Key elements and challenges in monitoring, certifying and financing forestry carbon projects

7 November 2018 - Climate Brief - By :

The amount of finance for forest carbon projects has never been as high as in 2015 when it reached USD 888 million (Goldstein & Ruef, 2016). In most cases, a reliable monitoring, reporting and verification (MRV) of carbon removals or emissions reductions is necessary to access most carbon payments.

After an overview of forest carbon finance, this Climate Brief presents the different options and challenges associated with forest carbon MRV.

First, projects developers face three key choices:

The definition of th project scope (carbon pools to be considered, geographical perimeter and the related leakages),
The different techniques and tools for forest carbon monitoring (field measurements, modeling or) remote sensing)
The baseline definition and additionality demonstration.

Despite the different tools and guidelines available to help projects developers trigger impactful mitigation action, six main technical and political challenges are identified:

The non-permanence risk and carbon debt: while standards provide tools (eg. buffer account, ex-ante credits) to deal with this challenge, finding the right balance between environmental integrity and project profitability remains delicate.
Monitoring uncertainty is often put forward as a barrier to the implementation of carbon pricing in the forestry sector. Reduce uncertainty is costly and the interest of doing so depends on whether carbon pricing is voluntary, on the importance of information asymmetry and on projects profitability.
The risk of windfall effects: additionnality can never 100% guaranteed. There again, striking the right balance between avoiding both the “false positives” (non-additional projects getting registered) and the “false negatives” (additional projects that are shut out by the cost and risk of the additionnality demonstration) is delicate.
Verification costs: verification can weight up to half the MRV costs and cannot usually be internalized.
Low carbon prices: typical MRV costs for forestry projects are around 0.15-1.4 € per tCO2e which is substantial when carbon prices average around 3 € per tCO2e on voluntary markets. How to combine a robust certification with the financial viability of carbon projects in this context is challenging.
The double-claiming of climate action issue: the Kyoto Protocol safeguards against double-counting between countries have been adapted by some voluntary carbon standards to prevent that a private entity and a country claim the same emission reduction. This has slowed down projects implementation in Annex I countries, but several standards, including the Gold Standard, are moving towards a new paradigm for voluntary carbon markets.

Key elements and challenges in monitoring, certifying and financing forestry carbon projects Download

To learn more

04/25/2024
I4CE’s recommendations to the European Banking Authority on prudential transition plans

The European Banking Authority (EBA) is clarifying how the banks should frame their “transition plan” as required by the EU prudential regulation. The transition plan is the bank’s strategic roadmap to prepare for the transition to a sustainable economy as framed by the jurisdictions they operate in, including an EU climate-neutral economy. It has been introduced in several EU regulatory frameworks, including as a disclosure requirement arising from the CSRD. The prudential framework and the EBA are focusing on a specific angle: how the banks plan to manage their financial risks related to the transition. EBA’s framing of these plans will be key to determine whether the banks will manage their financial risks consistently with the broader need of financing the transition to a low-carbon economy.
04/19/2024 Foreword of the week
World bank and IMF Spring Meetings: How can the reformed institutions play a leading role in funding the transition?

Rethinking how development can be financed to take into account the rising challenges of our time is a fastidious task, especially when thousands of experts, decision makers and practitioners want to leave their print. The outline of the new international financial architecture is being debated again this week, with more questions open for discussion than consensus on the answers.
04/19/2024 Blog post
More and better finance: maximising positive climate impacts for a timely transition

Since the Paris Agreement in 2015, significant strides have been made to foster the commitment of countries and financial institutions to address the climate crisis and ensure that climate risks and opportunities are considered in investments. However, with emissions required to peak before 2025, our window of opportunity is rapidly closing to keep +1.5°C within reach. Financial needs to lower greenhouse gas (GHG) emissions and to address adaptation priorities are increasing rapidly in the meantime. Luis Zamarioli Santos and Diana Cárdenas Monar, from I4CE, believe that commitment must urgently translate into action, and action must bring the urgent change the world needs. Both governments and public financial institutions have a central role to play to deliver more and better finance, maximising positive impacts. This blogpost highlights some opportunities to advance in the path for a systemic transformation, involving key stakeholders with a whole-economy approach.

Key elements and challenges in monitoring, certifying and financing forestry carbon projects

I4CE’s recommendations to the European Banking Authority on prudential transition plans

World bank and IMF Spring Meetings: How can the reformed institutions play a leading role in funding the transition?

More and better finance: maximising positive climate impacts for a timely transition