Flipping REDD+ on Its Head
The Forest Carbon Ledger (FCL) is a new CO2 valuation method
Brief Summary
A golden opportunity to finance large-scale rainforest conservation is losing momentum. The vehicle that was supposed to get us there — REDD+ — suffers from a fundamental accounting problem. This is undermining the credibility of the entire mission.
As a consequence, the global effort to save the last of the world’s tropical forests is stuck in the sand.
All because of the knotty concept of “avoided deforestation” and the tricky counterfactual analysis that is used to estimate it.
The Forest Carbon Ledger (FCL) avoids those pitfalls. It calls for incentive payments based on the total amount of CO2 stored in the forest on an annualized basis. The payments, which are strictly tied to performance, are paid directly to the forest stewards ex post.
Once the carbon stock of the entire forest is established, it is reassessed each year using satellite imagery analyzed by machine learning algorithms that detect changes in forest cover. This data is fed into a simple ledger, from which payments are calculated.
Annual FCL payments are only made when the annual carbon outcome is positive or neutral. This is different from REDD+, which issues payments to projects even when deforestation occurs.
The FCL approach also eliminates the need for counterfactuals and subjective projections. Permanence and leakage are handled differently, and additionality is no longer taken into account. Smart contracts stored on a blockchain could be used to coordinate all transactions.
Both conceptually and operationally, this new approach is cleaner than REDD+. It’s easier to calculate, monitor, and verify. Likewise, it’s harder to cheat and manipulate.
- For a side-by-side comparison of FCL and REDD+, check out: Comparing FCL to REDD+: Using the Capuchin Corridor in Ecuador as a case study.
- For a much shorter summary of this methodology, refer to Replacing REDD+ with the Forest Carbon Ledger (FCL): Forest conservation needs a new carbon methodology.
- Mongabay interviews the creator of FCL in Carbon Counting Without the Guesswork.
Contents
- Brief Summary
- The Inherent Defects of REDD+
- Why REDD+ in the First Place?
- The Rising Tide Against REDD+
- Forest Carbon Ledger: How it Works
- The Conceptual Shift from REDD+ to FCL
- Four Key Differences Between REDD+ and FCL
- How FCL Monetizes CO2 Storage
- Including CO2 Uptake of Immature Forests
- Total Carbon Stock vs Above-Ground Biomass
- FCL Ledger in Action: Year-Over-Year
- Case Study: Comparing FCL and REDD+ in the Capuchin Corridor
- Biodiversity Component
- Payments Based on Performance
- FCL in the Event of Deforestation
- Impact of Payments in the Event of Deforestation
- Consequences of Halting Payments
- The Question of Sustainable Harvest
- Leakage
- Risk, Non-Permanence & Fires
- A Note About Amortization Over 50 Years
- Moving Beyond Additionality
- Jurisdictional Approach vs Project-Based
- The Role of Government, NGOs, Communities & Private Sector
- Transparency & Equity
- Auditing & Certification
- The Role of Carbon Markets & Carbon Coin
- Next Steps & Additional Links
The Inherent Defects of REDD+
Before we get to the solution, let’s quickly review the problem.
Reducing Emissions from Deforestation and Forest Degradation (REDD+) is a framework for measuring the carbon value of intact forests. It does this by estimating how much CO2 would be released into the atmosphere from the cutting and/or burning of trees in a hypothetical “business-as-usual” scenario.
It then compares this number to the amount of CO2 that would presumably be released into the atmosphere in a “project scenario,” in which actions are (hopefully) taken to prevent the cutting and/or burning. The difference between these two numbers = net carbon benefit.
In other words, REDD+ attempts to estimate how much less CO2 will enter the atmosphere by avoiding deforestation that could potentially happen if we aren’t trying hard enough.
It is important to note that REDD+ doesn’t measure how much CO2 is removed by the atmosphere when trees absorb CO2. That metric falls under the domain of a different carbon accounting method known as ARR.
Instead, REDD+ measures “carbon emission reductions,” which is less sexy than carbon removal but still necessary.
The challenge with any REDD+ calculation is that it requires a counterfactual analysis — as in, it calls upon us to guestimate the carbon impact of a hypothetical “business-as-usual” scenario versus a potential project scenario. It attempts to answer the question: how much forest would be cut down if we do nothing, versus how much of it would be cut down if we actively protect the forest?
This counterfactual analysis, moreover, is influenced by a complex range of social, political, economic, and ecological factors over a long time horizon. For example, how would economic growth (or recession) influence illegal logging? What happens if the country’s next presidential administration relaxes (or tightens) enforcement of environmental protections?
Either of the above would influence projected deforestation rates, which will influence the baseline analysis, which influences the net carbon benefit.
At best, this process requires a series of subjective guesses about the future, each piled onto each other. It ultimately produces a number with a wide margin of error.
To make matters more complicated, project developers, certifiers, and auditors have the ability and the incentive to manipulate the variables in such a way that overstates the carbon benefit. This was one of the main criticisms highlighted in The Guardian’s exposé about REDD+ projects (“Revealed: more than 90% of rainforest carbon offsets by biggest certifier are worthless, analysis shows”).
