Heatwaves, droughts, wildfires and floods. As the world suffers the consequences of climate change, the time for building solutions is now — and some of the most effective tools at our disposal are nature-based, designed to protect, manage and restore natural ecosystems.
However, the most common nature-based solutions (NbS) — paying to preserve trees (also known as avoided deforestation) — is also today’s most controversial, with critics calling out concerns like lack of transparency, additionality and standards that can lead to double counting when two or more holders claim the same credit. This year has generated tough — and essential — questions of the voluntary carbon markets (VCM) and in particular, REDD+ carbon credits.
And yet.
This year has also seen bold steps forward to strengthen and grow the VCM — and clear misconceptions regarding REDD+ projects from around the world.
Global initiatives from the Science Based Target initiative, Voluntary Carbon Markets Integrity Initiative and the Integrity Council for the Voluntary Carbon Market are working to establish commonly accepted standards for a high-integrity carbon market, while regulatory bodies such as the Commodity Futures Trading Commission (CFTC) and the International Organization of Securities Commissions (IOSCO) are increasingly engaged in supporting the growth of carbon markets.
Meanwhile, groups like The Nature Conservancy and TerraCarbon are collaborating on ways to best measure the impacts of REDD+ projects to ensure reduced deforestation and associated carbon pollution, while Verra is working on a new consolidated methodology for REDD+, which is expected to be released this year.
It adds up to a market that will help fund the annual estimated $1.7 trillion climate mitigation gap that needs to be closed to limit the negative impacts of climate change on both people and the planet, according to Citi Global Perspectives & Solutions. Notably, this dollar figure is on top of what is already pledged to this need by national governments. (If that number seems big, Deloitte predicts that climate change could cost the global economy $178 trillion by 2070.)
Simply put, we won’t achieve our global climate targets without nature. Research by the World Bank suggests that NbS can provide 37 percent of the mitigation needed to keep the 1.5°C target in reach by 2030 as laid out by the U.N. Paris Agreement.
“All pathways to achieving the Paris Agreement include protection of forests and conservation, restoration, and sustainable use of natural ecosystems. Nature-based solutions offer a way of addressing the climate and biodiversity crises in a synergetic and cost-effective manner.” — World Bank
But NbS remain chronically underfunded. Historically, they attract only 3 percent of the global funds invested in climate mitigation, leaving a funding gap of around $400 billion per year. The U.N. Intergovernmental Panel on Climate Change estimates that investment in this space needs to increase by up to 29 times to fill this chasm.
Here is where the power of the VCM can help. By facilitating the exchange of carbon credits representing verified emissions, this private market not only assigns a financial value to the benefits provided by carbon projects but unlocks vast amounts of private capital to finance them as well.
This is no small benefit. According to a recent report by Climate Focus and the Food and Land Use Coalition (FOLU), only 1.2% of the annual cost effective potential of nature-based solutions has been unlocked by the voluntary carbon market.
Talk about potential. As new VCM growth estimates are projected by leading analysts, ranging from $5 billion to $40 billion (to even more) by 2030, experts expect some two-thirds of this value to be channeled into NbS, supporting development of a broad range of projects such as reforestation, avoided deforestation and agroforestry, not to mention mangroves and sustainable agricultural practices.
In a World Economic Forum article last month, authors representing The Nature Conservancy, NCS Alliance and Conservation International note that “far too often the use of carbon credits — and NbS carbon credits in particular — have been framed as an ‘either/or’ proposition” — meaning, there is a false dichotomy in which companies either invest in NbS or fund the decarbonization of their operations.
Today there is no time for “or” thinking — it’s time for “yes, and” thinking, in which companies simultaneously invest in internal reductions and NbS credits, which is where the VCM can help. Notably, a recent study from Trove Research finds that companies that buy carbon credits decarbonize twice as fast as those that don’t, while Ecosystem Marketplace reports that companies buying carbon credits are also 1.8x likelier to slash emissions, year over year, and 2.5x likelier to assure carbon emissions data — among other important trends.
“Purchasing carbon credits through the voluntary carbon market is not an alternative to rapid decarbonization within value chains. Rather, high-quality carbon credits are a way for companies to support a range of critical mitigation efforts outside of their value chains, including the potential to channel billions of dollars into NbS that would not receive funding otherwise.” — World Economic Forum
At Flowcarbon, our team offers managed portfolio services that feature best-in-class inventory from carbon projects across the globe. But this is only half the battle. While verified credits are a great way to support existing carbon projects, on their own they are insufficient as a financing mechanism for new project origination. That’s where carbon financing comes into play. At Flowcarbon, our growing carbon finance team is working to match institutional investors with innovative carbon projects around the globe.
As the World Economic Forum notes: “When investments are made with due diligence, high-quality NbS credits will ensure that emissions reductions or removals happen, that nature is being protected or restored, and that communities are not only receiving benefits, but are also active participants.”
We couldn’t agree more.
Flowcarbon is a pioneering carbon finance and technology company working to scale the voluntary carbon market through innovative investment and carbon finance structures and sales.
Dana Gibber is CEO of Flowcarbon, which she co-founded in 2021.
