Crediting Forest-related Mitigation under International Carbon Market Mechanisms

A Synthesis of Environmental Integrity Risks and Options to Address Them

NSA

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This discussion paper explores environmental risks from the inclusion of forest offset credits in the Paris Agreement’s Article 6 and CORSIA, and examines approaches to address such risks. A number of challenges surrounding environmental integrity notably baseline determination, additionality, permanence, and leakage are discussed as well as environmental and social safeguards in forest mitigation initiatives.


Key findings:

Preserving and enhancing forests is an essential part of global efforts to mitigate climate change. Currently, most finance for forest-related mitigation is provided through official development assistance (ODA), through grants, loans and results-based finance. However, this finance has been found to be far below what is needed to adequately protect forests. To increase finance for forest-related mitigation, some countries and stakeholders call for mobilizing further finance through so-called ‘transfer-based finance’, whereby payments are provided in return for transferring the rights to the emission reductions or removals to the country or entity providing the payments. This can include the crediting of the emission reductions or removals under carbon market programmes to serve demand from international compliance markets, including under Article 6 of the Paris Agreement and under the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA) implemented under the International Civil Aviation Organization.

Whether emission reductions or removals from forest-related mitigation should be internationally transferred and used towards achieving international mitigation targets has been debated vigorously over the past two decades. While this could bring a number of opportunities – including the potential for increased finance for forest-related mitigation, a possible reduction in the cost of achieving mitigation targets, and non-carbon benefits – it also involves a number of challenges and risks. Risks include those related to environmental integrity, (non-carbon) environmental and social risks, and a possible oversupply of offset credits. Challenges include the difficulty in securing the long-term investment needed for forest protection in the context of volatile market prices, higher administrative costs, and the lack of a crediting mechanism with international oversight that credits avoided deforestation or degradation.

This discussion paper aims to inform this debate by exploring what environmental risks could arise if offset credits from forest-related mitigation activities were to be used towards nationally determined contributions (NDCs) and CORSIA, and what options could be pursued to manage such risks. It specifically focuses on risks surrounding environmental integrity as well as environmental and social safeguards. The paper finds that some of the risks and challenges associated with crediting forest-related mitigation are common to other activities implemented under greenhouse gas (GHG) crediting programmes while some are specific to – or are heightened in the context of – forest-related mitigation. Moreover, the Paris Agreement provides a new context that is essential to consider.

 
Contact for further information: Aki Kachi, Carsten Warnecke