Forests and finance trends — role of forests in meeting the Paris climate targets

An aerial view of the Amazon rainforest, near Manaus, Brazil. Photo by: Neil Palmer / CIAT for Center for International Forestry Research / CC BY

While the Paris agreement solidified the role forests play in the fight against climate change, a recent report indicates that forest carbon trading is not working in developing countries and that voluntary carbon markets remained stagnant amid flagging demand in 2015.

The findings comes from the latest State of Forest Carbon Finance report, released on Wednesday, which looked at the amount of money flowing into forest projects and government programs designed to reduce carbon dioxide emissions, in 2015.

Forest carbon finance refers to the funding of initiatives designed to reduce deforestation, plant new trees and promote carbon-conscious land management — all of which results in a reduction of CO2 emissions. Each ton of CO2 not emitted translates into one carbon credit, which can then be traded on either the voluntary or compliance carbon markets, enabling governments and companies to meet their carbon emission allowances or voluntary targets.
While the report found that $888 million was committed in new forest carbon finance during the year, which is the largest influx of funding into the sector to date, only approximately 20 percent of that money flowed into forest conservation projects in developing countries. The majority of the remainder went to projects in California and Australia.

The $888 million in funding will remove the equivalent of 87.9 million tons of CO2 from the atmosphere, according to Forest Trends’ Ecosystem Marketplace, who authored the report.

But with deforestation contributing 3 billion tons of CO2 each year, which is almost 8 percent of the annual carbon budget the Paris agreement allocates for the world in 2030, funding is clearly far short of where it needs to be to make a meaningful impact.

The report also found that sales of carbon credits through the voluntary carbon market fell during 2015 to the lowest levels since 2009.

These findings have come as a surprise to climate experts who expected the 2015 data to show an increase in forest finance to developing countries in light of recent “strong policy signals” on the need for action on climate change.

Michael Wolosin, a senior adviser at Climate Advisers, said: “The data shows that while forest carbon is working in domestic markets, it’s not working in the international markets. Clearly we have not yet succeeded with sending the policy signals needed to supercharge international trade.”

Securing international trade for offsets is crucial to ensuring higher carbon prices for people in developing countries undertaking forestry activities.

To address this, Wolosin said the international community needs to work to promote forest carbon finance, scale up existing projects and reassure buyers that the projects are robust.

On the subject of the sluggish voluntary carbon markets, Wolosin said: “There were two big policy signals in 2014 which really should have affected the 2015 data.”

Wolosin was referring to the New York Declaration on Forests, signed in September 2014, which has commitments to end loss of natural forests by 2030, and the Sustainable Development Goals which addressed deforestation and ecosystem loss.

However, Kelley Hamrick, an expert on carbon markets from Forest Trends, said she expects to see new buyers entering the voluntary market in the next few years thanks to the strong endorsement of forests given in Paris.

“We are currently in a time of flux but there has been a lot of good development over the last seven years since we started producing this report,” Hamrick said.

The Paris agreement adopted at COP21 in December 2015, marked the first time forests have been formally enshrined in the global climate regime. Article 5 of the agreement requires countries to take action to conserve forests due to their ability to act as “carbon sinks” — absorbing CO2 from the atmosphere.

The agreement also calls on parties to support projects which reduce emissions from deforestation in a sustainable way — Reducing Emissions from Deforestation and Forest Degradation, is the main tool by which countries do this, by offering financial incentives for developing countries to lower their forest-related CO2 emissions.

Forestry organizations are hoping the Paris agreement, which comes into force next week, will send a strong political message in favor of financing REDD+ as a means of keeping greenhouse gases locked in forests and other natural “carbon sinks.”

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About the author

  • Sophie Edwards

    Sophie Edwards is a Reporter for Devex based in London covering global development news including global education, water and sanitation, innovative financing, the environment along with other topics. She has previously worked for NGOs, the World Bank and spent a number of years as a journalist for a regional newspaper in the U.K. She has an MA from the Institute of Development Studies and a BA from Cambridge University.