22 February 2022

Scale-up from project to national level beckons for REDD+

Nandita Lal

Carbon Markets Consultant

8min

REDD+ credits account for about 25%* of all carbon credits issued to date, a large subset of the voluntary carbon market. REDD+ can be financed at an individual project level or a national or sub-national government (“jurisdictional)” level. Although no such jurisdictional credits have been issued to date, COP26 showed scaling up to jurisdictional level is the way forward — writes Nandita Lal, Carbon Markets Consultant.

  • Pledges for jurisdictional REDD+ showed burgeoning demand, but immediate supply is still lacking.

  • Article 6.4 mechanism may or may not recognise project based REDD+ but jurisdictional approach likely to fit into Article 6.2’s “cooperative approach”.

  • Project-based REDD+ is here to stay in the near term, as the administrative steps to make Article 6.2 and 6.4 actually work are complex and will take time to implement.

Forests were in the limelight at COP26, with 140 countries pledging to halt deforestation by 2030 and a steep increase in results-based payments/finance (RBF) commitments by donor countries like Norway, the UK, and philanthropic foundations.

One of the main acronyms when discussing forests and the carbon markets is REDD+ or ‘Reducing Emissions from Deforestation and Forest Degradation”.

The “plus” refers to the added benefits of conservation and sustainable management of forests, and enhancement of forest carbon stocks.

REDD+ is a policy framework set up under the UN Framework Convention on Climate Change (UNFCCC), designed to provide payments to developing countries for protecting their forests.

The acronym has also been adopted in the voluntary carbon market (VCM) for avoided deforestation carbon credits. These are issued by the independent standard-setter Verra (previously known as VCS) and have been implemented at a local or project scale since the mid-2000s.

Until recently, the only type of REDD+ activity able to get VCM financing were individual projects. However, now VCM players are setting up frameworks to help governments access the VCM, to finance their efforts to reduce and avoid emissions from deforestation at a much larger, whole-jurisdiction scale. The key examples are Verra’s Jurisdictional and Nested REDD+ framework, and the Architecture for REDD+ Transactions (ART) group, which has developed The REDD+ Environmental Excellence Standard (TREES). No credits have been issued under either framework yet, but this looks set to change.

The LEAF coalition — a group of some of the largest corporate buyers of carbon credits, including Amazon and Delta, has committed to spending $1 billion through the TREES framework. This initiative was endorsed by John Kerry, US Presidential Envoy for Climate at the COP26.

Attention to jurisdictional-scale REDD+ has further increased with the finalisation of Article 6 at COP26; the jurisdictional approach is seen by many countries to better align with national reporting and accounting of emissions or NDCs (Nationally Determined Contributions) which are a long-term commitment under the Paris Agreement.

A jurisdictional approach can also arguably bring “transformational change at scale”. It better recognizes the role that governments at both the national and sub-national level can play in any realistic effort to protect forests, and reduce emissions.

REDD+ and the VCM

The voluntary carbon market’s main standard for REDD+ is Verra. Offsets issued by Verra are usually on a project or local basis. However, jurisdictional REDD+ demand has been growing recently.

There are about 82 projects that are registered under Verra’s key project-based REDD+ methodologies: VM0004**, VM0006, VM0007, VM0009 & VM0015 (activities eligible under the methodologies shown below). These have issued nearly 360 million credits till 2021. Additionally, there are 56 projects seeking registration under Verra. These projects are usually developed independently of the national or sub-national UNFCCC REDD+ framework.

The biggest REDD+ project by issuance on Verra is the Rimba Raya Biodiversity Project in Indonesia. Since its inception in 2009, the project has issued nearly 34 million carbon credits.

A project developer can use one or more of these methodologies to account for their REDD+ activity. The table below shows the main Verra methodologies that have been developed for the eligible REDD+ project activities.

The biggest projects by issuances using the above mentioned methodology are shown below:

The slow emergence of jurisdictional REDD+

Verra launched its JNR framework in 2012 for projects that wanted to look to scale up or “nest” to larger national or subnational frameworks and be part of future UNFCCC or other regulatory frameworks like (Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA)).The other main jurisdictional standard, ART, was launched in 2020.

The jurisdiction approach grew out of the conviction that project-based REDD+ will not scale, and will be unable to deliver significant reductions in the long term that is to align with the UNFCCC’s Paris Agreement.

The lack of supply of jurisdictional level credits have created “tension” in the VCM, given that no jurisdictional credits have been issued to date despite the promise of supply, meanwhile projects are typically less dependent on governments so can deliver against [independent] standards more quickly.

 

A brief history of the relationship of REDD+ to the UNFCCC and VCM

Visual: REDD+ definition established at COP16, Cancun, 2010.