The certifying body at the heart of these allegations — Verra — does offer a rebuttal. The respected ecological news provider, Mongabay, has also thoughtfully weighed in. And Pachama’s “dynamic baseline” approach offers a useful way to overcome some of these obstacles.
Nevertheless, a study by University of Cambridge researchers, edited by Stanford University researchers, supported the findings at the heart of the Guardian’s criticisms. The study itself is titled “Overstated carbon emission reductions from voluntary REDD+ projects in the Brazilian Amazon”
REDD+ is an imperfect system. One option is to try to retrofit it for the coming era. The other option is to replace it.
Why REDD+ in the First Place?
Despite the inherent defects of REDD+, a simple fact remains. Preventing the deforestation of intact forest is easier and more cost-effective than restoring land that has already been deforested. Forest restoration requires a lot of work and many decades — if not centuries — of time. Conservation of existing forests is the proverbial “low-hanging fruit” of climate change mitigation.
Worldwide efforts at avoiding deforestation are essential to the future of life on earth as we know it. This is agreed upon by nearly every scientist in the field. We definitely need to do this. The question is: is REDD+ the best way to do it?
A growing number of experts and organizations think it is not. Juan Chang, deputy director of the U.N.’s Green Climate Fund, said it best: “You go to these workshops and international events, and everybody’s walking really quickly, looking very busy. And then you go to the forest, and nothing changes.”
Many of us working in the field of conservation, with boots on the ground, know exactly what he’s talking about.
The Rising Tide Against REDD+
The challenges faced by REDD+ go beyond the mere accounting aspect of it. In a larger sense, REDD+ is a system for the financing of forest conservation projects, which brings with it a whole host of legal, organizational, operational, and ethical challenges.
Some of the problems faced by REDD+ are structural (e.g., jurisdictional vs project-based), some are financial (e.g., Article 6 and the voluntary market), and still other complaints are focused on justice and equity (e.g., indigenous rights and informed consent).
Friends of the Earth International published a comprehensive report that outlines “nine reasons why REDD is a false solution.”
Mongabay, the highly respected environmental news provider, issued a more measured assessment of REDD+ in the form of a 2-part report titled “The U.N.’s grand plan to save forests hasn’t worked, but some still believe it can.”
And yet, REDD+ is currently the only framework we have for quantifying the value of forests. We can’t tear it down until we have a viable replacement. The Forest Carbon Ledger is an alternative approach that could solve this problem.
Forest Carbon Ledger: How it Works
The Forest Carbon Ledger (FCL) is a new approach to calculating the carbon value of a forest. It avoids the biggest pitfalls of REDD+, it’s harder to cheat and manipulate, and it’s generally more practical.
The FCL process starts with estimating the total carbon stock of a forest. Presently, this requires a series of biomass inventories in sample plots throughout the forest. At a minimum, aboveground biomass inventories can be used to calculate average aboveground carbon per hectare. A local field team, with the help of a nearby university, can do this at relatively low cost. Aboveground biomass can also be used to extrapolate other carbon pools.
Below is the carbon density summary for the Capuchin Corridor, a 40,000-hectare rainforest conservation and restoration project in the Pacific Forest of Ecuador. The project is spearheaded by the nonprofit rainforest conservation organization TMA (Third Millennium Alliance).
Next, machine learning algorithms are used to analyze aerial imagery of the entire forest and quantify the amount of area occupied by each forest class. At a minimum, the numbers from the biomass inventories are then extrapolated to the entire forest. LIDAR, Synthetic Aperture Radar, and structure-from-motion (SFM) technology can greatly scale up these efforts and help refine the findings.
Although there will still be a margin or error, overall it will be lower than REDD+ calculations, which — in addition to using these same biomass inventory approaches — also attempt to predict complex interactions of multiple variables in the future. FCL disposes with the latter.
In the FCL approach, we quantify the entire carbon stock of an existing forest and don’t bother with trying to imagine what will or won’t happen to it in hypothetical future scenarios. We limit ourselves to the calculations that are relatively straightforward and reliable, and we forgo the calculations that are fraught and vulnerable to manipulation. This is the first key difference between FCL and REDD+.
After we extrapolate the amount of carbon currently stored in the entire forest, we then multiply that number by 3.67, which is the ratio of molecular weight of CO2 to C. This converts the amount of carbon (C) to carbon dioxide (CO2). That gives us the tonnage of CO2 that is currently stored in the entire forest.
Up until now, we haven’t done anything outrageous. We’ve merely quantified the amount of CO2 that is currently stored in the above-ground biomass of forest. The next step is to convert this number into a monetary value.
The Conceptual Shift from REDD+ to FCL
The first question to ask is: what is the ecosystem service that is being provided? Forests provide multiple such services, but the one that we’re trying to quantify here is carbon storage — a service the world desperately needs right now.
Fortunately, forests perform this service naturally — as long as humans let them do it. The rationale behind forest-based carbon projects is to incentivize humans to allow forests to perform this service for us. The Forest Carbon Ledger is built to facilitate this process in a straightforward manner. But it requires an important shift in how we conceptualize carbon value.
The conceptual shift from REDD+ to FCL is twofold:
- Rather than trying to predict the future, we merely measure current reality.
- Rather than measure CO2 emission reductions, we measure the total amount of CO2 stored by a forest.
