UN Carbon Trading: Promise and Peril for Tropical Forests

Suriname’s recently announced plans to sell carbon credits under the Paris Agreement’s emissions trading system have been met with both applause and skepticism by climate experts. The South American country will rely on its massive forests for the credits, which it intends to trade as so-called internationally transferable mitigation outcomes (ITMOs) under a system that has yet to be finalized. But while ITMOs are meant to help boost climate change mitigation and also be a win-win for the countries involved, some experts worry they could foster yet another market for “hot air.”

Forests absorb nearly a third of all anthropogenic greenhouse gas emissions and lock away twice as much carbon as is currently accessible across all coal, oil and gas reserves. As the world’s biggest terrestrial carbon sinks, forests play a critical part in limiting global warming to 1.5° Celsius (2.7° Fahrenheit) above pre-industrial levels, alongside efforts to cut CO2 emissions.

About 93% of Suriname is covered by forests — part of what makes it one of just a few dozen carbon-negative nations, according to data from the United Nations Framework Convention on Climate Change (UNFCCC). This means the country absorbs more carbon than it emits. Like many forested nations in the Global South, Suriname faces challenges accessing climate finance that it says would allow it to continue being a carbon sink and help reach the goals of the Paris Agreement.

Under the Paris Agreement, countries submit plans, known as nationally determined contributions (NDCs), that outline their actions to reduce emissions or increase carbon sequestration. Under Article 6 of the agreement, countries can cooperate on a voluntary basis and trade emissions to achieve their climate goals.

Some emissions trading under Article 6 has been piloted in the form of decentralized, multilateral agreements. Separately, carbon-related projects have begun to provide credits to private companies and individuals through voluntary markets. But a more centralized market, the provisions of which are laid out in paragraph 6.4 of the Paris Agreement, is currently being finalized. A supervisory body tasked with ironing out the details will present these plans at the COP28 climate summit in Dubai that starts Nov. 30, paving the way for the large-scale implementation of emission reductions trading by 2024.

Suriname’s plan is to convert its REDD+ results into ITMOs. REDD+ is short for reducing deforestation and forest degradation in developing countries, with the plus sign adding a focus on climate-related sustainable forest management. As envisioned by the UNFCCC, the scheme requires countries to develop a national strategy to reduce deforestation, boost forest conservation and implement a national forest monitoring system.

Based on UNFCCC data in 2021, Suriname has reduced emissions from deforestation by the equivalent of 4.8 million metric tons of CO2. It plans to sell this volume that would otherwise have been emitted for $30 per metric ton to raise $144 million that would finance activities to further halt deforestation. Honduras and Belize have also declared they will trade their REDD+ results under Article 6.

Trading with controversy
Several experts have raised concerns about translating REDD+ results into ITMOs and what that could mean for carbon trading accuracy, which has come under fire recently.

“There can be an overestimation of emissions reductions, and there are issues with permanence and forest carbon accounting,” said Jonathan Crook, an expert on global carbon markets at Carbon Market Watch, an independent watchdog. “We have seen on the voluntary carbon market, and that’s the risk that could happen again under Article 6.”

But as opposed to the voluntary carbon market, REDD+ results have been verified by the U.N., which means they are primed to be under Article 6, said Kevin Conrad, executive director of the Coalition for Rainforest Nations, which helps countries implement national REDD+ strategies and access funding for their results. The UNFCCC REDD+ program was meant to incentivize countries to stop deforestation and then pay them for that reduction, called “results-based payments.”

“REDD+ mechanism’s job was to verify results,” Conrad said.

Not everyone agrees. The debate over whether REDD+ should be included in carbon markets has a long history and is far from settled. “REDD+ is results-based payment system. But it’s not, and it wasn’t designed as a carbon crediting system,” Crook said. There are fundamental challenges in trading emissions from land-based sources like forest carbon that are almost impossible to overcome, he said. Measuring and monitoring forest carbon is much more difficult, resource-intensive and imprecise than measuring carbon from other sectors like transport or manufacturing. Forests also have different life spans than fossil fuel emissions, making conversions difficult to calculate. And forests can easily burn, get degraded or cleared for cattle pastures. Accounting for what happens retroactively to credits that have been issued needs to be better defined, Crook told Mongabay.

The critique hits on an overarching concern that the new emissions trading system under the Paris Agreement could go the same way as its predecessor. The U.N.’s Kyoto Protocol scheme for trading emissions, the Clean Development Mechanism (CDM), aimed to channel much-needed climate finance to developing nations, but scientists have heavily criticized it for failing to create any real emissions reductions and generating human rights abuses.

“CDM had a lot of credibility problems,” said Scott Vaughan, senior fellow at the International Institute for Sustainable Development. One study found that almost 75% of CDM credits generated between 2013 and 2020 were unlikely to provide “real, measurable and additional emission reductions.” CDM projects have also been called out for impinging on human rights. “Green” projects like dams and coal-fired power plants financed through the CDM have displaced Indigenous peoples and local communities from Guatemala to India. CDM projects were also supposed to funnel climate finance to developing countries. But a Carbon Brief analysis of UNFCCC data shows that China, India, South Korea and Brazil have issued in total 81% of CDM credits, while some of the world’s poorest countries have been left out. African nations have issued just 1%.

But Vaughan said CDM projects have provided valuable lessons. “We are not trying to improve the CDM. We are trying to say we will learn from mistakes and … figure out a new mechanism that meets high integrity,” he told Mongabay.

Some provisions in Article 6 promise to avoid issues like double counting credits. For example, national governments must authorize all ITMOs and then deduct them from their national inventories so that only one country will count them.

