Last month, we began a series on jurisdictional REDD (J-REDD), starting with a brief history of this unique source of carbon credits. We continue the series, this time with a checklist of items a buyer may want to consider before purchasing J-REDD credits.

This year we may see a number of J-REDD credits appear in the voluntary market (VCM) or for sale to use under CORSIA or Article 6. There are multiple organizations that intend to issue J-REDD credits, including:

• The Architecture for REDD+ Transactions (ART), using its TREES standard
• Verra, using the VCS Jurisdictional and Nested REDD+ standard (Scenarios 2 and 3)
• The Forest Carbon Partnership Facility (FCPF) Carbon Fund, managed by the World Bank, using the FCPF Standard
• REDD.Plus, using the UNFCCC process for claiming emission reductions or removals from forests

Credits that emerge from these programs can have variable quality – not just in terms of greenhouse gas (GHG) integrity, but also other environmental and social aspects. Some of the variance in quality may be due to the standards themselves (which we previously wrote about after the ICVCM’s endorsement of ART-TREES and VCS JNR). But even within a single GHG program, there can be large differences in credit quality – as well as differences in the level of risk a buyer takes on when purchasing and using such credits.

To help companies consider whether to purchase J-REDD credits, we have created a checklist of items worth considering prior to transacting.

#1 - Did the government do something new and meaningful to reduce deforestation?

One challenge of J-REDD, with regard to additionality, is attribution. The typical way to demonstrate additionality is through a financial test – projects show how carbon finance is “make or break” for the actions they are taking to claim credits. This is more challenging for J-REDD due to the fact that programs are run by governments that have different goals and means compared to project developers. Governments do not typically make policy decisions based on financial returns. In addition, the revenues from J-REDD payments typically represent a small part of the finance required to reduce emissions at the jurisdictional level. Therefore, it is important for the jurisdiction to demonstrate it is doing something beyond business-as-usual.

Further complicating the issue is that some J-REDD methodologies allow countries to claim performance in arrears, allowing a look-back as long as 4 to 5 years, versus a clear commitment to take specified actions going forward. The motivation was to recognize that governments (due to their bureaucratic nature) require more time to come up with the program documentation and go through registration and validation/verification processes than private projects.

However, forest emissions can have high interannual variability, which is a fancy way of saying emissions can change significantly year-on-year, due to factors that have nothing to do with J-REDD program efforts – from the price of commodities to weather patterns such as El Niño. This allowance to register years after a claimed “start date” of a J-REDD program can create adverse selection – whereby countries that see positive performance (that may be unrelated to intentional actions) opt into registering to generate credits and countries that have poor performance opt out.

Therefore, the checklist for purchasing J-REDD credits begins with: 

• Did the country clearly commit to taking specific new or enhanced actions to reduce deforestation prior to indicating a desire to benefit from carbon finance?
• How was the expectation of carbon finance critical to the actions taken?
• If the government has claimed certain actions were taken, are they commensurate with the claimed emissions performance (or were the other exogenous factors at play)?

#2 - Is there over-crediting?

Over-crediting can occur in two areas: (1) the calculation of emission reductions; and (2) whether leakage has been estimated and deducted in the final emission reduction or removal claim.

The main issue when calculating emission reductions is how well the baseline is set. For J-REDD, the baseline will be conservative if it is a near-term historical average (as is the case for ART-TREES, VCS JNR and FCPF) and emissions from deforestation are rising. However, in some cases, this does not hold true – while in most countries deforestation is increasing, there are cases where it is flat or declining (so an average baseline is not realistic).

Along the same lines, under ART-TREES, high forest cover, low deforestation (HFLD) provisions can allow baselines that are considerably higher than what might be expected in a realistic scenario. Under REDD.Plus which uses the UNFCCC submissions, baseline approaches are flexible – there is little guidance (such as using historical averages) and therefore should be checked to ensure they are realistic.

J-REDD methodologies also vary considerably with regard to estimating and deducting for potential leakage – in other words, accounting for the situations where actions to reduce emissions (e.g., stopping deforestation in the Brazilian Amazon) cause emissions elsewhere (e.g., creating deforestation in the Cerrado region). Some do not estimate leakage at all (e.g., REDD.Plus) and others may vary in ways that might not capture leakage appropriately. For example, ART-TREES depends on size and extent of the jurisdiction, not on drivers of deforestation, and also assumes zero leakage if the jurisdiction is the entire country (i.e., does not account for international leakage).

To check on overcrediting, a few more items for the checklist: 

• Are the following conditions met: (a) the baseline is a near-term historical average, and (b) deforestation in the country has been increasing? If not, the baseline should be checked to ensure that it is justified.
• Has leakage been calculated and deducted from the estimated emission reductions and, if so, is the calculation method justified? 

#3 - How likely are the emission reductions to be permanent?

Here, the problem is that most J-REDD standards do not have in place robust mechanisms to guard against reversals. In fact, they are largely much weaker than most project-level mechanisms that include buffer pools and longer-term commitments to monitor and compensate for reversals.