To put this into accounting terms, the CO2 stored by a forest is considered a long-term asset that is amortized in annual increments. That is the fundamental conceptual difference between FCL and REDD+.
Four Key Differences Between REDD+ and FCL
The four fundamental differences between REDD+ and FCL are each discussed below. A graphic summarizes these differences in the introduction to this article above.
Difference #1: Measuring reality rather than hypothetical scenarios
REDD+ uses counterfactual analysis to make subjective projections about what would or wouldn’t happen in hypothetical scenarios of the future. Such a process is inherently vulnerable to data bias, manipulation, and over-estimation of benefits. Refer to the University of Cambridge study that illustrates this tendency.
In the FCL approach, we quantify the entire carbon stock of an existing forest — in present reality — and don’t bother with trying to imagine what will or won’t happen to it in hypothetical future scenarios. We limit ourselves to the calculations that are relatively straightforward and objective, and we forgo the calculations that are subjective and vulnerable to manipulation. This is the first key difference between FCL and REDD+.
Difference #2: Measuring actual carbon rather than avoided deforestation
REDD+ guesses how much CO2 would be released into the atmosphere from the removal and/or burning of trees in a hypothetical “business-as-usual” scenario. It then compares this number to the amount of CO2 that would presumably be released into the atmosphere in a “project scenario,” in which actions are (hopefully) taken to prevent the removal/burning of trees. The difference between these two numbers = net carbon benefit.
In other words, REDD+ attempts to estimate how much less CO2 will enter the atmosphere by avoiding deforestation that could potentially happen if we don’t try hard enough to protect the forest.
FCL takes a fundamentally different approach. Rather than measure CO2 emission reductions from avoiding hypothetical deforestation, FCL measures the total amount of CO2 stored by a forest.
To put this into accounting terms, the CO2 stored by a forest is considered a long-term asset that is amortized in annual increments. Specifically, it’s amortized over a 50-year period.
This is a significant conceptual shift from REDD+.
Difference #3: Moving beyond additionality
One of the key components of REDD+ is the additionality requirement. A carbon project is deemed additional if the CO2-positive action would not have otherwise occurred in the absence of a carbon credit incentive.
At first glance, this sounds like a good idea. But it creates a few sticky problems that FCL aims to avoid.
For one, additionality is extremely subjective and vulnerable to fraudulent claims. It’s easy to claim additionality and there is no objective way to measure it. As a result, the carbon offset market is rife with abuses. For a high-profile example, check out ”How the Nature Conservancy, the world’s biggest environmental group, became a dealer of meaningless carbon offsets”.
In other words, the first problem with additionality is that it’s a rule that is easily bypassed.
The second problem is that additionality penalizes good forest stewards and rewards bad forest stewards. Forests managed by stewards with a track record for successful conservation are either not eligible for REDD+ or their payments are significantly reduced because, in their case, the business-as-usual scenario is actually quite good. According to the logic of REDD+. a good track record in the past means that positive actions taken in the future are less valuable. Conversely, forests with bad track records are deemed a higher risk; therefore, they’re considered eligible for REDD+ and are given higher valuations.
Last but not least, the era of protecting just some of the world’s forests is over. We need to protect all intact forests. Additionality is a relic of 2010 mentality, in which forest conservation was still optional. Forests needs to be conserved now, wherever they can be found, and this will need to continue for many decades to come.
FCL moves beyond additionality for three reasons.
- FCL dispenses with highly subjective criteria, of which additionality is a big one.
- FCL rewards good actors rather than bad actors.
- FCL views tropical forests as a global ecological asset right now, regardless of their past histories and/or guestimates about their future fate.
Difference #4: Payouts are strictly based on results
Nearly all REDD+ projects actually assume that deforestation will continue even in the project scenario — albeit at a somewhat lower rate compared to a business-as-usual scenario. Project managers get paid even if the forest continues to be gradually deforested.
FCL projects would set higher expectations. In most cases, the expectation is that 1) deforestation and degradation halts entirely and 2) secondary-growth forests continue to mature, thus absorbing additional CO2 from the atmosphere each year.
As discussed below, the vast majority of FCL revenue — we propose a minimum of 80% — would be disbursed directly to the people who live in the area. By design, this prodigious funding opportunity is tied to the carbon stock of the project area. Therein lies the powerful collective incentive to protect and restore important tracts of forests. Doing so is economically advantageous for the people who live in the area.
How FCL Monetizes CO2 Storage
Mathematically, the process is simple. FCL measures how much CO2 is stored by a forest over the course of a year. Relative to byzantine REDD+ calculations, FCL is easy to measure and verify.
At the beginning of year 1, we start with an initial estimate of the total carbon stock of the forest. This estimate is matched to, and informed by, aerial imagery of the entire forest at that point in time.
At the end of Year 1, we take a second round of aerial images of the same area. Machine learning algorithms then compare the new images with the original images and assess if there has been any deforestation or forest degradation during the year. If yes, the tally of ongoing CO2 storage is reduced accordingly in the ledger.
Meanwhile, immature forests that are still actively growing will absorb additional CO2 each year, which is also added to the ledger. In the Capuchin Corridor case study, annual CO2 update is 6.18 tons per year for secondary-growth forest. This is explained in greater detail in “CO2 Uptake of Immature Forests” below.