But ultimately, Article 6 says little about the quality of ITMOs.

“Article 6 is a very broad framework, and there are some general requirements that are meant to be fulfilled, such as the requirement that ITMOs are supposed to be real, verifiable, and additional,” Crook said. It’s still largely up to the countries to decide whether credits are sufficiently high quality.

A REDD+ confusion
At last year’s COP27 climate summit, a group of countries from Latin America, the EU and island states expressed concern that an explicit REDD+ mention in Article 6, without technical details, could lead to the inclusion of low-quality results because of the uncertainties around forest carbon accounting.

Some of this concern comes from rising critiques of voluntary carbon markets, which are dominated by forestry credits. (The voluntary market confusingly labels its projects as REDD+ even though they’re not the same thing as UNFCCC REDD+ strategies.)

REDD+ forestry carbon offsets certified by Verra and other organizations in the voluntary carbon market have been labeled “junk” or “hot air” because of carbon-market design flaws that mean they don’t represent real emissions reductions. Projects have been dogged by allegations of land conflicts, human rights abuses, hampering conservation and boosting the use of fossil fuels and pollution. Selling forestry credits on the voluntary carbon market is contributing to “net-zero greenwashing” by countries and companies due to a lack of “standards, regulations and rigor,” a U.N. report stated.

Conrad, an advocate of the U.N.-backed REDD+ program, said he agrees with many of these critiques, but pointed out there are fundamental differences between UNFCCC-verified REDD+ programs and voluntary market REDD+ projects.

“Let’s be clear about this. There are a whole host of people who are selling credits that don’t do anything for the atmosphere,” Conrad said. Many of the forestry credits on the voluntary market deal with avoidance — the idea that an implemented activity stops a forest from being chopped down. Several reports have found that these credits are ultimately worthless. Their authors conclude that many seriously overestimate their positive impacts for the climate, or worse, they amount to phantom credits that are made up entirely.

What makes the U.N.-backed REDD+ framework unique, Conrad said, is the emphasis on forestry as a whole sector. Critics of voluntary carbon markets have shown that projects will often cherry-pick areas with high deforestation to compare to areas protected through carbon credit schemes in order to inflate estimates of how much deforestation they reduce.

Countrywide REDD+ programs, in comparison, have to balance the rate of deforestation with how much carbon forests are sequestering in an entire country or subregion. To address inherent uncertainties in forest carbon accounting, REDD+ results are also extremely conservative, Conrad told Mongabay.

But even with these safeguards in place, many point to the mixed results from REDD+ activities and the long-standing critiques about how results are ultimately calculated.

Whether REDD+ results will be able to be used as ITMOs depends largely on the demand, said Crook. “I think there’s a lot of skepticism about how reliable the assessments are and the levels of emissions that have been reduced or avoided,” he said. “There’s a lot of countries that are very skeptical of using these results towards their NDCs.”

A funding gap
Part of the push to include REDD+ in Article 6 might also stem from the difficulties and major gaps in financing, especially for tropical forests, said Vaughan. While experts disagree on how or whether to include them in emissions trading systems, all of them agree that keeping forests intact is absolutely vital to achieving the goals laid out in the Paris Agreement. Yet the mechanisms — and money — to actually reward countries for reducing deforestation have stalled.

The U.N. Green Climate Fund (GCF), operational since 2015, has been one of the largest providers of results-based payments from REDD+ activities, but has struggled to both raise and allocate funding. The Amazon Fund, with $720 million of approved projects, remains the largest dedicated REDD+ fund. In 2009, wealthy nations pledged to mobilize $100 billion in climate finance per year by 2020, but fell $17 billion short.

“I think a lot of developing countries are saying, if $100 billion isn’t coming, then what do we have that could entice investment to our countries, including private sector investment?” Vaughan said. Proponents of the voluntary carbon market say one of its benefits has been to channel private funding into forest conservation as government-led initiatives have largely become bogged down.

If more money isn’t provided for stopping deforestation, countries with large forests that are struggling to develop will go elsewhere, with disastrous consequences for some of the world’s largest carbon sinks, Conrad said. He pointed to his own country, Papua New Guinea, home to the world’s fourth-largest rainforest. The country reduced its emission by 54% over five years, developed a robust REDD+ strategy, and submitted the results. But it has yet to receive a penny for any of its emissions cuts.

“And guess what? Emissions are going back up,” Conrad said.

Aki Kachi, climate finance and markets expert at the New Climate Institute, a German NGO, said that while climate finance is insufficient, it’s unclear whether Article 6 would even deliver the long-awaited support that forested countries need. “It is still very controversial to be using REDD+ in carbon markets. It’s a false promise that it’s a robust and reliable source of climate finance, and I think it is questionable whether that is the appropriate mechanism,” he said. “With droughts and floods and the spread of invasive species, we just cannot guarantee that a ton of carbon in a tree will be there in five or 10 or 15 or 20 years. It’s just not possible,” he said, adding there are better ways to address deforestation, such as focusing on supply chains, due diligence, and dietary changes.

COP28 will also conclude the first Global Stocktake, an evaluation of nations’ progress toward the Paris Agreement goals. The findings will highlight a dangerous gap between what has been done so far and what is actually needed to remain below the 1.5°C threshold. Some experts say the conclusions of the stocktake may further cement growing skepticism about carbon markets in general. “We’re still far away from a real consensus about how much of a contribution [Article 6] can and should make,” Kachi said. “It was very important to a lot of countries in the lead-up to Paris. I think it’s become less important to a lot of countries since then.”