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Jurisdictional REDD+, high-impact carbon projects fighting to bloom

  • Featuring
  • Silvia Favasuli
  • Commodity
  • Electric Power Energy Transition
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Demand for jurisdictional REDD+ projects appear to be growing worldwide, underpinned by the need of local government to economically support their forest protection efforts as well as by a wave of increasing demand for high-quality emissions reductions and voluntary carbon credits.

But several challenges are slowing their rise.

REDD+ stands for Reducing Emissions from Deforestation and Forest Degradation, and encompasses all activities aimed at protecting forests from deforestation. Jurisdictional projects are a peculiar type of REDD+.

While players in voluntary carbon markets have become very familiar with standalone REDD+ projects, such as privately-led initiatives aimed to protect endangered and relatively smaller slices of forests, jurisdictional REDD+ remains a mystery to some.

Jurisdictional REDD+ is spread on an entire local government area or jurisdiction – think of the Amazonas state in Brazil or California in the US – with a single reference baseline or reference level of deforestation.

The baseline defines what would happen to a chosen project area in the absence of protection activities and it is identified by looking at averages of deforestation in a reference area over the past years. Once the baseline is identified, a certifier calculates the mitigation impact of the carbon project and issues an equivalent number of either emissions reductions or voluntary carbon credits.

Jurisdictional REDD+ require the involvement of the local government, which can play different roles on a case by case basis.

Both standalone REDD+ and jurisdictional REDD+ rely on carbon finance to exist. They do so either by issuing carbon credits on the voluntary carbon markets or through result-based payments, under which a developer receives a compensation for their mitigation efforts after proving to have achieved set forest protection results.

Under result-based payments, once the results are achieved, the developer can issue emissions reduction credits, which are then purchased by an end-buyer – either a private company or another state. These credits are usually at a capped price agreed at the time of project launch. The end-buyer usually has to retire those emissions reduction immediately, although some methodologies allow the buyer to resell them in the secondary market with some limitations.

The advantages

Advocates find jurisdictional REDD+ projects more efficient given the following factors:

  • They provide a stronger guarantee against the problem of leakage, or when deforestation moves from a protected area to a nearby, not yet protected, part of the forest
  • They are can ensure the protection of forestry projects against natural calamities like fires or pests through proper project coordination with governments
  • They can help with poverty alleviation, with proceeds of the projects being shared with communities living in the forests

Challenges

Despite the benefits, jurisdictional REDD+ have struggled to pick up.

In July 2021, Mozambique became the first country in the world to receive payment from the World Bank Forest Carbon Partnership Facility trust fund for reducing emissions from deforestation and forest degradation in its Zambézia province.

According to World Bank data, Mozambique received a payment of $6.4 million dollars for reducing 1.28 million tons of carbon emissions since 2019. This was the first of four payments under the country's Emission Reductions Payment Agreement with the FCPF, World Bank's methodology framework for jurisdictional REDD+.

The World Bank methodology sets a $5/mtCO2e capped price for the Emission Reductions Credits issued by the project as well as upfront payments, helping the host country with capacity building and technical assistance.

But so far Mozambique remains the only implemented jurisdictional REDD+ globally.

While others are in the making, both under the World Bank FCPF methodology and under other already existing methodologies, hurdles are holding back many willing local authorities.

It's a chicken-and-egg situation.

"It takes a huge amount of political will for a country to take action, but if there are no guarantees to have finance, a state would not even start," Emergent Vice President - Markets Bryan McCann said. Emergent is an NGO that acts as a link between countries with tropical forests and entities in the private sector that wants to support emissions reduction through forest protection.

On the other hand, an investor would not commit to buy credits from a jurisdictional project or to upfront payments until a government guarantees the long-term existence of a project.

With governments remaining in place for only four to six years, this is a challenging promise to make, says Manuel Estrada, director for REDD+ and Agriculture Forestry and Other Land Use at project certifier Verra.

"We are talking about projects that should last 30 years, and it's hard to get this level of commitment," Estrada said.

At a March gathering in Manaus, Brazil, representatives of countries taking part in the Governors' Climate and Forests Task Force were clear at reinstating their commitment towards forestry protection, said GCF project director Jason Gray.

"We saw great interest from governments in understanding more about available financing options including both result-based payments and voluntary carbon credits, as well as the methodologies," Gray said. But, he added, "the reality on the ground is still that funds haven't flowed yet substantially to the jurisdictions."