Note that CO2 uptake only applies to immature forests— also known as secondary forests or successional forests. In other words, forests in the process of regeneration.
Mature forests are considered to have reached carbon equilibrium and are not credited with additional carbon uptake, but their CO2 storage capacity most certainly is included on an ongoing basis.
All of this data is fed back into the ledger to recalculate the total CO2 storage at the end of the year, which is amortized over 50 years. (This latter point is explained in greater detail below).
Lastly, a leakage percentage and/or risk buffer can be discounted.
If the total CO2 storage has remained steady or grew over the course of the year, the forest stewards will be paid. The payment is calculated by the simple equation below:
(Mg CO2 / 50 ) x P
In this equation, the total tonnage of the CO2 that was stored in the entire forest that year is amortized over a period of 50 years, and then multiplied by the price (P) per ton of CO2.
Most of this annual performance payment is electronically transferred directly to the forest stewards — preferably, into a community trust. A portion can be held in a separate account as an additional non-permanence risk buffer. This would automatically transferred to the forest stewards after a multi-year waiting period, as long as there are no reversals of carbon stocks.
All of these transactions could be implemented through smart contracts on a blockchain, which could improve transparency and help prevent double-counting.
CO2 Uptake by Immature Forests
To determine the annual average carbon uptake of secondary forests, we use this formula:
(Carbon density of mature forest — carbon density of secondary forest) / 30 years x 3.67
This assumes that, on average, it takes a secondary forest 30 years of growth to accumulate the same level of aboveground carbon as is contained by a mature forest. This is informed from Sierra (2012).
In the case of the Capuchin Corridor, the annual carbon uptake of secondary evergreen forests is:
(116.8 mg C/ha — 66.3 mg C/ha) / 30 = 1.68 mg C/ha per year.
To convert C to CO2, we multiply 1.68 x 3.67 = 6.18 Mg CO2/ha per year.
This means that, on average, each hectare of secondary evergreen forest removes 6.18 tons of CO2 from the atmosphere per year as it continues to grow. After 30 years, it will (on average) effectively reach its maximum carbon stock.
Likewise, the annual CO2 uptake of “Degraded Dry/Semi-Deciduous Forest” in the Capuchin Corridor is:
(70.3–40.8)/30 x 3.67 = 3.61 Mg CO2/ha per year.
We don’t need to amortize annual CO2 uptake by dividing it by 50 because the annual uptake is already an annual number.
Total Carbon Stock vs Above-Ground Biomass
There is a valid debate to be had in the carbon industry on one particular point. Should FCL values be measured in terms of all carbon pools stored on the land (i.e., total carbon stock) or should it only be measured in terms of carbon stored in above-ground biomass?
Above-ground biomass (AGB) is the easiest carbon pool to measure and the data tends to be the most reliable. Typically, AGB represents upwards of 70% of the entire carbon stock of a mature forest, although this number falls to 50–60% in a secondary-growth forest.
AGB is also the carbon pool that is most responsive to forest gain/loss. When a forest is slashed-and-burned — say, for conversion to cattle pasture — over 95% of AGB carbon is converted into CO2 and released into the atmosphere.
Below-ground biomass and soil organic carbon are also influenced by deforestation and forest degradation, but the impact isn’t immediate and sometimes it’s difficult to predict. Another biomass inventory in coastal Ecuador found that AGB carbon dropped from 148.0 Mg C/ha in old-growth forest to 83.3 Mg C/ha in degraded successional forest (a loss of 43%), but the soil organic carbon only dropped from 51.8 Mg C/ha to 51.5 Mc C/.ha, representing a loss of less than 0.6% (Eguiguren et al., 2021).
In the Capuchin Corridor case study, FCL calculated from above-ground carbon is 44% lower than FCL calculated with total carbon stock. From a forest manager’s perspective (which is what I am), naturally I would prefer the valuation from total carbon stock. But in terms of overall reliability of the numbers and credibility of the methodology, perhaps AGB is more appropriate.
Colleagues of the conservation and forest carbon industry, I would like to hear your thoughts on this matter.
The FCL Ledger in Action: Year-Over-Year
All of the above changes to the carbon stock of the forest are fed back into the ledger at the end of each year. Here’s a hypothetical FCL ledger over a three-year period in the Capuchin Corridor, measuring carbon in above-ground biomass.
Case Study: Comparing FCL and REDD+ in the Capuchin Corridor
The Capuchin Corridor is a 40,000-hectare conservation project that TMA is spearheading in the Pacific Forest of Ecuador. It spans a 43-kilometer mountain range that runs parallel to the Pacific Ocean. This corridor stores one of the last major remnants of the Pacific Forest of Ecuador — an ecosystem that has already lost 98% of its native forest over the course of the last century.
The Landscapes and Livelihoods Group (TLLG), a carbon project developer accredited by the community-centric carbon certification standard Plan Vivo, helped us perform a REDD+ carbon benefit analysis of the Capuchin Corridor as well as a smaller river basin (the Camarones Watershed) within it.
Below is a side-by-side comparison of REDD+ and FCL estimations in the Capuchin Corridor. Complete numbers can be found in the FCL Case Study and the Carbon Assessment of the Capuchin Corridor.
