Barriers to Entry

5 Barriers to Entry in Nature-based Carbon Projects

Nature for Justice’s (N4J) experience with the request for nature-based carbon project proposals in Africa, which we are also contemplating in Canada with First Nations, has generated an enormous amount of interest. Despite the holiday period in the U.S., we received over 70 proposals by mid-January. While many proposals did not meet the requirements for a viable carbon project, at least 15 groups without prior experience in developing carbon projects but with a keen interest in using carbon financing to address climate change in a nature-based approach have met our standards. We provided feedback to the 55 applicants who did not qualify.

However, we often hear, “We can’t find good nature-based carbon projects.” Over the past year, we have learned that the answer is simple but has complex underpinnings.

N4J has witnessed that there are plenty of opportunities to co-create nature-based carbon projects if 5 barriers to entry can be overcome:

5 Barriers to Entry
1

Education Gap: At this early stage in the development of nature-based carbon projects, almost all the groups that approach us request a Carbon 101 primer. Our goal at this point is to co-create a project with them using carbon financing as a catalyst, leading to improved agricultural yields, biodiversity conservation, job creation, ecosystem services management, etc.

However, they need to understand the process and what is expected of them. At this point, it is essential to identify whether they have existing “trust networks”, meaning that the group or its leaders have worked in an area and gained the trust of local communities through a joint commitment to long-term quality-of-life programs in place to manage a high-risk, long-term project.

Solution: Start with the basics of the carbon market (what we call Carbon 101) as many groups do not understand what exactly the voluntary carbon market is trying to achieve. We walk through all the steps of a project including the timing and their role and responsibilities. Importantly, we expalin when the benefit sharing agreement will be negotiated and that N4J represents them and not the investor. This is the start of the co-creation process.

2

Lack of Relevant Expertise:  Estimating carbon sequestration rates requires a high degree of technical literacy and knowledge. In addition, managerial capabilities must be assessed and, as needed, enhanced. For carbon sequestration, it’s the positive change in the carbon capture rate that is secured and not replaced by emissions elsewhere that we seek. None of the groups we have worked with so far have that level of expertise.

SolutionWe work with the proponent to understand their capabilities and needs. It’s important to build capabilities from the start and not tack them on later. As needed, N4J accesses this expertise through our technical partners like Ostrom Climate and Cultivo which provide analytical services for our early-stage projects.   This focus on developing technical and managerial capacity differentiates us from the typical carbon developer and is a centerpiece of our value add.

3

Funding Gap: At T=0, proponents are just starting on their nature-based carbon project endeavor. However, this incubation stage is so uncertain that few investors are willing to put financing towards it. The gap is best filled through a blended finance approach BUT it’s really about “blended assets” — outsiders tend to disregard the natural capital assets that the locals are bringing to the table. Without those natural capital assets, there is no project.

Solution: The solution is to obtain grant financing, concessionary debt financing, or an equity investment with access to credits down the road to get a project started. Debt and equity financing have many risks. N4J acts as a bridge between financial resources and local communities. Part of the negotiation is making clear the natural capital contribution of the proponent.

4

Unfair Benefit Sharing: Many reports suggest that “carbon cowboys” exploit local communities through unfair benefit-sharing agreements. N4J was created to address these perceived inequities in benefit-sharing agreements that are developed with local project developers, who are using their natural capital as an investment vehicle. These local proponents are often intimidated by various parties such as financiers, large companies, teams of lawyers, and “friends” with a clear conflict of interest.

Solution: Benefit-sharing agreements can vary significantly based on the risks and benefits associated with a potential project. We believe that this goes beyond the contribution of financial assets and includes the natural capital asset that a community is proposing to use as the foundation for the project. For instance, we are developing a template in collaboration with the Conservation and Reconciliation Partnership in Canada that First Nations can use as a starting point for benefit-sharing agreements with a carbon project developer to ensure equitable benefit-sharing and adherence to best practices.

5

Complexity: Nature-based carbon projects go through different phases, and even issuing credits can take years. Adding to this complexity is our goal to not allow carbon to be the sole focus of a program. Carbon financing is the catalyst that enables better crops, jobs, improved health, biodiversity conservation, and increased resilience to natural disasters. Every project is different and we aspire to ensure that they are all coherent and deliver on the promises made.

Solution: N4J is committed to the long term success of the nature-based carbon projects we originate and steward, which necessitates our being laser-focused on bringing together the right partners and projects and co-creating projects with shared values and expectations. The decades-long experience of our leaders and staff is invaluable in helping us to find, co-create and orchestrate the symphony of actors it takes for such projects to succeed.

Summary

Barriers to Entry in Nature-based Carbon Projects

If the use of nature as a climate solution is going to live up to its promise we need to address these barriers in a timely and equitable manner. N4J’s niche in the carbon space is to help nature-based carbon project proponents navigate and overcome these barriers to entry, using a blended finance/blended asset model so that we can match them to the appropriate funder/investor and ensure successful project development.

Such an approach only works when local communities benefit and achieve resilience in the face of the changing climate. Through our combined endeavors, our work and that of our partners need to meet local expectations for both social justice and biodiversity protection and growth.

Thanks to Nicci Mander for her insights on this topic and her work to evaluate proposals for nature-based carbon projects using Multi-Criteria Decision Analysis.

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Authors

  • Hank Cauley

    An engineer who later got a business degree to achieve social and environmental justice through existing economic structures. He’s started or built many organizations and projects. Hank lives in Falls Church, VA, with his wife and is an avid bee-keeper.

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  • Nicci Mander

    Nicci Mander is N4J's Director, Africa Nature-based Solutions Program. She is an environmental scientist with over 25 years of experience working at the nexus of nature, climate change, and social justice across sub-Saharan Africa. She’s provided strategic-level advisory services and planning support to several African governments, as well as designed, developed, and managed the delivery of large-scale community and climate change-focused programs in both urban and rural settings.

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