Climate finance options for forests are proliferating – but which ones can help countries reduce greenhouse gas emission at scale? There is a need and an opportunity for countries to learn from each other on using climate finance to support their development objectives. To provide a forum for exchange, the FAO and the Ministry of Agriculture, Forestry and Fisheries of Japan (MAFF) jointly ran a Climate Finance Seminar series “Opportunities and challenges associated with emerging carbon finance in forestry and land use.” Thirty-four countries from Asia, Latin America and Africa participated in the exchange and eleven countries shared specific insights.

The complex landscape of climate finance options

Countries have a variety of ways to access climate finance for forests. But designing an approach to accessing climate finance that is ‘right’ for a country’s objectives and context requires much strategic thinking, as well as a willingness to make some tough choices.

For countries that have already reduced their forest emissions – or those that plan to achieve emission reductions in the future – the climate finance options for forests are diverse. Some countries are working to access publicly financed results-based payments that support efforts to achieve mitigation commitments under their nationally determined contributions (NDCs) under the Paris Agreement: for example, through the Forest Carbon Partnership Facility’s Carbon Fund, the REDD Early Movers programme and the Green Climate Fund.

In addition, multi-national corporations are increasingly investing in mitigation activities in forestry and land use- under the VCS, the Gold Standard and otherwise. In some, but not all, cases, sold emission reductions can no longer be counted towards countries’ NDC targets. ICAO’s CORSIA now accepts several standards that also cover land use. Finally, negotiations surrounding the Paris Agreement’s Article 6 are ongoing, which could create new markets for emission reductions.

With so many climate finance options on the table, it is easy to get confused. The standards’ requirements differ and thereby fit country circumstances to different degrees. The technical specifications on forest monitoring differ. The ability to count emission reductions against NDCs depend on the use of emission reductions by their buyers. Only some of the climate finance options target governments, while others chiefly target the private sector directly. Country contexts differ hugely – and their REDD+ efforts are at different stages. Unclear pricing and demand volumes for different types of climate finance make it difficult for countries to assess which might yield the greatest financing streams, and whether it is worthwhile to invest in meeting the specific requirements.

Strategic considerations for countries

The FAO/MAFF Climate Finance Seminar brought out recurrent themes in country approaches to climate finance that are ‘right’ for their objectives and context. Three of the most prominent considerations were the following. (Also summarized in an Issue Brief for session #4 of the seminar series.)

How can countries pursue domestic targets (potentially with results-based payments) and also sell international offsets? One of the key issues to be considered when contemplating climate finance opportunities is how a country’s NDC targets and commitments are affected. There are cases, where accepting international climate finance could trigger a so-called ‘corresponding adjustment’, for example when emission reductions are destined for use by ICAO’s CORSIA or under Article 6. The transacted emission reductions could then no longer be counted against the host country’s mitigation targets. During the seminar, one presenter explained that their view of such corresponding adjustments depend on how the country’s NDC refers to the international support from international climate finance.

What role should be given to projects regarding country efforts to reduce emissions from forests? Carbon projects may be contributing to reduced emissions in diverse landscapes. Governments could work with the private sector to integrate such projects into government-led jurisdictional programmes, sharing benefits of jurisdictional REDD+, or projects may access international carbon markets directly. Several countries have hybrid schemes that give projects access to international carbon markets through nesting arrangements. The seminar discussion highlighted these several alternative approaches to working with carbon projects.

Which carbon standards should be used for verifying jurisdictional / national emission reductions? Not only are there various climate finance opportunities available to countries, but there is also a growing number of carbon standards available for selling emission reductions as offsets - or for accessing results-based payments. For jurisdictional programmes, there is the ART/TREES or Verra’s VCS JNR. Several countries are also working with the FCPF Carbon Fund or have proposed programmes to the GCF results-based payment programme that is based off UNFCCC reporting. Not only do these standards give access to different kinds of climate finance opportunities, but they also have different technical and regulatory requirements. Interventions during the seminar generally reflected pragmatism on the choice of standards, and countries mostly expressed an interest to explore all options and possibly several options in parallel – since so far no one ‘best’ standard has emerged.