Biodiversity Component
FCL is designed for native forests. This includes mature native forests (i.e., old-growth forests) as well as younger native forests that are in the process of regenerating (i.e., secondary-growth forests). Priority will be given to 1) older forests and 2) forests with high biodiversity and/or endemism indices.
Monoculture timber plantations are not eligible for FCL projects.
Sustainably managed timber plantations with a high degree of species diversity could potentially be included, assuming that fluctuations of carbon stocks are appropriately accounted for, and provided that the timber plantations haven’t replaced native forests (which they usually do). That said, it may be simpler to exclude timber plantations from FCL altogether.
The same applies to agroforestry plantations with a high degree of species diversity.
Payments Based on Performance
Here’s a fact that may come as a surprise to most people who aren’t intimately familiar with nature-based carbon projects. Nearly all REDD+ projects actually assume that deforestation will continue even in the project scenario — albeit at a somewhat lower rate compared to a business-as-usual scenario. Project managers get paid even if the forest continues to be gradually deforested.
FCL projects would set higher expectations. In most cases, the expectation is that deforestation and degradation halts entirely, and that secondary-growth forests continue to mature — thus absorbing additional CO2 from the atmosphere.
Projects that don’t expect to meet this high standard probably shouldn’t apply for FCL funding because failure will not be rewarded with payments.
The table below is a general performance summary of the hypothetical three-year example illustrated above in the “FCL Ledger in Action: Year-Over-Year” section.
FCL Performance Summary (3-Year Example)
- Degradation rate since Year 0: 0.24%
- Deforestation rate since Year 0: 0.15%
- CO2 uptake from growth since Year 0: 2.91%
- Net CO2 gains since Year 0: 2.74%
Notice that there is no counterfactual analysis here. We’re not comparing this performance to what maybe could have happened in an alternate universe in which the project was not undertaken. We’re simply tabulating the entire carbon stock of the entire forest, every single year, and using that number to determine the CO2 value.
FCL in the Event of Deforestation
If deforestation and/forest degradation occur in the forest over the course of the year, this should (in theory) be detected by aerial imagery, perhaps in conjunction with verification from humans working on the ground. This data would be fed into the ledger and reflected as a decline in total CO2 storage.
However, when it comes to monetization, the long-term asset approach faces a complication in the event of deforestation. The way to solve it is by holding projects to no deforestation or, at most, minimal deforestation. Even moderate amounts of deforestation would need to trigger a halt in payments.
To demonstrate why, consider the following hypothetical scenario, in which annual payments were made regardless of deforestation results. Let’s say a forest with 10,000 hectares has an annual FCL valuation of $1.3 million, assuming no deforestation and a price of $25 per ton CO2. But if 10% of the forest was deforested in one year — which would be a massive failure — the annualized CO2 value of the forest would still be over $1.17 million.
If we take this example to the logical extreme, and assume that 1,000 hectares are deforested every year, at the end of 10 years there would be no forest left. And yet, the accumulated annual payout over that period would be nearly $7 million to the forest stewards — handsome compensation for presiding over an unmitigated ecological disaster.
So that’s not an option. The FCL system only works if it only makes payments in the event of minimal or no deforestation over the course of that year.
Impact of Payments in the Event of Deforestation
To decide upon a standardized approach to this, we’ll need a lively discussion from across the industry. As a starting point for that discussion, here’s an option:
In the event that the forest suffers a net decline in total CO2 storage over the course of the year, payments will be put on hold, reduced, or suspended — depending on the severity of the loss. “Severity” would be categorized according to three tiers: minor, moderate, and massive.
Minor Annual CO2 Decline:
- In the case of a minor annual decline of total CO2 storage, the annual payment will still be made, under two conditions: the forest stewards must 1) identify the source of the problem and 2) design a realistic and effective plan to prevent this from happening again.
- If there is another minor decline in the following year, only half of the payment is made — again, under the condition that the forest stewards identify the source of the problem and design a (better) plan to prevent this from happening yet again.
- If a minor decline happens for the third straight year, payments are suspended until the project shows two consecutive years in which the total carbon stock holds steady or increases, whereupon the payments can resume.
- If 5 minor declines occur over a 10-year period, the project is suspended.
Moderate Annual CO2 Decline:
- If the forest suffers a moderate decline in total CO2 storage over the course of the year, no annual payments are issued. Forest stewards will need to identify the source of the problem and design a plan to prevent it from repeating.
- If in the second year there is another moderate decline, the project is suspended.
- But if, instead, there is only a minor decline in the second year, the forest stewards have one more one more year to solve the problem.
- And lastly, if there is no decline in the second year, the forest stewards will receive the full annual payment.
Massive Annual CO2 Decline:
- If there is a massive decline in any one year, the project is suspended. Under special circumstances, projects could re-apply, but it doesn’t look good.
Another question is whether the annual CO2 decline should be compared to levels at Year 0 of the project or to the previous year?
From the perspective of the forest, it would certainly be better to use Year 0 levels as the base of comparison throughout the project. But in this case, minor annual declines will create a yawning gap between Year 0 and the present year, such that even minor annual declines will eventually trigger a suspension of the project.
A more realistic approach may be to use a rolling average of the previous 5 years as the comparison point. In this system, forests that experience miniscule annual declines will be able to continue receiving payments. Likewise, forests that experience moderate or massive declines will still be suspended.
