Forest carbon credits have long been perceived as riskier and less robust than carbon credits from other sectors. When operating details of the Kyoto Protocol’s Clean Development Mechanism (CDM) were negotiated from 2001-2003, many voiced concerns about forest carbon credits and their high risk of reversals, potential to displace emissions, and the difficulties in accurately quantifying emission reductions. As a result, only limited types of forest activities became eligible under the CDM. Forests were also kept out of the European Union’s Emission Trading Scheme.
Nearly two decades on, it is worthwhile to reconsider the question of whether or not forest mitigation could be ready for carbon markets. The question is back on the table as the International Civil Aviation Organization (ICAO) sets up a scheme for reducing emissions from international air travel.
The Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) is an emissions mitigation scheme covering the global aviation industry. Among other things, it will require airlines to reduce or offset emissions from international flights to keep net emissions at 2020 levels. A technical body set up by ICAO is currently evaluating which greenhouse gas (GHG) “standards” will be eligible to provide carbon credits for offsetting purposes.
To inform decision makers for CORSIA, we have analyzed the most significant GHG standards that issue forest carbon credits, testing them against CORSIA’s eligibility criteria, including Verra’s Verified Carbon Standard (VCS), the World Bank’s Forest Carbon Partnership Facility (FCPF) Carbon Fund, and the Warsaw Framework for REDD+. We focused on five key criteria that directly impact the GHG integrity of carbon credits: reference level or baseline establishment, additionality, quantification, permanence, and leakage management. You can find our assessment here.
We conclude that forest projects, or jurisdictional REDD+ programs, should not all be thrown into one basket: just as in other sectors, certain project types are of higher quality than others. And certain GHG standards are better tailored to manage and regulate forest-related risks than others.
Setting a crediting baseline: A crediting baseline represents a benchmark level of emissions that a project or program needs to outperform in order to issue carbon credits. For many types of mitigation activities, setting reliable baselines is the most important factor in generating robust carbon credits, and is also the most challenging task. As a counterfactual scenario, it requires making assumptions about expected business-as-usual future trends.
This is true for both forest and non-forest projects. Setting baselines for avoided deforestation projects tends to be more challenging than setting baselines for other project types (including other forest project types). The drivers of deforestation and pressures on forests are particularly hard to predict. Our analysis suggests that current methodologies for avoided deforestation baselines can sometimes (but not always) lead to hot air. New approaches to “nest” REDD+ projects into a jurisdictional crediting baseline can help promote more robust crediting levels. Project-based programs, such as the VCS, are in the process of developing nesting rules.
Jurisdictional forest standards also differ in how they determine reference levels. The FCPF Carbon Fund mandates the use of a historical and conservative reference level. The Warsaw Framework for REDD+ offers little guidance on how to set a reference level, resulting in high variability in the quality of forest reference levels. It also does not have requirements for baseline revisions, allowing countries to decide when they wish to revise their forest reference levels.
Ensuring additionality: Determining additionality is closely linked to the baseline setting. Most GHG standards require the application of additionality tests that confirm a project is not already required by law, is not financially viable without income from carbon crediting, or common practice.
Here, forest carbon projects usually fare better than other types of projects. Because forest protection in many tropical countries is weak, budgets for forest protection small, and economic incentives for deforestation abound, many avoided deforestation projects are clearly additional. In the case of jurisdictional programs, additionality is often assumed to be reflected in a conservative reference level—although VCS Jurisdictional and Nested REDD (JNR) and the FCPF Carbon Fund have further requirements, such as demonstrating new policies or actions have taken place.
Conversely, for certain types of renewable energy projects located in emerging economies (e.g. large solar and wind projects), financial, technological and political barriers have significantly reduced. As these projects also generate revenues from sources other than the sale of carbon credits, demonstrating additionality is much more challenging. Gaming of additionality with dubious rates of return was an issue for some of these projects. However, many GHG standards have worked towards closing loopholes for non-additional projects.
Quantification and verification: Quantification, monitoring, reporting and verification is needed to measure the number of carbon credits that a project or program can have issued. For non-forest projects, GHG standards tend to require conservative approaches in estimating carbon credits, setting limits on how much uncertainty is allowed and mandating third-party verification.
The relatively greater complexity of estimating GHGs from forests means, in some instances, higher uncertainty in quantifying carbon credits. Improving the accuracy of measurements in the case of forest projects may be achieved through, for example, increasing the number of forest plots measured or using higher-quality satellite data. This is, however, much more challenging for larger-scale jurisdictional programs and not always cost-effective or even possible.
Our analysis suggests there is a need to carefully scrutinize forest carbon methodologies to ensure a robust estimation of uncertainty. It also questions the relaxed approach of several GHG standards that appear to allow high uncertainty when crediting jurisdictional forest carbon programs.
Ensuring permanence: There is always the risk that mitigation benefits of a project or program are reversed (e.g. a restored forest burns or is cleared for agriculture). Forest carbon credits carry a higher potential risk of non-permanence than non-forest credits. Most GHG standards make use of buffer accounts to manage this risk.
The VCS requires forest projects or programs to deposit a certain quantity of credits into a pooled buffer account, which is to be used to offset any reversal. The number of credits to be placed in reserve is based on an analysis of the likelihood of a reversal, specific to each project or program. To date, the buffer approach has been successful—there have been few reversals and there is a glut of reserve carbon credits in buffer pools. Verra suggests even reversals that may occur due to the recent Amazon fires would be well covered by the buffer.
However, there is no experience yet on the effectiveness of buffer reserves for jurisdictional crediting. The necessarily smaller number of jurisdictional programs (relative to the high number and variability of projects) may constrain effective risk-balancing. Furthermore, other GHG standards, like the Warsaw Framework for REDD+, do not yet offer any particular approach to deal with non-permanence, merely stating that REDD+ should promote and support actions to address the risk of reversals.
Accounting for leakage: Leakage describes the displacement of emissions (e.g. a forest is protected in the project area but cleared somewhere else). Almost every mitigation activity carries with it a risk of leakage. Forest project activities have varying risks of leakage. Some have inherently low leakage risk, such as forest management projects that do not reduce the amount of production. By contrast, REDD projects that address highly mobile deforestation agents (e.g. commercial agriculture) causing forest loss can have high leakage risks.
All project-based programs require leakage prevention in project design, quantification of residual leakage, and deduction from overall emission reductions once the project is up and running. The FCPF Carbon Fund or the Warsaw Framework for REDD+ do not quantify or deduct for leakage risks, with the argument that larger accounting areas should not have to do so. By contrast, the VCS does require such accounting for leakage, even for their jurisdictional programs.
For offsets to be market-ready, a tonne of GHG reduction from forestry mitigation must be as good as a tonne of GHG reduction from any other sector. GHG standards need to ensure a credible baseline, quantify and deduct for residual leakage, have in place a robust buffer reserve, guarantee permanence of emission reductions and include provisions for robust quantification of emission reductions.
While stand-alone avoided deforestation projects are prone to baseline inflation, robust carbon credits could be expected to come from nested REDD+ projects – where private-sector led projects are embedded into a conservative jurisdictional program. Forest management projects and tree planting projects are also good options to deliver credible carbon credits. Jurisdictional programs could also deliver robust carbon credits – if (and this is an important ‘if’) – a set of adjustments are made; such as to guarantee necessary corrections for unavoidable leakage or estimation errors.
We are hoping for a careful yet positive decision with regards to forests under CORSIA. It would be a pity if forests were left out yet again. They offer an important piece of the solution to climate change, and can also play an important role under CORSIA.
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