In some cases, J-REDD standards allow a country to simply walk away after receiving credits, with no requirement to continue monitoring (much less compensate). For some standards, buffer contributions can be as low as zero or 5% of the credits generated. Moreover, when a J-REDD program fails after a reversal and is not able to replenish the pooled buffer, GHG programs usually assume only a limited liability, so the full replenishment of the buffer is not guaranteed.

Perhaps it is an oversimplification, but government actions to reduce deforestation can be put into two categories: (1) command and control, or (2) economic transformation. The former can be highly effective (e.g., going after illegal cutting of forests or putting in place strong regulations to avoid deforestation) but these types of policies can be easily reversed with the winds of political change. The latter should enjoy broader public support if it is lifting up many stakeholders and providing them alternatives to economic development.

As such, if the crediting program does not carry out a robust reversal risk assessment, additional considerations on the checklist should be: 

• Are the actions taken to reduce deforestation sustainable (i.e., do they enjoy broad political support)?
• In the actions taken, are there legal provisions that would be difficult to unravel?
• Does the country have a track record of taking such policies and sticking to them?

#4 - How is the government intending to share carbon revenues?

This is often called “benefit sharing” and has been at the heart of the difficulties of getting a J-REDD program in place. For projects, there is usually a limited number of stakeholders – and still, developing a fully participatory system that has the “free, prior and informed consent” (FPIC) of affected individuals and communities is difficult. This is even more challenging at the jurisdictional scale where there may be millions of stakeholders.

A government will need to develop a system to distribute carbon finance from a J-REDD program that is equitable, efficient and free from corruption.

Therefore, adding to the checklist: 

• Was the J-REDD program – including the actions taken by the government to reduce deforestation as well as the benefit-sharing mechanism – developed through meaningful consultation, ensuring FPIC at its core and reflecting community needs and priorities?
• How will the government distribute the finance from the J-REDD program? Is there a clear and equitable framework that ensures financial benefits reach Indigenous Peoples, local communities and other relevant stakeholders?
• What mechanism will be used to distribute finance and how is that mechanism governed? Is there a track record that one can trust in the disbursement of funds?

#5 - What is the carbon rights regime in the country?

Last but not least, is the issue of carbon rights. This may be the crux of whether J-REDD credits can actually be generated in a particular jurisdiction. Some J-REDD standards require title transfer (to carbon rights). Every country differs and many have not codified carbon rights as they relate to land (forests, soil, other vegetation).

Absent such clarity, it can be difficult for a government to create and monetize an asset that is tied to the myriad of various landowners and land managers within the country. Once a government does so, it will limit the ability of such landowners to also create and monetize the carbon asset based on their activities – because one key concept of carbon markets is that emission reductions should not be “double counted” for use as offsets.

Where a carbon crediting program does not require a transfer of title and clarity on carbon rights, it’s worth considering the implications of a government taking over the rights to generate and monetize reduced deforestation (or tree planting) – particularly after decades of efforts to decentralize forest management and empower Indigenous Peoples and local communities.

So, a few more final items for the checklist: 

• Has a legal analysis been done to ensure that the government has either: (1) the right to generate and monetize the carbon credits, or (2) not acted in a way such that there will be legal action taken by landowners (or land managers) in the country?
• Does the J-REDD program recognize and respect Indigenous Peoples' and local communities' rights to land and carbon, ensuring they can benefit rather than be excluded?

Carbon crediting as one (but not the only) tool to slow deforestation

Carbon finance can be a powerful tool to slow, halt or even reverse deforestation. Costa Rica offers an excellent example of how financial incentives (i.e., direct payments to landowners to keep forests standing) helped to change the trajectory of forest loss in the country. It is a “payments for ecosystem services” (PES) system whereby a carbon tax helps to finance a fund that is used to distribute payments to landowners that protect forests.

As Carlos Manuel Rodriguez, the Minister of Environment and Energy, said, “While Costa Rica’s basic strategy could be applied anywhere, ‘principles and values’ need to be in place, too. These include good governance, strong democracy, a respect for human rights and a solid education system.” These underlying characteristics of a country might be additional checklist items, depending on the risk tolerance of a buyer.

Follow us on LinkedIn for our next installment in this J-REDD series that will focus more on #3 and #4 above, diving deeper into benefit sharing and safeguards.

A note on the authors:

Derik Broekhoff is currently at Stockholm Environment Institute and serves on the Calyx Global GHG Integrity Panel. He was formerly Vice President at Climate Action Reserve, and was part of the REDD Offset Working Group that discussed California’s Tropical Forest Standard, an early effort to include J-REDD in a compliance scheme.

Donna Lee has been deeply involved in J-REDD since 2007, serving as the U.S. negotiator on REDD, a former member of the FCPF Carbon Fund, and having worked with many developing countries on J-REDD and nesting from 2012 to 2021.

Manuel Estrada is an independent consultant and serves on Calyx Global’s GHG Integrity Panel. He was formerly a REDD+ negotiator (for Mexico) and also was at Verra, where he led the design of the VCS Jurisdictional and Nested REDD program.