I think most conservationists and policy-makers would agree that limiting deforestation to minuscule amounts would be considered a success.
What are the thresholds for minor, moderate, and major declines? Again, I pose this question to the readers of this article. A few reference points:
- Annual deforestation in the Ecuadorian Amazon ranges from 0.079% in Indigenous territories and 0.403% in non-indigenous lands (MAE/Forest Trends).
- Annual deforestation in the coastal dry forests of Ecuador can climb as high as 5.0% (the Landscapes & Livelihoods Group report to TMA).
Consequences of Halting Payments
The argument could be made that cutting off payments to forest stewards, in any scenario, could make the problem worse. If communities that depend on payments are suddenly forced to go without those payments, this could trigger more forest exploitation.
It’s a valid point that needs to be examined. As a forest steward myself, I am constantly worried about suddenly losing an expected funding source. I’m certainly sympathetic to this concern.
The counterargument is that if Payments for Ecosystem Services aren’t tied to performance, the incentive doesn’t work. And at the end of the day, that’s what this is all about — it’s an incentive system.
It’s like the nice guy who really wants to be a doctor but he’s not very smart. As your friend, you don’t want him to fail, per se, but you certainly don’t want him as your doctor. A medical school that gives a passing grade to everyone, regardless of performance, is committing a dangerous public disservice.
A new system like FCL gives us all an opportunity to raise the bar of expectations. That said, this is all open to debate.
There are a few steps that could be taken to increase the likelihood that projects successfully maintain (or grow) the carbon storage of their forests. These include:
- Focus first on addressing the drivers of deforestation.
- Be more discerning about which projects are approved. Focus on projects with good leaders, an effective strategy, and broadscale community buy-in.
- Do a better job of distributing the project’s monetary benefits throughout the communities that are responsible for protecting the forest.
- Be clear to forest stewards, from the outset, that the payment system is bound by numbers and will not be lenient.
- Use real-time data — for example, from forest acoustic monitors trained to detect chainsaws — to alert forest stewards of deforestation as soon as it occurs.
- Ensure that public institutions — especially law enforcement — are onboard with the project and will prosecute illegal activity.
- Ensure that government policy — particularly fiscal policy — is aligned with forest conservation. At the very least, subsidies for forest-clearing activities such as cattle ranching and large-scale commercial agriculture should be eliminated.
- Last but not least, use the carbon market as a lever. If the price of CO2 is high enough, there will no longer be an economic incentive to exploit native forests.
It still won’t be easy. Deforestation is a hard habit to kick. But once this system gains transaction, and the true cost of carbon is properly priced into the market, forests will be more economically valuable when they’re still standing, as opposed to cut down. That will be the phase shift.
The Question of Sustainable Harvest
Again, let’s consider a few hypothetical examples.
Let’s imagine that a community manages 10,000 hectares of old-growth forest. Would they be able to monetize 8,000 hectares with FCL and use the remaining 2,000 hectares for selective logging?
No.
A simple but immutable rule would be that forest communities or project managers that manage an FCL project would need to preserve 100% of the old-growth forest that is within their control. Full stop.
A second hypothetical scenario: what if a community manages 10,000 hectares of secondary-growth forest. Would they be able to monetize 8,000 hectares with FCL and use the remaining 2,000 hectares for selective logging? Possibly — with a few conditions.
- The selectively-logged forest would still need to maintain a certain threshold of forest coverage at all times — such that the forest would effectively be “degraded” (in both carbon and biodiversity terms) but not deforested. In other words, no clear-cutting.
- It would also need to maintain a certain threshold of tree diversity. In other words, no monoculture tree plantations.
- The net outflow of CO2 from the logging activities would obviously be deduced from their total CO2 storage ledger.
Third example: what if the same community above, which manages 10,000 hectares of secondary-growth forest, wishes to monetize 8,000 hectares with FCL and convert the remaining 2,000 hectares into a monoculture soybean plantation?
No. FCL cannot be part of any project — even indirectly — that converts secondary forest into a monoculture plantation.
Leakage
To address leakage that occurs in areas beyond the control of the forest stewards, there are two different approaches the FCL could take. The first option would generally take the same approach traditionally used in REDD+ projects.
- Identify forest exploitation activities that have historically taken place in the project area.
- Determine which of these activities may be displaced to other forests.
- Take actions to minimize the displacement of those activities.
- Lastly, estimate the percentage of leakage that would likely occur and incorporate an appropriate discount factor to the ledger.
If the leakage percentage is estimated at 10%, this amount is discounted from the annual CO2 value.
The second option, which is more robust, would be to measure and monitor the total carbon stock of not only the project area, but also the entire surrounding area. If aerial imagery reveals that deforestation in the project area has been eliminated, but that deforestation in the surrounding area has increased, this would indicate leakage. And, in this case, we would be able to calculate the actual leakage percentage in the present, rather than subjectively estimate a leakage percentage in the future.
The “dynamic baseline” approach by the tech-forward carbon offset platform Pachama already does something similar. Using satellite imagery, they “match pixels within the surrounding region to each and every pixel within the project boundary, based on attributes such as distance to roads, topography, and forest structure. Unlike status quo static baselines, Pachama’s dynamic baseline is updated annually to observe what actually happened in forests without carbon projects, and capture shifts in background land use that are impossible to predict due to elections or commodity prices.”
