Nature-based solutions are now attracting real capital, which flows to local groups.
Investors from afar can do stronger work at including, respecting, and empowering the indigenous organizations that execute projects.
This story summarizes leaders' concerns about the current partnership model, and ideas to fortify it.
In November 2022, a collaboration among scholars published the Land Gap Report, which found that many governments’ climate pledges will rely heavily on changes in land use for carbon removal. Countries and companies are indeed looking to restore forests and other ecosystems to offset carbon output, and forests, wetlands, peatlands and other ecosystems matter for solving humanity’s wicked challenge of mitigating climate change. These strategies, also known as nature-based climate solutions, work through different financial channels, one of which is voluntary carbon markets.
Briefly, nature-based carbon projects protect or restore ecosystems, like a tropical forest in Indonesia, and generate carbon credits based on the emissions avoided or sequestered. Typically, third-party developers put these projects together for implementation by local communities on the ground. The nature-based carbon credits are sold through voluntary carbon markets to companies who want the credits as offsets for emissions. These credits can thus generate revenue through conserving and enhancing ecosystems. But the market holds dangers.
What’s the issue?
The Land Gap Report also warned that conservation and restoration efforts should not adversely affect indigenous people and local communities (IPLCs). Voluntary carbon markets contain mechanisms to repel projects that undermine the rights and well-being of IPLCs and reward projects that are beneficial to IPLCs. For example, the Verra registry uses the Climate, Community and Biodiversity (CCB) Standards to assess the impacts of projects on IPLCs and biodiversity. Projects awarded with CCB Gold have a price premium. Yet, this model does not sufficiently emphasize the importance of engaging IPLCs to ensure the success of these nature-based carbon projects.
Effective engagement with IPLCs through partnerships and payment for performance helps ensure nature-based carbon projects deliver real and lasting climate benefits. A report by the Forest Declaration Assessment stated that restoring and protecting natural landscapes to fulfill the Paris Agreement will depend heavily on supporting IPLCs who manage these lands. Charlie Langan, the Africa Region Carbon Market Director for The Nature Conservancy (TNC), echoed this. In addition to robust carbon accounting (supply integrity) and responsible use of offsets (demand integrity), he calls empowering IPLCs the third key pillar for high-quality carbon credits.
But engaging IPLCs in nature-based carbon projects comes with challenges, including the need for effective consultation processes with IPLCs. “Consultation processes often are not landing with communities,” Langan told me. “Often, [communities] are still unsure about science and mechanics.” Consultation processes should also explain how sustained behavior changes for climate change mitigation could lead to income from carbon credit revenues.
However, another challenge lies in ensuring that revenues from nature-based carbon projects do not perpetuate existing inequities. Langan watches the massive influx of investors and capital with concern. He underlined how a relatively small portion of the climate financing for most nature-based carbon projects goes to IPLCs for climate action after much of it goes to intermediaries, like the project developer. “That is an inefficient allocation of capital and very exploitative,” he says. “At its core, [the capital is there] to generate financing for natural climate solutions and generate sustainable development, but if it isn’t doing those two things, then we are wasting our time.”
Allison Lewin flagged another challenge to bringing benefits to IPLCs. As the Director of Climate Partnerships in Asia-Pacific for TNC, Lewin explained the struggle to have carbon projects meet the needs of heterogeneous IPLCs’. “What positive social impact looks like varies across places and communities. It is hard to standardize how to design a successful project and how to measure and monitor progress for social impact.”
Furthermore, project developers need to be upfront about the funding needed to deliver a project with high social integrity. Lewin elaborated: “The costs of building the foundation and ownership of high-integrity projects need to be discussed and considered. There is a lot of demand for high-integrity projects but little understanding of what they actually cost. Doing what’s needed for integrity requires funding to clarify rights and to build local institutions.”
It might be challenging to address these obstacles, but project developers can play their part to ensure that nature-based carbon projects engage and benefit IPLCs. One approach, according to Lewin, is to build ownership. “It is about having conversations with IPLCs that will be key partners of the project and are going to be impacted by it. True partnership in project design ensures that projects are being set up to contribute and align with the aspirations and priorities of IPLCs,” she stressed.
What positive social impact looks like varies across places and communities. It is hard to standardize how to design a successful project and how to measure and monitor progress for social impact.
Lewin also underscored how working with IPLCs to develop institutions that can represent the interest of these communities, manage the project, and equitably allocate the benefits will be instrumental. Langan agreed, saying: “Local conservation groups often don’t have [excess] bandwidth to dig into understanding carbon markets, the requirements and risks, and how to develop carbon projects.” It is critical that projects develop such capacity in IPLCs.
