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How we can integrate natural climate solutions to create long-term impacts

Changes to carbon market rules governing natural climate solutions can galvanize the green transition, argues Verra's former CEO. Read More

(Updated on July 25, 2024)
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This is the fourth article in a six-part series examining how carbon markets can catalyze the transition to a green economy, creating a new paradigm for carbon finance. Previous articles in this series describe reimagining carbon markets, a new model for additionality and government intervention.

The new paradigm for carbon finance, designed around ensuring long-term transitions of sectors of the global economy, is ideal for natural climate solutions (NCS) such as forest conservation and restoration, agroforestry and regenerative agriculture because many of these can shift to sustainable economic models. To date, carbon markets have channeled significant funding to habitat protection and restoration, highlighting nature’s crucial role in climate solutions. These interventions could be explicitly designed to lay the groundwork for a sustainable economy, especially when considered as part of an integrated package.

However, certain carbon market rules hinder broader, transformative interventions. Current project and issuance approval rules, which require a separate approval for each distinct intervention, prevent the integration of complementary activities across broader landscapes, limiting the potential for more comprehensive and impactful climate actions. I therefore propose changes to the rules governing NCS in carbon markets to facilitate the broader transition needed for a sustainable future. These proposed changes aim to unlock the full potential of NCS by allowing for integrated solutions that can drive greater climate action and achieve more substantial environmental benefits.

Enhancing carbon market rules for integrated NCS

To enable more successful interventions across broader landscapes, carbon market rules for NCS projects need updating. Integrating various NCS solutions into a single project is currently difficult, leading projects to focus on single activities even though they could complement one another. 

Take for example forest conservation projects, which could expand to sustainably reforest nearby degraded areas and promote agroforestry. This would seed sustainable economic development while strengthening the buffer zone around the protected forest. It is common knowledge that limited economic development gives rise to forest destruction; why not use the revenues generated through the sale of carbon credits that protect forests to support efforts by those communities to build sustainable economic models?

There are a number of reasons for integrating both avoidance and removals credits within a broader landscape approach, especially because doing so would enhance projects’ likelihood of long-term success.

  • Complementary carbon finance: Revenues from avoidance (quickly generated) and removals (longer-term) complement each other, allowing for a sophisticated revenue model that supports long-term resiliency.
  • Additional revenue streams: Sustainable forest and agricultural products that meet emerging sustainability standards can generate additional revenues, ensuring economic sustainability beyond carbon credits.
  • Resilient business models: Diversified revenue sources (carbon and non-carbon) create further resilience for project interventions, thereby reducing dependency on a single income source.
  • Supporting the transition: Integrating various NCS activities can establish the foundation for sustainable development across entire landscapes. Rather than making incremental, piecemeal investments in limited project opportunities, an integrated NCS approach would enable  significant investments in future businesses such as tree nurseries, processing facilities and cooperatives.
  • Higher market prices: Projects that support long-term transitions could command higher prices, attracting buyers who value long-term investments in sustainable regions.

A crucial aspect of ensuring carbon finance contributes effectively to the overall transition is recognizing that removal activities are better suited for generating alternative income sources, which are essential for creating long-term value.

The power of positive tipping points (PTPs)

Identifying viable business models for NCS activities highlights the potential of using PTPs for determining additionality, as discussed in the second story in this series. Specifically, early carbon credit support for ventures such as processing facilities and tree nurseries could nurture a sustainable ecosystem that in the future will not rely on or need carbon credits. This transformation has the potential to attract robust investments, overcome existing market constraints and drive widespread adoption of sustainable practices, leading these sectors toward long-term resilience and profitability.

This model has potential links to jurisdictional approaches, although it differs in that it relies on private entities for deploying the initial capital and essentially taking the risk. The fact that this model also relies on the development of sustainable business models suggests it is critical to have the private sector involved. 

At the same time, government participation, as outlined in the third story in this series, remains crucial, especially for the long-term protection of critical habitats where a business model simply does not work. Integrating these ideas into jurisdictional programs could enhance their effectiveness, creating opportunities for nesting individual projects within broader jurisdictional efforts.

A better way to address permanence

While the market has developed useful ways to address the risk of reversals, including the development of innovative insurance tools (Oka’s Carbon Protect insurance policy, Kita’s Buffer Insurance policy), there is more the market can do to ensure the long-term permanence of NCS. Transitioning to a model that seeds sustainable business practices across entire landscapes reduces the risk that reversals will occur in the first place. 

Constructing an ecosystem around the production of sustainable agriculture and forest products would promote sustainable practices across the entire landscape and minimize the risk that any individual participants would abandon the approach. Importantly, if designed properly around a robust PTP, early carbon finance would drive the transition of the entire sector. Such a model could generate significantly more climate impact than what would be paid for through the sale of carbon credits.  

Strengthening both supply and demand

Overcoming methodological and carbon accounting challenges is crucial, and doing so could establish a robust platform for creating high-quality credits and addressing concerns about permanence. Applying the transitional framework to carbon finance offers significant opportunities to protect and restore vital ecosystems for the long term.

Additionally, applying this framework to NCS would likely boost demand for high-quality credits by enhancing the credibility of claims buyers can make. Investments in transformative NCS activities could eliminate the need to track supply chain emissions to individual producers, particularly benefiting consumer goods and food companies in the Agriculture, Forestry, and Other Land Use (AFOLU) sector, where emissions are notoriously hard to identify and mitigate. This approach could shift the debate from compensating for unabated emissions to a more thoughtful strategy for driving sustainable agricultural and forest practices at scale.

The next installment in this series will explore how the transitional paradigm for carbon markets could drive the energy transition.

David Antonioli is a net-zero transition consultant and was the CEO of Verra until June 2023. The topic of natural climate solutions is addressed in greater detail in Chapter 4 of his recently released report Financing the Transitions the World Needs; Towards a New Paradigm for Carbon Markets.

[Discover what it will take to deploy climate tech at scale. Join over 6,000 leaders from across functions, industries and sectors at VERGE 24, Oct. 29-31, San Jose, California.]

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