Risk, Non-Permanence & Fires
As with REDD+ projects, a “non-permanence risk rating” should be assessed and applied to all FCL projects. A percentage of the CO2 value (i.e., a risk buffer) can can be set aside and not commercialized to ensure validity of carbon value in the event of impermanence.
If there have been no unexpected carbon losses over a certain period of time, some of the CO2 value held in the risk buffer can be released to the forest stewards in the form of delayed payments.
Forests considered to be at risk for forest fires should be discounted accordingly — in some cases, significantly, depending on the average fire cycle of a given forest. This would be addressed by the non-permanence risk assessment.
A Note About Amortization Over 50 Years
Although I have used a 50-year lifecycle as a reference point for calculating annual carbon value, this is mostly a practical accounting measure. It does not mean that FCL forests are expected to only last 50 years. Rather, 50 years was chosen as an aspiration of long-lived storage proposed by the Oxford Principles of Offsetting (100+ years) but with a more realistic human management timeframe of two generations.
That said, the payment period would officially be 50 years, with the option to renew the project before the 50-year deadline is up. At that point, who knows what kind of world we’ll be living in. All we can do now is try our best to keep our forests alive until then.
Moving Beyond Additionality
The requirement known as “additionality” is a hallmark of carbon projects. When it comes to financing forest conservation, additionality is problematic for several reasons.
- It’s extremely subjective and therefore easily bypassed and abused. See Bloomberg’s article with a high-profile example of this.
- Additionality rewards land managers with a bad track record and penalizes land managers with a good track record. We need to do the opposite.
- Should the most vulnerable forests be given priority for funding? Yes. Once the most vulnerable forests have been funded, should we then give priority to all other eligible forests? Yes.
The bottom line is that FCL views tropical forests as a global ecological asset right now, regardless of their past histories and/or guestimates about their future fate. When you have an asset that you value — like a business or a house — you need to invest in its operations and maintenance. Plain and simple. The same applies to forests.
ReSeed, an innovative carbon developer with small-scale farmers in Brazil, takes a similar view. Their white paper explains, “The current use of the additionality concept has proven to be unworkable in practice time and time again. It also has baked into the carbon market an inherently unjust and mostly unmeasurable theoretical quality that acts as an insurmountable barrier to entry into this market and greatly reduces its ability to scale.”
Additionality is a relic of the era in which protecting intact forests is still considered optional.
As we enter into the most critical phase of carbon drawdown, the carbon value of intact forests will rise over the coming years and decades, rather than decline. Moving beyond the somewhat stultified forest conservation mentality of the present day, we ought to look ahead to how the world will need to manage its forests in 2030 through 2050.
If the market-based economy is still alive by then, all intact forests in the tropics will need to be monetized and conserved.At that point, additionality will be irrelevant.
REDD+ was designed for the 2010s. FCL is designed for the 2030s.
Jurisdictional Approach vs Project-Based
The controversial “jurisdictional approach” associated with REDD+ is “a type of integrated landscape management with high levels of government involvement, leading to comprehensive governance of forest and land use across entire political territories.” — CIFOR
The jurisdictional approach is compatible with FCL but it isn’t necessary, and may not be desirable.
One of the purported benefits of the jurisdictional approach is that it would standardize projects, which was helpful for the motley of REDD+ projects floating around in the early 2010s. FCL is an inherently more streamlined and straightforward system, which lends itself to the project-based approach.
One of the biggest defects of the jurisdictional approach is that it is highly vulnerable to government corruption and incompetence. A quick glance at the Corruption Perception Index reveals that many of the countries with the most critical tracts of tropical forest are also the countries with the highest levels of government corruption. As a funder of carbon projects, do you really want to put your money in the hands of a notoriously corrupt government? Probably not.
For this reason, smart funders will probably stay away from jurisdictional projects.
Because of the strict results-based approach of FCL, FCL-based projects are best -suited to local management, which has a powerful incentive to effectively respond to threats. Local managers are also — in most cases — more nimble than governments and can respond to threats more quickly.
If the FCL measures leakage by measuring and monitoring the total carbon stock of the entire surrounding area, in addition to the project area, it would effectively gain one of the purported benefits of the jurisdictional approach without having to forfeit local management to national government officials.
In any event, cooperation among all stakeholders — including national governments — will be needed. This applies to all forest conservation projects, regardless of whether they’re REDD+ or FCL, or jurisdictional or nested or project-based. All sectors of society will need to be aligned.
Once broad alignment is achieved, however, the people who manage the forest should be the people who actually live in and around it. Even merely in the interest of efficacy, green colonialism needs to be replaced with local management supported by national fiscal policy.
See below for how this could look in practice.
The Role of Government, NGOs, Communities & Private Sector
Which sector should manage FCL projects? Above, I made the case for local actors supported by national fiscal policy. Another way to answer this question is to let the market decide who it trusts to execute the projects most effectively — which will probably yield the same answer.
Historically, indigenous communities have generally proven to be the most effective stewards of the forest. Well-organized NGOs are generally more effective than governments. But well-organized governments could outperform poorly organized NGOs.