Country circumstances and the approaches to using forest climate finance

Country approaches to accessing climate finance are as diverse as countries’ legal context, mitigation policy, forest governance, technical capacity and the types of international REDD+ readiness support received. The FAO/MAFF Climate Finance Seminar included dedicated sessions for three aspects of such country approaches.

Forest monitoring. Country presentations highlighted that their forest monitoring systems differ in their ability to reduce uncertainty, in their scope and in the degree of spatial and temporal detail. (See the Issue Brief for session #1.)

Countries explained how their forest monitoring was designed to meet technical requirements of carbon standards. For example, the GCF pilot programme for results-based payments is largely based on country reporting to the UNFCCC. However, accessing the Carbon Fund, or participating in ART/TREES or VCS JNR will require more sophisticated measurement, reporting and verification.

Moreover, several country cases illustrated the key importance of spatial detail in forest monitoring systems. Where such spatial detail is available it can enable performance-based benefit sharing and “nesting” arrangements for private-sector led carbon projects.

Carbon rights. Countries’ legal setup around carbon rights, and who holds them, differs and determines their access to climate finance. (See the Issue Brief for session #2.)

Several presentations explained the arrangements countries make to secure and transfer title in emission reductions. Such title transfer is a requirement of several carbon standards, especially those that do not exclude the use of emission reductions for offsetting, such as ART/TREES or VCS JNR. During the discussion, it was mentioned that some countries’ governments are challenged to prove ownership of emission reduction title, limiting their ability to comply with legal requirements of some standards.

Moreover, country cases highlighted that, who owns the rights of carbon (whether government, landowners, concessionaires or others) determines incentive approaches for private sector engagement and benefit sharing. For example, in one country, strong private sector interest to access international carbon markets through carbon projects is also rooted in landowners’ carbon rights.

Role of the private sector. Track records on carbon project development differ among countries. Greater or smaller numbers of projects may be under development or already selling carbon credits, creating more or less momentum that could provide an important component for countries’ mitigation efforts. (See the Issue Brief for session #3.)

One country explained that a significant portfolio of successful carbon projects had built up. Making arrangements to enable their continued access to international carbon markets through a “nesting” setup was the most obvious course of action.

However, another country case highlighted how this was not seen as necessary because of an active and successful incentive scheme for private landowners. This incentive scheme provides the means to integrate the private sector into jurisdictional-level activities and define which benefit/compensation landowners receive.

Need for country learning on climate finance

In sum, countries that successfully reduce emissions from forests have options to access climate finance to support their mitigation efforts. When pursing climate finance, countries must make a number of decisions regarding the sale of offsets, the role to give to private sector-led projects and the types of carbon standards to use. Such country choices will closely reflect country circumstances – among other things on forest monitoring, legal context, and private sector momentum.

With some aspects of country approaches to climate finance, there is a degree of convergence, with others there is less. For example, in most countries, forest monitoring systems develop around the growing quality requirements of carbon standards. For example, approval processes for private-sector led carbon projects have similar components. However, the context of forest tenure and, directly related to this, carbon rights, greatly differs between countries and will continue shaping approaches to climate finance in diverging ways.

Several countries have already collected valuable experience in accessing climate finance. The most successful mitigation efforts often used finance from multiple sources and at multiple levels and used one coherent framework for forest monitoring, carbon rights and private sector engagement. As climate finance finally becomes more accessible to countries, the FAO/MAFF Climate Finance Seminar series made only a start in disseminating these experiences, and much more outreach is needed for countries to learn from each other. Further, more effort is also needed for the carbon standards and the sources of climate finance to closely consider country circumstances and thereby facilitate climate action at scale.

For more information, please contact:

Till Neeff

Carbon Finance Expert

REDD+/National Forest Monitoring Cluster

FAO Forestry Division

[email protected] 

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