Despite the recent press slamming certain types of carbon credit projects, demand for high quality Nature-based Solution (NbS) voluntary carbon credits continues to grow. Independent groups like the Integrity Council for Voluntary Carbon Markets (ICVCM) are defining integrity through their Core Carbon Principles (CCPs) and we strongly endorse them. As Nature For Justice (N4J) develops NbS projects with local organizations in Africa and in Canada with Indigenous Governments, we are committed to ensuring that our projects meet the requirements for CCP that include governance, emissions impact, and relevant sustainable development outcomes. N4J’s goal is an A+ rating across the board from carbon credit rating groups like Calyx Global.
Throughout our engagements with investors, standards bodies, project developers and other stakeholders working towards responsible growth of the voluntary carbon market, we constantly hear about the difficulties that poorly designed Nature-based Solutions projects are creating. Irresponsible practices undermine the integrity and rapid development of this high-potential market. Certain projects, including some initiated prior to the establishment of comprehensive carbon standards and credit verification systems, have adversely affected the credibility of the voluntary carbon market, which leads to uncertainty, and the potential to diminish the value of voluntary carbon credits. As an organization deeply embedded with local communities across Africa and Canada, it has become clear to us that this is a highly nuanced problem rooted, to a large degree, in inadequate investment in the early stages of carbon project development.
While it’s easy to be critical of projects that don’t demonstrate excellence, the reality is that developing high-integrity Nature-based Solutions projects, that align with the CCPs and which are also attractive to commercial investors, is a complex endeavor. In our experience, all the following must align for a project to qualify as investable with high integrity:
- A project landscape that has the biophysical and bioclimatic potential for sufficient “additional” carbon gains to make project investments financially feasible (“sufficient” means that the market price of carbon is enough to cover the cost of unlocking the additional carbon).
- Access to land with clearly defined ownership/title and carbon rights, and which is deemed “eligible” for a carbon project. Projects should serve to strengthen or enhance the land rights of local people, especially marginalized groups, and not in any way undermine them. In the Canadian context, large land areas are available, but there remains a challenge for many Indigenous Governments’ Jurisdiction to their Traditional Territories on Crown lands.
- Local co-benefits that are aligned with the Sustainable Development Goals and are sufficiently meaningful to incentivize long-term community commitment to the project. Carbon prices may improve but will always be variable, and meaningful co-benefits are a key ingredient to enhance project permanence.
- Stable, high-integrity carbon standards and methodologies that are applicable to the project should be employed.
- Local implementing partners with strong community and landowner trust networks and adequate organizational, financial, and technical capacity (even at a foundational level) are necessary to guarantee successful project outcomes.
- Communities/landowners committed to the project, based on a robust Free, Prior and Informed Consent (FPIC) process.
- Social stability, natural disaster risk, and other predictable risks are within reasonable bounds.
In addition to the above, a favorable government policy context that offers long term political and legislative policy stability must be considered. In the Africa context, assessing this context and working with national governments is a core strength of N4J.
There are consequences for embracing the approach as laid out above: This includes potential lower issuance volumes, more complex negotiations on the long-term dedication of land to better management, fair and transparent benefit sharing agreements, and strict monitoring over time. All of this can present real dilemmas at current carbon prices in the voluntary market.
The bottom line is that finding good shovel-ready NbS projects is not easy, and shaping opportunities with good potential is seldom smooth sailing. The risk of obstacles is high, particularly when aiming for integrity and not skimming over uncomfortable details. But it is only through such high integrity projects that prices will increase.
When commercial funding is used to design and develop NbS projects there is an inherent risk of unequal attention being given to financial feasibility over proper testing of carbon additionality, making sure the project has the social license to operate and ecological safeguards, or “climate justice additionality” as we have defined it. The unfortunate reality is that whilst the market price of voluntary carbon credits remains relatively low, carbon project developers will continue to find it difficult to thoroughly de-risk early-stage project development. Yet without adequate investment in a proper project design upfront, the overall quality of carbon credit projects will suffer.
This is why we believe that a blended financing approach can play an important role in enhancing integrity in NbS carbon markets; and why if NbS markets are going to develop to their full potential, we all need the help of grant and philanthropic funding to demonstrate successful models of high integrity NbS that others can learn from and replicate.
Action Needed
To establish high-integrity, bankable NbS projects, there is a great deal of early-stage work needed in robust project design and development. To meet the demand for high-integrity NbS carbon credits, we believe there is a need for grant or concessionary financing in the earliest stages to develop project portfolios that are viable, scalable, and that de-risk long term investment. This grant or patient capital to develop the portfolio is NOT expected to meet the overall needs of a project but needs to be enough to ensure that the seven criteria above have been met. The process can take many months before a project design document can be completed. We estimate that a $5 million up-front investment in developing a high-integrity NbS portfolio, would result in 6-8 projects attracting $130 million to $360 million of private capital. This model is also scalable at a country or regional level.
In summary, our work to de-risk projects and build capacity of project implementers, using a blended finance model, is essential for the development of shovel-ready, investment-ready, high-quality projects that meet the CCPs. We ultimately want to get to a point where an investment in an NbS project offers competitive returns, acceptable risk, benefits to local people and a significant contribution to reducing carbon in the atmosphere.
