Peru-Singapore agreement under Article 6 may support Peru REDD+ trading: market

The recent implementation agreement under Article 6 of the Paris Agreement between Singapore and Peru could support the carbon credit market in Peru by establishing a framework to trade carbon credits or Internationally Transferred Mitigation Outcomes, buyers told Platts, part of S&P Global Commodity Insights.

The agreement, which went into effect Oct. 18, may energize the carbon market through bilateral agreements, a nature-based avoidance developer said, adding that Singapore selected the Kowen Antami REDD+ Project in Peru as one of three projects for transaction.

Following the agreement's implementation, there is anticipation among market players that market activity -- including project development and trades -- would increase, a climate finance adviser said. The adviser pointed to Peru's current model wherein the government tenders the co-management of protected natural areas, allowing the implementation of carbon projects to generate management revenue.

However, the lack of defined accounting guidelines and procedures for tracking ITMOs in Peru may challenge the market, the developer said, adding that Peru's Ministry of Environment is expected to establish these guidelines soon.

Since 2021, carbon credit issuances in Peru have decreased significantly, which market players have attributed to the transition to jurisdictional REDD+ projects in Peru.

CORSIA credit approval requires guidelines

The approval of credits for Carbon Offsetting and Reduction Scheme for International Aviation, or CORSIA, are unlikely to move forward without clear guidelines from Peru's Ministry of Environment, according to a Peru-based developer.

"Although energy efficiency credits have been authorized under CORSIA, no credits for nature-based solutions have been approved yet," the developer added.

According to the developer, offers of eligible CORSIA projects in Peru are currently limited due to numerous requirements, including the small volume limit for REDD+ projects set at 7,000 metric tons by the International Civil Aviation Organization.

Additionally, buyers may be reluctant to pay the premiums associated with developing smaller REDD+ projects, the developer noted.

The Platts Nature-based Avoidance South America Current Year price was assessed at $6.75/mtCO2e unchanged on the day on Oct. 20. The price has fallen more than 15% since Platts launched the assessment on June 2, when it stood at $5.85/mtCO2e.

CORSIA, overseen by the International Civil Aviation Organization, aims to curb greenhouse gas emissions from global air travel. It targets roughly 80% of the aviation sector's yearly emissions.

Transition to VM0048 remains a challenge

Outside of the Article 6 framework, as projects attempt to migrate to Verra's Reducing Emissions from Deforestation and Forest Degradation (VM0048) framework, Verra's national risk mapping is under review by stakeholders, the same developer said.

National risk mapping refers to deforestation risks maps that will be used as baseline for REDD+ projects, which are are included in the VM0048 associated module, named VMD0055 Avoided Unplanned Deforestation.

"Previously, projects that have calculated a very high risk of deforestation have not been very successful, [as] some REDD+ projects were overestimating issuances," the climate finance advisor said. "Now, with the updated Verra's risk map the credits will be significantly reduced with high risk, and as a result, many projects will no longer be able to operate because they are no longer profitable.", considering that less credits issuances will translate in less income for developers.

The VM0048 framework is designed to reduce emissions from deforestation and forest degradation and is intended to be used with the VMD0055 module, which estimates emission reductions from avoiding unplanned deforestation, according to Verra.

"We know that these maps matter, not just for project proponents, but for communities relying on carbon finance. That is why we are committed to getting them right," a Verra spokesperson told Platts via email. "The Peru maps are not final and are still open for public comment. We encourage honest feedback from all stakeholders."