Forest finance expected to advance under new TREES standard and LEAF Coalition

A new version of a tool to measure forest carbon credits, TREES 2.0, was published last month. It includes novel avenues for measuring carbon storage and purports to bring clarity to the manner in which small-scale carbon projects may be incorporated into landscape-level programs. Backers say they hope that this development — along with the stimulus of the LEAF Coalition that launched in April 2021 with pledges upward of $1 billion for forests — means that after a long and frustrating journey, the puzzle pieces are finally coming together for large-scale forest finance.

But neither of these initiatives is without its critics in a field that is among the most controversial in the global effort to do something about climate change.

Projects and jurisdictions

Since its inception, REDD+ has been bedeviled by controversy. Much of the debate has been about whether the real solution lies at the level of jurisdictions or projects. That is, the field is more or less split between those who argue that large national or state jurisdictions are the most appropriate partners for assessment and disbursement, and those who argue that local communities directly matched with private buyers of carbon credits are the most effective intervention level. To a large extent, this debate also draws on a much older one about the effectiveness of governments versus the private sector. As one might expect, there are strong arguments on either side.

In the corner for projects is Mike Korchinsky, a former corporate consultant and today a REDD+ entrepreneur with projects in Africa, Asia, and South America. His company, Wildlife Works, sells carbon credits from tropical forests to companies looking to reduce their carbon footprint. Wildlife Works, on its own, expects to channel $1 billion toward these projects in the next 10 years.

“It’s an economic problem that needs an economic solution,” Korchinsky told Mongabay. And given that a recent review by Rainforest Foundation Norway found that the world’s five largest rainforest countries could between them deforest 20 million hectares (49 million acres) of tropical forest and still be within their Paris Agreement commitments, an economic incentive is likely to be crucial.

“REDD is the only mechanism we’ve ever created as a species to put a value on standing forests. There are many methods to value them once cut down,” Korchinsky said. “In the last few years we’ve seen a tidal wave of corporate support growing,” he added.

The voluntary carbon markets that Korchinsky operates in — and has helped to leaven — grew up over the last decade, during which governments fumbled at developing a system for running REDD+ at the national level. Historically, most credits for emission reduction have been generated by projects. Now, private actors like Wildlife Works are worried that the TREES standard, if adopted by governments, could bring private sector projects to a halt.

“We have to unlock the finance for the communities on the ground now,” said Charlotte Streck in an interview with Mongabay. Streck is the managing partner of Climate Focus, an advisory company that provides thought leadership on climate solutions. “There is a divide between those who do theory and those who do implementation in the field. For many, carbon finance at the project level is an opportunity to support their mission.”

Streck supports projects, but stresses that halting deforestation is a wicked problem.

“Deforestation in the end has less to do with investment than with trust and development and rule of law and land tenure — things that are very difficult to solve,” Streck said. “At the forest frontier a toxic mix of lack of governance and perverse incentives. It’s like trying to solve the Italian mafia with finance.”

A market mechanism, on its own, is unlikely to be able to provide a powerful enough counterpoint to the lucrative rewards of illegal forest clearing, an industry worth an estimated $152 billion a year.

TREES 2.0, the new standard, attempts to contribute to the solution for forests by harnessing the best of what the private sector can do and the best of what the government can do, a piece of conceptual wizardry known within the industry as “nesting” — in which project-level accounting and strategies are aligned within a jurisdiction-level program.

“There’s a qualitative difference between what you can do at a project level versus a jurisdictional scale,” Frances Seymour told Mongabay. Seymour is a distinguished voice on global forest policy, author, and chair of the ART board. “We’ve learned that the main drivers of deforestation and the factors that lead to maintaining forest cover relate to actions that only governments can take: where deforestation is illegal, only governments can enforce the law.

“But it’s not just enforcing the law,” Seymour added. “Recognizing Indigenous rights to territories, regulating timber industries, domestic fiscal policies, getting rid of perverse subsidies, aligning tax breaks — all those tools only governments can employ. By rewarding governments you incentivize them to employ all of those tools.”

Selling hot air?

The stringency of measurement and verification that TREES is designed to provide is also important because the credibility of forest carbon credits has repeatedly come into question.

Carbon credits for avoided deforestation necessarily take a hypothetical situation as their point of departure. Suppose a project’s deforestation baseline assumes that 100 acres of forest will be cleared from a given area during a certain span of time in the absence of the project. If 80 acres are then cleared instead, then the project can claim 20 acres of saved forest. But if the project takes a more pessimistic view and assumes that 200 acres of forest will be cleared save for its intervention, then in the same scenario of a loss of 80 acres, the project could claim it saved 120 acres — a large difference. The project goes on to sell the carbon credits derived from that portion of forest counted as “saved.” In addition to measurement challenges, then, there is an incentive for inflating deforestation baselines.

TREES uses a baseline methodology that takes a five-year historical deforestation average over forest areas at least 2.5 million hectares (6.2 million acres) in size. The baseline then constricts over time to ensure that the ambition to curb deforestation remains high and that credited reductions are not just flukes.

But smaller-scale projects often use crediting systems that enjoy much more flexibility in how they determine baselines.

In Tumring, Cambodia’s pilot REDD+ project covering almost 68,000 hectares (168,000 acres), more than 37% of the forest in the project area has been damaged or lost since the project began. But that hasn’t prevented the project from issuing 645,410 tons of carbon credits in 2021, accredited by the Verified Carbon Standard (VCS) that is operated by a U.S.-based nonprofit corporation called Verra.

