Unless you’ve been sleeping under a rock for the past five years, you will have noticed the upsurge in forest carbon projects being scooped up by large corporates in an effort to improve their carbon balance sheets. Strategies range from the purchase of offsets from the voluntary carbon market, to insetting strategies (where corporations improve their emissions balance sheets by forest interventions at the base of their supply chains), to investments into nature-based solutions that yield carbon returns, financial returns, and a host of co-benefits.
This article looks at the main risks behind forest carbon strategies in the tropics which are largely steering corporate forest carbon decisions, and how these can be mitigated so that a corporation can achieve the climate impact it is after, a host of co-benefits, and the long-term sustainability of these.
Forest Carbon in the tropics
Forest carbon strategies have been operational in the tropics since at least the late 90’s, thanks to the Kyoto Protocol, which gave rise to the CDM (Climate Development Mechanism). The CDM was a way for industrialized nations to support climate smart development in developing geographies. This system has been criticized immensely for its high transaction costs, and lack of sustainability. Many of the early CDM projects lasted while the funds were flowing but, in many cases, failed in their long-term viability. However, it has been an important steppingstone with many lessons learned.
Voluntary carbon markets have also been progressing with forest projects in the tropics generating certified credits. Until recently, the majority of these have been in REDD+ (Reduced Emissions from deforestation and forest degradation) conservation projects, where now afforestation and reforestation projects are gaining in popularity. Tropical geographies are attractive for these forest carbon strategies for a host of reasons some of which include:
- High carbon sequestration rates for afforestation and reforestation in tropical climates because of favorable growth rates,
- Highly biodiverse intact natural forest sinks at extreme risk of deforestation that require funding mechanisms to protect them,
- Additionality factor – forest climate projects are much less likely to occur without forest carbon funds than they are in more developed geographies,
- Co-benefits – In addition to the climatic benefits, forest carbon strategies in the tropics are often associated with several social development benefits, such as poverty reduction, reduced inequality, and economic development.
The two primary approaches of forest carbon strategies
There are a several ways in which a forest carbon strategy can be woven together, but at the end of the day, there are two mechanisms at play: you either remove emissions from the atmosphere through growing more biomass that “breathes it in” and stores the carbon, OR you protect existing forests (carbon sinks) from emitting CO2 themselves via deforestation and forest degradation processes. These are further described below.
1. Emissions removals
The emission removals approach includes afforestation, reforestation, or improved forest management. Where trees are planted on areas not previously classified as forest, replanting a forest area after it has been cleared or degraded, or improving managed forests – where you can adjust the silvicultural regime to optimize for climate benefits. This could include activities such as planting a range of climate resilient species, extending the rotation length, or increasing resources devoted to fire management.
2. Avoided emissions
Avoiding emissions includes all activities that protect a forest from being cleared or degraded and releasing the CO2 that has been stored. This includes elements of improved forest management, but also any conservation interventions, where forest is prevented from being cleared by processes such as harvesting, fire, conversion to agriculture (either large scale commercial, or small-scale subsistence) or to some other land use.
How risks drive the strategy
From a technical perspective, so long as both the emission removals and avoided emissions approaches adhere to recognized methodologies for calculating the carbon impact, and demonstrate additionality, permanence and protection from leakage, they both have merit. Why then does there appear to be such a strong church for one approach over the other? This can be explained by understanding the risks that are elaborated on below.
1. Land tenure insecurity
Tropical developing geographies are often characterized by poorly defined and enforced tenure systems. Particularly a concern for afforestation and reforestation strategies, there is a danger for corporations engaging in these strategies facing the age-old risk of land-grabbing and being labelled as a “carbon cowboy”. Relevant for both buying credits from the voluntary market, and developing your own project, you need to understand the tenure situation, and be certain that the project(s) you support have tenure security and are not subject to land conflicts, which could later compromise your ownership of carbon credits, not to mention your reputation.
2. Competing land use
Growing trees versus growing food. In tropical geographies food security is often a prevailing challenge. Planting trees to store carbon instead of utilizing land to cultivate food presents a clear conflict. Responsible land use optimization would ensure that arable land is prioritized for growing crops (assuming storage, transport and market conditions are in place), while marginal land or degraded forest is earmarked for afforestation or reforestation. The tricky part is that marginal land and even land that is earmarked for forest production or protection is often used to grow agricultural crops by poor subsistence farmers in a very non-climate-friendly way. To avoid this, corporates may choose an avoided emissions strategy, where the competing land use concern is less visible.
3. Additionality, permanence & leakage
Although both emission removals and avoided emissions strategies are credible – if they adhere to recognized methodologies for calculating carbon impacts and address the required additionality, permanence, and leakage conditions – these elements pose reputational risk for both strategies. Additionality can be difficult to demonstrate in cases of avoided deforestation or forest degradation, where planting trees is much more obvious. The very word “permanence” suggests something infinite, yet recognized methodologies require that the emission removal or avoided emission strategies are in place for a certain number of years (often between 20-50). Preventing leakage is especially challenging, when you consider that to a large extent, you can not control what happens on land that you do not manage. How can you be sure that by protecting one forest, another is not being cleared, or that restoring the forest cover of a degraded forest will not provoke forest degradation elsewhere?
