New Briefing Paper: The failed promises of forest carbon finance

Despite repeated promises that carbon markets would deliver significant sums of money to help reduce emissions from deforestation, the carbon market has largely faltered.  The growth of the carbon market has stalled and de­clined in the past 12 months, with carbon recently de­clared the world’s worst performing commodity. The European Union Emissions Trading Scheme (EU-ETS) was forced to close the carbon spot market for several weeks this year following a carbon theft scandal.  The European Union remains the only signifi­cant cap and trade system in existence, accounting for 97 percent of the compliance market. As offsets for Reducing Emissions from Deforestation and Forest Degradation, or REDD, are currently excluded from the EU-ETS, there is no large-scale market for forest carbon credits.

Even as political interest in cap and trade is waning, the REDD policymaking community appears delightfully unaware.

Here in Durban, governments will be discussing financing options for REDD. (See here for recent Party submissions.) Unfortunately, much of the ongoing REDD policy development is oriented towards preparing developing countries to participate in a carbon market for REDD offset credits, including significant investment in emissions baselines and sophisticated measurement and verification pro­grams for carbon, at the expense of other more effective policies. Even worse, there is currently no car­bon market that accepts REDD credits for compliance purposes, and the likelihood of this occurring is grow­ing slimmer by the month. Carbon markets in Europe are in crisis, and the prospects for California quickly and easily accepting REDD credits are overstated by its proponents. In the absence of a compliance market, car­bon offset finance will not deliver the scale of financing anticipated. The continued emphasis therefore on pre­paring countries for a carbon market risks wasting bil­lions of dollars on unnecessary technical considerations.

Consultants — not governments or local communities — are well-poised to capitalize on requirements for highly technical carbon monitoring programs.  Intermediaries emerge as dominant agents in the offset value chain, and a substantial part of total flows of funds can be cap­tured by the intermediaries (validators, verifiers, regis­trars, commercialization agents and consultants) rather than by the governments or local communities engaged in the carbon reducing activity.  Currently, carbon accounting activities are consuming the lion’s share of REDD readiness budgets at the expense of other more beneficial activities.

Ultimately, the current focus on carbon market finance for REDD is neither feasible nor effective.  

There are simpler solutions that could actually deliver emissions reductions at scale in the near-term, and in­novative sources of finance that could be mobilized at the scale needed. Governments should focus their efforts on developing more efficient and implementable policy frameworks and incentives to halt global deforestation instead of relying on unworkable carbon offset approaches. 

For more information, please read our briefing paper reviewing the state of the existing forest carbon market and the costs and benefits of a carbon offset approach for developing countries, indigenous peoples and local communities.

And stay tuned for a new case study Friends of the Earth International will be releasing later this week.