The GCF Task Force unites 39 local states from several nations in the world, from Latin America to Asia and Europe. It was created in 2008 when then-Governor Arnold Schwarzenneger of California met with nine other governors from the US, Brazil and Indonesia to find solutions against climate change. Today, the task force offers support to states interested in finding programs to protect tropical forests.

Many of the jurisdictions that are members of the GCF Task Force have developed programs to reduce deforestation. While some have applied the existing methodologies, according to Gray, projects have never managed to reach the stage where substantial payments can flow in exchange for credits.

A coalition of buyers

Gray observed at the Manaus meeting how the hopes of GFC Task Force governors had improved after noticing increased voluntary carbon market activities in 2021 as well as the high commitments made by private and public entities through a US NGO called the Lowering Emissions by Accelerating Forest finance (LEAF) Coalition.

The LEAF Coalition is a group of buyers ranging from some of the world's largest private companies like Amazon, Airbnb, BlackRock to name a few, and governments like the UK and Norway.

The coalition was created in April 2021 to collect financing from buyers interested in purchasing emission reductions issued by yet to be created jurisdictional projects operating under result-based payment methodologies. Between April 1 and the start of November 2021, the LEAF coalition collected $1 billion from a total of 19 buyers.

The coalition partnered with Architecture for REDD+, a US-based certifier of carbon projects, which is providing the Art TREES methodology used to set up the jurisdictional REDD+ credits from where the LEAF partners will be purchasing credits.

But to unlock the chicken-and-egg situation, another step had to be taken: the creation of a society in charge of dealing with financial transactions between buyers of emission reductions (LEAF partners) and the local states issuing the reductions. This is where Emergent comes in.

"[Before the creation of LEAF] there was enormous amount of political will and expertise, but the missing link was finance," Emergent's McCann said.

Emergent established a $10/mtCO2e capped price for emissions reduction that will be issued by jurisdictional projects developed under the LEAF Coalition program. This price was determined when REDD+ credits from standalone projects were trading below that level.

Since the market of standalone REDD+ credits has evolved fast and prices have risen above the $10/mtCO2e mark, McCann said Emergent would not exclude the possibility of adjusting the capped price in line with movements in the voluntary carbon market in the future. This will ensure that jurisdictional projects remain competitive against standalone REDD+.

With the $1-billion funding in place, LEAF and Emergent launched a call for proposals to any eligible jurisdiction. There are currently 23 jurisdictions eligible for transaction and five of those have signed a letter of intent with Emergent, McCann said.

Of those states, Guyana has already submitted the requirements to begin validation and verification, said Christina Magerkurth, managing director at Architecture for REDD+ Transactions.

Magerkurth added that the process is expected to be completed in 2022, suggesting that the first issuance of emission reductions under the Art TREES methodology could happen as early as this year.

Market-based projects lagging behind

While the LEAF Coalition seems to have managed to unlock the bottlenecks through the use of result-based and upfront payments, things are proceeding a bit slower for players keen to work with market-based methodologies.

A jurisdictional REDD+ developed with a market-based methodology would see the issuance of voluntary carbon credits which will be sold to end-buyers or to intermediaries and which will be allowed to be traded in the secondary market. Rather than relying on a capped price agreed ahead of the project launch, these projects would be exposed to market oscillations.

According to Verra's Estrada, the market risk involved in the trade of voluntary carbon credits is keeping governors away from jurisdictional market-based methodologies. Verra launched one as far back as 2012, and it still has no applicants.

"The idea of having a government acting in the market as a broker is kind of novel," Estrada said. "You'd need someone in the government making decisions on how much to sell, at which price… It's a weird situation for a government to be in."

When deciding to set up a jurisdictional project, some upfront money would be needed to cover initial expenses and market-based mechanisms do not include an upfront payment so far.

"We need to figure out a way to give governments upfront money to set up programs," Estrada said.

Hopes remain high

Attracted by the possibility to secure large volumes of high-quality credits from jurisdictional REDD+, some private brokerage agencies are reaching out to governments and offering to help with bureaucracy and upfront capital, Estrada said.

The partnerships would mirror mechanics already seen in the voluntary carbon markets, where brokers or end buyers reach out to small local developers offering help with the initial financing needed to set up a project in exchange for forward delivery of credits.

Brokers are also offering an additional service: marketing of the spot credits generated by the project during its lifespan, which would help public administrations deal with supply and demand dynamics they may not too be familiar with, Estrada said.

He added that brokers expect voluntary carbon credits issued by jurisdictional REDD+ to trade at premium prices compared to standalone REDD+ given the projects' higher integrity in dealing with leakage issues and the higher impact expected from projects of this magnitude.