Also this year, a journalistic investigation into Matavén, another Verra project and the largest REDD+ venture in Colombia, found that the projected deforestation rate was almost five times that of the Colombian government’s rate for the rest of the Amazon. The investigation was led by the Latin American Center for Investigative Reporting (CLIP) and Mongabay Latam, in collaboration with Carbon Market Watch and supported by the Pulitzer Center on Crisis Reporting. It also found that the project took its baseline from an area of forest that has roads, deforestation hotspots, and no designation as Indigenous reserve — conditions that stand in contrast to those in the project area and make forest clearing considerably more likely. It concluded that credits from Matavén were being used to avoid the national carbon tax without actually affecting emissions.

It doesn’t end there.

A study published in 2020 in the Proceedings of the National Academy of Sciences (PNAS), one of the world’s most-cited scientific journals, found “no significant evidence” that 12 voluntary REDD+ projects in the Brazilian Amazon had mitigated forest loss.

In the Democratic Republic of Congo, a network of 13 civil society organizations spent more than 20 weeks over a span of two years in an on-the-ground observation mission of two of the country’s highest-profile REDD+ projects, one of them a concession of Wildlife Works. Their report concluded that the projects had “little impact on reducing deforestation and degradation, and in some cases even catalyzed forest loss.”

An analysis done for ProPublica by Descartes Labs in 2019 found that forest cover within the purview of another Cambodian project had dropped from 88% to 46% since it launched 2008.

The abundance of failure cases has elicited sharp criticism of REDD+ projects. The difficulties involved in protecting forests and accurately measuring carbon sequestration don’t mean that money shouldn’t be directed at forests, but they do complicate the logic of using carbon credits derived from alleged avoided deforestation to compensate for carbon released elsewhere, or at least indicate that accounting for those credits needs to be rock solid. Otherwise, those credits amount to hot air, and serve as a fig leaf for large polluters.

By its jurisdictional scale and transparent carbon accounting guidelines, TREES is meant to better address the main credibility risks so far associated with REDD+ carbon credits: additionality, the difficulty in demonstrating that emission reductions would not have occurred without the project; leakage, the risk that as barriers to deforestation are erected in one place, deforestation may simply move elsewhere rather than be truly prevented; and reversal or the permanence problem, what happens when, say, a fire takes out an expanse of forest tenderly cared for — and paid for — up until the year before.

Questions of power

From the beginning, ART has attempted to design its standard with these challenges in mind. The updated TREES 2.0 is also explicit about how projects can be integrated under five different scenarios.

“There was a misunderstanding that by crediting only jurisdictions, that TREES somehow didn’t allow projects, but that has now been clarified,” Mary Grady, executive director of the ART secretariat, said in an interview with Mongabay.

“There is flexibility not only in how projects are incorporated but also in how governments and local communities choose to work together,” Grady said. “We don’t want to be prescriptive; what we want to see is that these agreements are in place.”

Despite this, some worry that TREES and the money behind the LEAF Coalition will serve to shift the balance of power away from local communities and toward national governments. They argue that it is essentially a top-down approach that relies on legislation and enforcement but does not directly provide alternative livelihoods.

“We don’t believe communities can or should be forced to change,” said Wildlife Works’ Korchinsky. “We believe they should be incentivized to change.”

Charlotte Streck of Climate Focus offered a more pragmatic critique of the top-down tack as applied in tropical jurisdictions: “That governments control outcomes — that may be true in Norway, it is true in countries with strong governance. But the world is not Norway.”

Alain Frechette, director of strategic analysis at the Rights and Resources Initiative, expressed concern that the free, prior, and informed consent (FPIC) of local communities isn’t required in the first stage of drafting of TREES crediting plans.

TREES is designed to guarantee the rights of Indigenous peoples and other local communities by building on the Cancun Safeguards. The 2.0 version also integrates new avenues designed to enhance their participation in forest finance, allowing them to aggregate with other Indigenous peoples and creating a new modality by which they can receive payments for protecting forests that have never had high deforestation levels.

This notwithstanding, Frechette said the extent to which benefits materialize for communities will ultimately vary by country.

“As investments … and offsets begin to flood the … forest sectors of developing countries with pre-existing challenges in terms of transparency and corruption, evidence suggests that these capital flows are unlikely to trickle down to those most in need,” he said. “Money, as we all know, is the one thing that defies the laws of gravity, and there is nothing in the framing of LEAF or ART-TREES that suggests a change in this paradigm.” 

LEAF Coalition as a proof of concept

“Quite possibly, the most promising aspect of ART-TREES is the desire of supporting institutions to make the initiative as transparent and open as possible,” Frechette said.

Given the historical failings of the field, the value placed on transparency is not surprising. Almost 15 years after the original REDD framework, many regard the LEAF Coalition as the first real attempt at credible REDD+ implementation at scale.

Thus far, seven jurisdictions have started the process to apply for crediting under the TREES jurisdictional standard: Vietnam, Guyana, Ghana, Costa Rica, and three Brazilian states. But more than 50 others are evaluating their potential participation in TREES, spurred by the certainty of reward represented by the LEAF Coalition.

Seymour, for one, said she hopes the LEAF Coalition will kick-start a virtuous cycle.

“Companies say, where can I buy jurisdictional credits, I don’t see supply,” she said. “If LEAF can aggregate supply and aggregate demand, sending consistent signals to buyers and sellers, then that $1 billion will turn into multiple billions in the coming years.”Editor’s note:

A previous version of this article noted that accreditation of Verified Carbon Standard (VCS) is operated by a company called Verra. However, Verra is a U.S.-based nonprofit corporation. Mongabay regrets the error. 

Banner image of an old-growth forest by Marc Pell via Unsplash.