven with our planet’s ecosystems, leaving both livelihoods and cultural identities uniquely vulnerable to climate change and the nature loss crisis.
When it comes to the voluntary carbon market, a wonderful article by Valentina Guido of the Rocky Mountain Institute outlines some of the dangers to IPLCs. As she clearly argues, recognition, participation and transparency will be key themes in a discussion that we expect and hope will deepen and broaden in 2023.
While there are clearly very real concerns, rooted in very real injustices and malpractice (past and present), we must fight against the narrative that the voluntary carbon market is inherently bad for IPLCs. There are simply too many examples (here, here and here to name a few) of where progress is being made, where opportunity is unfolding, and where carbon finance is delivering real benefits for this to be the case. But there certainly is much work to be done.
Carbon project developers have a responsibility to work with Indigenous and local landowners throughout a project’s lifespan. Despite statements and pledges for profit sharing, there is a growing sense of frustration from IPLCs that climate finance is not reaching them. Indeed, a recent report from Devex found that only 7% of the Forest Tenure Pledge funds have directly reached IPLCs. This must be rectified as a matter of urgency.
For one, many IPLCs are understandably growing tired of the under-delivery of funding benefits. The impacts of climate change would already be far worse without them, so it is deeply wrong for others to profit without equitably sharing the benefits with those on the front lines.
It is essential for stakeholders to take time to facilitate mutual understanding between business people and Indigenous landowners. Throughout any program or project, IPLCs must receive information and be given the opportunity to grant or refuse consent to participate in carbon markets. Yes, this is difficult, but it is doable. In 2023 we expect a growing commitment to the rights of IPLCs and to see more on-the-ground engagement between project developers and Indigenous and local landowners.
4. A shift toward Jurisdictional REDD+, or JREDD
The jurisdictional approach to REDD+ – abbreviated as JREDD – refers to a government-led, comprehensive approach to forest and land use across one or more legally defined territories. The approach is guided by the REDD+ framework launched by the UNFCCC. It is distinct from project-level REDD+, where forest conservation efforts are often confined to a smaller area.
When it comes to companies, most support to date has been directed through voluntary carbon markets to standalone carbon projects. But this is starting to change. Last December, the world’s first market-ready jurisdictional carbon credits were issued to Guyana by the Architecture of REDD+ Transactions. And the LEAF Coalition has amassed a group of more than 20 companies that together have mobilised more than $1 billion in private funding for the purchase of jurisdictional carbon credits.
To help ease the confusion for corporate buyers, the Tropical Forest Credit Integrity initiative (TFCI) is producing guidance on the purchase of forest carbon credits, explaining how companies can support the transition to jurisdictional programs. It recognises that high-integrity non-JREDD credits are still a sound investment where JREDD is not yet available. So while we do not expect to see JREDD operating with universal availability in 2023, this guidance signposts a broader transition that is underway and that we expect to accelerate in the year ahead.
All this having been said, there is still a significant amount of difficult work to be done for nesting projects within jurisdictional programs. This will be a technical but important topic to track this year, as it could prove to be a thorny and weedy challenge.
One other possible confusion to keep an eye on is the term sovereign carbon, used primarily by the Coalition for Rainforest Nation’s Redd.plus initiative. This term is not defined by the UN or under any carbon crediting standard, but presumably, as a category, any unit issued to a government could be designated as “sovereign,” therefore any jurisdictional REDD+ crediting programs would also issue sovereign carbon credits. There are some bigger questions about what exactly redd.plus is selling into the marketplace, addressed by Sylvera here and Trove Research here.
5. Corresponding Adjustments
While significant progress has been made on Article 6 of the Paris Agreement has been made at the last two climate COPs, there are still some unresolved questions about how it will work in practice, and what it means for the voluntary carbon markets. wider carbon markets”. Specifically, expect lots of talk about corresponding adjustments in the year ahead.
While countries are encouraged to apply corresponding adjustments to account for international transfers of carbon credits to non-state actors, there seems to be a considerable amount of confusion among VCM participants about whether they should be seeking credits from countries that will make corresponding adjustments or not. The difficulty is compounded by the fact that very few countries have policies in place for this at the moment, and it could take years for such infrastructure to develop. Assuming, of course, that countries want to do so in the forest place.
The COP negotiations also featured lengthy talks around whether ‘avoidance’ credits, such as those generated from renewable energy or forest conservation, would qualify under Article 6. Following this, expect to see communications focus on ‘reduction’ rather than ‘avoidance’ for forest protection and other nature-based conservation carbon credits, particularly on REDD+.
6. Nature v. Tech
We know that ‘either/or’ narratives create silos and can feed into a counterproductive ‘us’ versus ‘them’ mentality. Nowhere is this truer than among those who diminish natural climate solutions in order to advance technological solutions for carbon removal.
Undeniably it will be game-changing when solutions such as direct air capture and storage (DACS) are cheap and widespread enough to make a difference so, absolutely, funding and innovation should be happening in tech. But, at the same time, we also need to invest in nature – a solution that’s available now, and relatively cost-effective. Remember, a 2022 UN report warned that one gigaton of emissions reductions from forests must be achieved by no later than 2025, and yearly after that, in order to keep the goals of Paris within reach.
Perhaps this is more a wish than a prediction – but we hope that this either/or narrative will decrease in 2023. We don’t need to promote one needed solution over another – and market predictions mean there’ll be enough financing and demand for all solutions as well. So in 2023, we are advocating for a more integrated approach; it’s the year for nature and tech.
In fact, “nature tech”, or the technologies that can accelerate the implementation of nature-based solutions at scale, will certainly see more focus on it in 2023. With a prediction for the sector to grow to over $6bn in less than a decade, expect to see tech and nature come together to help solve the intertwined climate and nature crises.
