Nurturing the payment plan for forest carbon

11 November 2017

Roberta Iley, climate-smart agriculture and deforestation specialist, PwC

The natural disasters of 2017 have been sobering.  Hurricanes Irma and Maria left a path of destruction across the Caribbean and Florida; floods left a third of Bangladesh under water; and a severe drought in Somalia left 2.9 million people in need of emergency food aid.

‘Natural’ disaster is increasingly becoming a misnomer. The latest science highlights the increasing risk of extreme weather events with climate change.

We have been crunching the numbers on the extent to which countries are decarbonising their energy systems and economies as part of global efforts to tackle climate change.  While our annual Low Carbon Economy Index revealed a clear step-change in the carbon intensity of the global economy (2.6% reduction in 2016), average country progress falls well below the 6.3% annual reductions needed to limit warming to two degrees.  Widespread carbon sequestration outside the energy system is likely to be necessary to address this gap given the reality of current emissions trends in power, transport, buildings and industry.

A recent study offers some hope on the solutions available.  It highlighted that reforestation, protecting peatlands and managing soils and grasslands could help to prevent the equivalent carbon emissions to those emitted by China’s fossil fuel use.  ‘Nature Climate Solutions’, as they have been dubbed, provide a natural carbon capture and storage opportunity and bring many other co-benefits for helping to manage the risks from climate change. 

In this context, attention is returning once again to the potential of ‘REDD+’ (reducing emissions from deforestation and degradation) approaches. 

The idea of REDD+ is simple: those that benefit from the carbon emissions saved should channel money to countries who would otherwise benefit more in the short-term from cutting the forest down.  However, REDD+ has not taken off in the way it was first envisaged and less than $3bn has been deposited in REDD+ funds out of the estimated US$17-33bn per year  needed to halve forest emissions

Turning the simple concept of REDD+ into a workable mechanism has been challenging.

Organisations that are piloting payments for the REDD+ emissions reductions have each come up with slightly different frameworks for assessing and accounting for REDD+ efforts.  For example, the Forest Carbon Partnership Fund and the Green Climate Fund (GCF) – the primary vehicle for climate finance under the UNFCCC – have both established their own scorecards for assessing REDD+ programmes.

With the evolution of these highly varying standards; initial examples of inexperience and malpractice; as well as the complexity of the mechanism, REDD+ has attracted considerable criticism and many people have been discouraged from investing. 

But REDD+ is far from dead.

The GCF recently approved a $500m pilot programme for REDD+ ‘results-based’ payments.  And the International Civil Aviation Organisation (ICAO) is considering whether it will accept REDD+ credits as offsets for airlines.  REDD+ now needs to re-gain trust amongst investors to make sure that these opportunities are realised and can be scaled up.

As PwC points out in a recent paper with the Climate Knowledge Development Network, Building trust in forest carbon payments (REDD+), lessons can be learned from the world of finance.  Investor confidence is key to the successful functioning of the traditional, financial markets and PwC believes that the strict principles that have emerged for financial accounting can now be applied to help strengthen, harmonise and communicate REDD+ efforts.

These efforts will help to attract private investors back to REDD+ and to reduce the burden on REDD+ countries and programme developers who are grappling with how to comply with different frameworks.

A recent letter signed by prominent scientists and diplomats, including UN climate chief Christiana Figueres, warns that action is needed in the next three years to prevent irreversible climate thresholds being breached.  We need to see an urgent, global effort with the public and private sectors coming together to take forest carbon finance to a new scale. Building trust in forest carbon payments offers up a first step for reinstating REDD+ as a key solution.

If you would like to find out more about this topic, click on the link below to download the working paper.

Download REDD+_Building trust in forest carbon payments