4. Integrating commercial objectives
For corporate climate strategies, integrating commercial objectives in the tropics with forest-linked nature-based solutions has been known to ruffle some feathers. This is of course different from insetting strategies, where there is a direct commercial interest for a business to employ a forest climate strategy (such as tropical, commodity-based businesses – like coffee and cocoa). However, in many offset strategies, there is a common aversion to linking up with forest carbon projects that have a commercial interest (whether that be for timber, pulp/paper, bioenergy, or other wood products). From my experience, this risk stems from the concerns that the forest company will optimize the forest crop for its commercial viability over climate objectives. Here the fear of the corporation is of sponsoring vast areas of monoculture, water-demanding species selection, biodiversity loss, poor climate resilience, short rotation lengths, social exploitation, and soil depletion.
5. Reputational risk
In my view, reputational risk is one of the biggest perceived risks of corporations when defining a forest carbon strategy in the tropics, encompassing all the other risk elements. No one talks about it publicly, but it is there, lurking in the shadows like the proverbial elephant in the room. It can be the single biggest factor dictating a forest carbon strategy. Forest carbon projects in the tropics have received enough negative media attention to make corporations think twice about engaging in a forest carbon strategy in the tropics. It should not prevent them, but it should encourage a deep strategic approach and more thoughtful due diligence.
Produce and protect your way to carbon credits, co-benefits and risk mitigation
Appropriately designed forest carbon strategies in the tropics are among the most impactful approaches that a corporation can take to improve its carbon profile. However, the risks above are real. This does not mean that inaction and avoidance of forest carbon strategies in the tropics is the solution. Responsible financing of forest carbon strategies in the tropics IS the solution, to the root cause of significant sources of greenhouse gas emissions and climate change. It takes time to develop the appropriate strategy, and carry out the required due diligence to source suitable projects. However, if fear prevents action, climate change will accelerate and the negative effects will be exacerbated, loss of globally important commodities, mass migration, biodiversity loss, and so on.
Responsible businesses in carbon strategies are a key success factor
I am a strong advocate for the produce & protect model. That is a forest carbon strategy that incorporates elements of production (whether that is for forest, agriculture, or aquaculture products) and protection (conservation and restoration of natural ecosystems).
In my opinion, forest carbon projects that are only viable if there are carbon funds flowing are not sustainable. Planting trees for the sake of planting trees is not going to ensure that they are managed to reach their expected climate impact. Protecting forest by paying people with carbon funds not to encroach is not a “permanent” solution. By integrating a forest carbon strategy with sustainable business, a win-win scenario can be achieved. The advantages of partnering with the private sector can address risk elements in the following ways:
Tenure
Work with a company that has already addressed tenure security issues and has good relationships with neighbouring communities and governments surrounding tenure and other issues, such as avoidance of corruption.
Competing land use
Work with a company where there is opportunity (secure tenure and openness) to optimize various land uses. For example, a forest company that is willing to allocate part of its designated land to climate-smart agriculture production, and forest conservation.
Additionality, permanence & leakage
Work with a company where there is opportunity to execute forest carbon interventions that are not within their business plan, but where the enabling environment has been supported by them (i.e. tenure security, managerial and technical expertise and support, positive stakeholder relationships). Tap into the long-time horizon capabilities (funding, technical resources) of sustainable businesses, often not available through pure public or NGO-led programs. Avoid leakage through working with a company with track record in an area, that understands the leakage risks in an area and thus has insight as to how to address them.
Integrating commercial objectives
Maintaining long-term climate objectives require a self-sustaining economic backbone. However, as a forest carbon partner, you want to be sure that forest climate objectives will not be forsaken for commercial objectives. This is why you often see a strong carbon partner coming in with an equity stake into a commercial forest business. The carbon partner is not only buying the carbon benefits and the assets, but they are buying into the decision-making authority of how the forest will be managed. In a well-managed project, there is opportunity for both climate and commercial objectives to be met.
Reputational risk
Avoid negative headlines and attract positive ones. This starts with a sound strategy that is technically robust and encompasses a strong underlying knowledge of both the geographic context where your strategy will be implemented, and the company and other partners you plan to engage.
Sourcing high quality produce & protect models
If you like the sound of a produce & protect model in the tropics that will fulfil your organization’s forest climate strategy at the same time as generating a variety of co-benefits (such as sustainable livelihoods, biodiversity protection and enhancement), while cooperating with a responsible business partner, please reach out. I am happy to help you with your strategy and source high quality projects that will enable you to realize your climate objectives.
