News | Aug 2022
This article is written by Maria Antonova, Nature-Based Solutions Associate Programme Officer at UNEP-WCMC, who has recently completed an internship as part of the Endangered Landscapes Programme-funded ‘Understanding Voluntary Carbon Markets’ project.
2015 was a pivotal year for climate and biodiversity issues, with many countries signing up to the Paris Agreement – and the clock has been ticking ever since. To avoid impending climate catastrophe, the global economy must rapidly decarbonise, cut emissions, and achieve carbon neutrality.
As such, we are hearing more and more about companies pledging to meet “net zero” targets, and marketing their “carbon neutral” products. Much of the work towards achieving net zero and negating carbon emissions must be achieved by cutting emissions; avoiding and reducing practices which rely on fossil fuels, and shifting to alternative energy sources. Any remaining unavoidable emissions can then be “offset” by purchasing “carbon credits” on voluntary carbon markets from projects that sequester carbon by growing forests, prevent emissions, or physically remove carbon from the atmosphere.
Voluntary carbon markets have enjoyed explosive growth over recent years, exceeding $1 billion in trade last year, according to Ecosystem Marketplace. Some estimates suggest this is just the beginning and that carbon markets need to grow by a factor of 15 by 2030 if we are to get on track to cap global warming at 1.5C. Companies are particularly interested in high-quality, or “charismatic” credits generated by projects that provide socioeconomic or biodiversity benefits in addition to carbon sequestration and tell a story that appeals to the public. This makes ambitious landscape restoration projects, such as those supported by the ELP, particularly well-positioned to offer credits in this market as they deliver a wealth of biodiversity, climate and socioeconomic benefits.
Although carbon financing offers great potential for funding ecosystem restoration in Europe, in reality it is not so simple. As Jeremy Roberts, Programme Manager for the ELP-funded Cairngorms Connect project puts it, carbon markets can be difficult to navigate: “We need carbon for dummies because the language can be impenetrable. We need to understand the terms of engagement with carbon traders, there is no point going into it ‘blind’,.”.
So, what makes entering voluntary carbon markets so challenging? For one, tradeable carbon credits are issued by various carbon standards and schemes: entities that provide methodologies for calculating how well certain activities, for example, restoring peatlands, can sequester carbon. Projects need to follow these methodologies to estimate the net carbon gain over the course of many years and calculate how that would differ from a scenario without rewetting. This analysis work is expensive, and the numbers then need to be certified and verified so that buyers of these credits can claim their “offsets” with confidence and avoid a publicity disaster. And there are many standards and methodologies out there – Europe’s carbon finance landscape is almost as varied as its natural landscapes! The complexity and required time commitment for conservationists whose time is often already stretched thin can be prohibitive.
The project Understanding Voluntary Carbon Markets, supported by an ELP Advancing and Applying Knowledge Grant, aims to make the sector more accessible by providing information and guidance about carbon standards and schemes that can be used by restoration projects in Europe. This work has led to several important insights.
Firstly, there are industry leaders among the global carbon standards, namely VCS and Gold Standard, which have certified thousands of projects across the world. However, almost none of the land-based projects have been in Europe. There are several reasons for this, says Barbara Promberger, Co-Founder and Director of Foundation Conservation Carpathia – who leads an ELP-funded project in Romania’s Carpathian Mountains. Labour costs are high in Europe, while carbon prices have been low, so selling carbon didn’t cover the costs of investment into the certification and verification in the past, she explains. In addition, because of fragmented ownership and mosaic landscapes, projects in Europe tend to be small.
To generate enough carbon credits, “restoration projects have to have at least 1,000 hectares to become viable” Promberger says. That is starting to change as carbon prices are hitting all-time highs this year. Some European restoration projects are trailblazing on the carbon market, and many more will follow.
Secondly, because of the unique challenges for the carbon market in Europe, some countries have endorsed national and regional carbon schemes that provide opportunities for smaller projects to sell carbon credits to European buyers at a higher price. These schemes are often backed by national governments and can capitalise on the fact that European companies prefer to buy carbon credits at home rather than on a different continent. So, Dutch companies can purchase credits from projects certified with the Dutch National Carbon Market Foundation, while in France, companies look to projects on the registry of Label Bas Carbone (Low carbon label).
Thirdly, the carbon standard landscape in Europe is evolving rapidly and new standards are in the pipeline, which means there will be more opportunities to generate income from carbon for restoration of various landscapes. In the UK, a saltmarsh standard to quantify blue carbon is under development, for example. In addition, there is a search for a robust way to quantify soil carbon in agricultural landscapes. Branded “carbon farming”, schemes to reward farmers for switching to regenerative practices are multiplying. For mosaic landscapes of those ELP Restoration Landscapes where some areas are used for grazing by local communities, this may be another pot to draw from.
Despite these growing opportunities, carbon finance remains a challenge for nature organisations, and while demand for carbon credits is skyrocketing, most projects in Europe are simply not ready to sell these carbon credits.
Two key intertwined issues are land access and carbon rights, said Timon Rutten, Head of Enterprise at Rewilding Europe. Accessing and aggregating sufficient land for a project can be complex and time consuming, and often results in the project being carried out on land with multiple owners. Once land is secured, there is still the issue of the carbon rights: who owns them and how to split the income across owners. This is why initiating projects is incredibly complicated. Projects also need to determine who they are willing to sell credits to, on what terms, and to be ready when companies approach them.
Despite the challenges, many nature organisations agree that additional finance from selling carbon is a great opportunity to continue and expand landscape restoration efforts.
“Two years ago, we were hardly looking at the carbon market, purely focusing on nature restoration,” Rutten said. “But now we see carbon finance as an opportunity to scale up our efforts.”
To find out more about this project, please visit the Understanding Voluntary Carbon Markets project page.