The private sector is best positioned to perform key services connected to FCL projects — such as remote sensing, data analysis, project auditing, and certainly with financing. But as project managers, for-profit actors have a dubious reputation in the forest carbon industry, precisely because they tend to be the least responsive to local stakeholders.
The best-case scenario for FCL projects would be society-wide collaboration across all sectors, with local actors taken the lead role in project implementation, the private sector playing a key role in services and financing, and the public sector filling in the gaps where necessary and facilitating the growth of carbon forestry as an industry to counteract extractive industries.
Transparency
REDD+ projects are technically transparent but not practically. Every REDD+ project has an extensive Project Design Document that certifying bodies, such as Verra, make publicly available on their registries. But you have to be an industry specialist in order to understand it. You have to sift through a hundred and thirty pages of legalese just to find basic answers.
If we take the time to build a new carbon accounting method, like FCL, we can also significantly increase the level of transparency. This will reduce potential cheating and generally increase credibility.
For each FCL project, all of the following data will be published on a publicly-available website that will be made easily understandable to all stakeholders:
- All carbon stock data
- All remote sensing data
- All financial transactions between funders and project beneficiaries
- All expenditures made by the community trust
To avoid a situation in which intermediaries, NGOs, or government authorities siphon off most of the payments, an additional stipulation can be made–similar to what Plan Vivo requires — that 80% of payments need to be distributed to local stakeholders.
If any of these standards are not met, payments will be suspended until the situation is rectified.
Putting the FCL on blockchain could add an additional layer of trust. If anyone out there would like to help us build this, please contact me.
Auditing & Certification
In the case of REDD+, the use of third-party auditors and certifiers does not necessarily mean that projects are objectively vetted. On the contrary, auditors and certifiers often have just as much of an incentive to uphold overly optimistic carbon estimates as project developers do.
How would FCL fix this problem?
For starters, the carbon accounting system itself is more straightforward and difficult to manipulate. FCL will still need a third-party to perform or at least vet the biomass inventories and other data used to calculate total carbon stocks, including remote sensing data. But most of the latter will be analyzed by AI, which can be programmed to be impartial.
At the end of the day, FCL doesn’t expect to entirely eliminate the possibility of cheating. But cheating will become much more difficult, both in terms of accounting and monitoring. This is one of the main arguments in favor of FCL over REDD+. The results will be more reliable and resistant to manipulation. This, in turn, will ultimately attract more funding, which should lead to more effective forest conservation. That’s the purpose of this whole undertaking.
The Role of Carbon Markets & Carbon Coin
In theory, the carbon markets would be able to finance FCL projects just as easily as they currently finance REDD+ projects. It’s just a different form of carbon accounting. Indeed, if FCL proves to be a more reliable carbon accounting method, carbon markets would generally benefit–to the extent that demand for carbon credits increases.
But the conventional carbon market is not the only way to finance FCL projects. The “carbon coin” concept was first put forth by Delton Chen, under the name Global Carbon Reward. The concept was then popularized by Kim Stanley Robinson in his prescient Sci-Fi novel The Ministry of the Future, in which central banks agree to use carbon as the basis for international monetary policy.
It’s a bold idea, and the details still need to be worked out. But if such a monetary policy was created, it would be much more aligned with a carbon accounting system such as the FCL — which measures total carbon stock in reality, as a long-term asset — as opposed to REDD+, with its subjective counterfactual analysis.
Next Steps & Additional Links
The FCL concept will first need to be discussed and debated within the industry. Some players that are heavily vested in REDD+ will understandably be resistant to a new methodology. But some of these same players will also have the most valuable insight into how the FCL concept could be refined and made ready for application.
And if anyone would like to help us build this — particularly specialists in the fields of remote sensing and blockchain, please get in touch with me.
In the meantime, TMA is has already begun to pilot the Forest Carbon Ledger in the Capuchin Corridor in Ecuador. The Capuchin Corridor protects one of the last remnants of the Pacific Forest of Ecuador. TMA is exploring different ways to provide economic incentives to local communities to protect and restore this ecosystem. For more information, check out:
- Comparing the Forest Carbon Ledger to REDD+: Using the Capuchin Corridor in Ecuador as a case study
- Carbon Assessment of the Capuchin Corridor & Camarones River Basin
- Full-Spectrum Forest Valuation: A Holistic Model for Quantifying the Value of a Forest (Coming Soon)
- Brief Summary of the Capuchin Corridor: A 40,000-hectare rainforest conservation & restoration project
Last but not least, we also propose a new financing mechanism for global ecological restoration: Creation of the International Biosphere Fund, modeled (somewhat) like the IMF.
About the Author
Jerry Toth is the co-founder and program director for TMA (Third Millennium Alliance), a nonprofit rainforest conservation organization based in Ecuador. For the last 15 years, TMA has been working to preserve and restore one of the most endangered rainforests on earth: the Pacific Forest of Ecuador. TMA’s current focus is the creation of the 40,000-hectare Capuchin Corridor, which serves as a case study for novel approaches to forest restoration and natural capital financing.
Jerry earned his degree in Economics at Cornell University and was a Hansard Scholar at the London School of Economics. He is also the co-founder of To’ak Chocolate, based in Ecuador.