To support project developers who proactively engage and empower IPLCs, different stakeholders in voluntary carbon markets are stepping up. For example, the Integrity Council for the Voluntary Carbon Market was formed in September 2021 to set and enforce global standards for nature-based carbon projects. Its members include experts from across the voluntary carbon market ecosystem including IPLCs, scientific institutions and policymakers.
Climate Impact X (CIX), a Singapore-based global carbon exchange and marketplace, has also staked a claim. CIX runs auctions to support projects that bring outstanding benefits to IPLCs. “When you bring a new type of credit to the market, the market is less sure about what the price should be. CIX spends time promoting the project and letting the project developer speak about the project at auctions. This increases the chance that the buyers understand the social benefits,” says CIX Chief Executive Officer Mikkel Larsen.
Jurisdictional approaches to carbon crediting might be another solution. In December 2022, the Architecture for REDD+ Transactions (ART) issued its first jurisdictional forestry carbon credits to Guyana for successfully preventing forest loss and degradation. In short, jurisdictional carbon credits are generated from nature-based carbon projects that are implemented at a much larger spatial scale – often a region of a country or even the country itself.
While there are several benefits to jurisdictional approaches to carbon crediting for climate change and IPLCs, Frances Seymour is clear-headed about the risks of these approaches to IPLCs. Seymour, who chairs the Board of Directors of the ART program, commented: “The jurisdictional approach certainly faces the same downside risks as the project scale approach. There is the risk that companies or project developers at local scale or governments at jurisdictional scale will fail to recognize the rights of IPLCs and appropriate their forest carbon and not share revenues with them.”
Fortunately, robust systems can ensure that IPLCs are consulted and uplifted in jurisdictional programs, according to Seymour who is also Distinguished Senior Fellow at the World Resources Institute and McCluskey Fellow in Conservation at the Yale School of the Environment. “To issue credits under the ART program, a government will have to follow the TREE Standards which breaks each of the Cancun safeguards into specific indicators. Compliance with the safeguards is verified by an independent auditor. There are pretty robust procedures and safeguards to make sure that IPLCs have been appropriately consulted and have participated in discussions related to benefit sharing.”
Overall, Seymour believes that jurisdictional approaches offer a distinct approach to engaging IPLCs. “The upside benefits of the jurisdictional scale is the opportunity to engage with governments who are motivated to engage in that discussion with IPLCs and the process of participatory consultation. Ultimately, jurisdictional scale crediting brings a framework for governments to do what only governments can do in terms of enforcing laws and recognizing rights. The question is whether the incentives are aligned for governments to use that power to make the IPLC communities better off or to dispossess them of the resources.”
The debate about the efficacy of nature-based carbon projects and voluntary carbon markets for climate change mitigation rages on. Despite the massive hurdles, Seymour remains optimistic and emphasized the need to recognize these markets as a transitional tool. “I don’t think anyone would argue that carbon market finance is the silver bullet for conservation. But it is, in my view, the best prospect for large-scale finance for forests that is currently feasible. For thirty or forty years, people have tried a lot of other things like eco-tourism and bioprospecting. At this particular moment, we have this demand from the corporate sector [for nature-based carbon credits] and that could potentially deliver significant finance at a critical moment in history when we know we have to end deforestation by the end of the decade.”
Larsen takes a down-to-earth attitude to how much carbon markets can serve IPLCs while fighting climate change. “We are in a carbon market, there are limits to how far that can take you. Because you are mainly paying for the carbon emissions, not the biodiversity or social benefits.” He calls for more robust quantitative methods to assess the social benefits to IPLCs. “We need better measurement attributes for social benefits.
How do we know which project has more social integrity? We can have binary tests but what we truly need is a measure that can compare how much money has gone into IPLCS across small to large projects. For example, my project built a school and your project built a school too. My project takes in much more money than yours, but we both built one school. Well, clearly you have done more with your money than I have with mine. It is hard for investors to figure out which projects are walking the talk.”
Ultimately, nature-based carbon projects and voluntary carbon markets that have high environmental and social integrity can support our grand goal of cutting emissions via systemic changes to our economies and societies. Ensuring that nature-based carbon projects have social integrity also entails a shift in the narrative on IPLCs. Seymour remarked: “There is a new discourse. IPLCs are saying: ‘We are interested in engaging in the carbon market on our terms, but don’t characterize us as passive victims that need to be safeguarded or passive beneficiaries who just sit around waiting for benefits. We want to be cast as protagonists and full partners in the design and implementation of activities that generate carbon credits.'"
The IPLCs’ call rings clearly. To bring about equitable development and sustained climate benefits, nature-based carbon projects need to involve IPLCs in the planning and implementing stages.