ICAO (International Civil Aviation Organisation) CORSIA requires airlines to offset their international emissions that exceed 2019 levels (estimated by ICAO at 915 million tonnes of CO2) by purchasing carbon offsets or alternative (non-fossil) fuels.

Besides the expected reduction provided by the use of alternative fuels, CORSIA is fundamentally an offsetting scheme, allowing operators to use carbon credits to balance their emissions.

However, project based REDD+ was rejected by ICAO for CORSIA’s pilot phase on the grounds that it posed a threat of leakage — i.e. the prevention of deforestation in one area merely pushes the deforestation elsewhere in the country.

“Scenario 1” of Verra’s JNR framework which allows REDD+ projects to “nest” into a jurisdictional baseline without jurisdiction-level monitoring was also not approved by ICAO for CORSIA’s pilot phase for the same reason.

Jurisdictional approaches under Scenario 2 and 3 of VCS JNR and ART TREES were approved by ICAO in 2021 (Verra’s Scenarios in visual below).

In the past there has been more demand for project-level credits, and jurisdictional-level REDD+ has mostly received RBF from bilateral country deals or multilateral agencies like the Green Climate Fund (GCF). But now, especially with CORSIA’s eligibility criteria, credits from jurisdictional REDD+ are becoming more popular in the VCM.

 The table below summarises the relationship between different kinds of REDD+ finance available:

The challenges associated with transitioning towards a JNR REDD+ system are myriad. Projects operating at a JNR level risk losing accuracy as national data can be fragmented, duplicated or unaligned with multi-level governance challenges. Jurisdictional programs also face the risk of policy reversal that undermines forest protection activities.

Some corporate buyers may prefer to trade credits directly with project developers, or directly invest in projects, because they are not able or willing to assume the risk of government implementation failure.

 For some policy markers, climate finance or RBF is the way forward given the methodological issues that plague REDD+ credits.

Bringing it all together — REDD+, CORSIA and the Paris Agreement

Article 6 of the Paris Agreement — the carbon market rulebook — was finalised at COP26. BeZero Carbon has analysed this in detail — it was the last Article of Paris Agreement to be finalised due to its complexity.

The exact relation of Article 5 on forests (which was agreed in 2015) to Article 6 is not explicit and there is no consensus on linking REDD+ and Article 6. Article 5 transposes the Warsaw Framework on REDD+ (WRF) into the Paris Agreement. WRF, agreed in 2013, sets out rules and guidance for linking REDD+ to RBF. The main elements of WRF are shown below.

Article 6.4 and 6.2 of the Paris Agreement contain the key provisions for the carbon market. As a successor to the Kyoto Protocol’s Clean Development Mechanism (CDM), the text’s fourth passage establishes a centralised carbon market mechanism.

The infrastructure that Article 6.4 requires will be technically challenging to assemble and function. Nominations for the supervisory body established under A6.4 are currently ongoing. This body will decide on the methodologies and activities that will be eligible under this new mechanism.

If the host country decides to authorise internationally transferred mitigation outcomes (ITMOs) generated by Article 6.2 and Article 6.4 emission reductions (A6.4ERs), it will require a corresponding adjustment and can be used for “international mitigation purposes” understood to be international schemes like CORSIA.

Implementation guidance of Article 6.2 that defines criteria for ‘cooperative approaches’ and corresponding adjustments, and the rules and modalities for ‘Article 6.4 activities’ embrace all sectors and do not exclude any methodologies, thereby retracting the UN’s past exclusion of REDD+ activities under the CDM.

There is some uncertainty remaining however. Since Article 6 does not provide a definition of removals, reductions, or avoidance specifically, the full scope of any discussion around “avoidance ” and therefore, REDD+, will likely remain unknown until the next intersessional meeting in June 2022.

 

Conclusions:

COP26 showed that scaling up to the jurisdictional level is going to play a significant role REDD+ financing in the future. Supply of well-designed, robust jurisdiction-level credits for avoided deforestation will take time to develop — no such credits have been issued yet. But pledges by major corporations in the LEAF coalition at least show there is burgeoning demand.

Article 6.4 mechanism of the Paris Agreement may or may not recognise project based REDD+, awaiting more decisions at the UNFCCC this year. Many experts predict that the jurisdictional approach to REDD+ is headed for the cooperative approach under Article 6.2.

For the time being, project based REDD+ will continue to operate outside Article 6 as countries take time to operationalise Article 6.

*Total credits issued by the four main registries — Verra, Gold Standard, American Carbon Registry and Climate Action Reserve were 1.43 billion. Hence, REDD+ projects were 25% of the total issuances.

**VM0004 is under revision.

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