What carbon markets done right look like

Fred Krupp

As a devastating human tragedy unfolds in Ukraine, the dangers driven by our dependence on fossil fuels — including global instability, soaring prices, climate change, and extreme weather — are undeniable.

Last week’s North American Carbon World conference brought together companies, carbon market players and experts who believe fixing broken incentives is essential to reducing that dependence quickly, inexpensively and — if designed right — equitably.

The idea is simple: Companies chase profits, so the rules must change to make clean energy more profitable than fossil fuels. That will drive fresh innovations and conservation strategies.

Carbon markets can help. They’re already cutting pollution in California, Europe and Latin America — and delivering justice benefits as well.

Slashing deforestation in Brazil

In 2004, if the Brazilian state of Mato Grosso were a country, it would have been the world’s 10th-largest emitter of greenhouse gases, the result of massive deforestation to produce soy and grain-fed cattle. After the state instituted programs to cut deforestation via the REDD+ framework (Reducing Emissions from Deforestation and forest Degradation), the state’s emissions dropped so much that by 2014, it would have been only the 77th-largest emitter, even as soy and cattle production increased.

In 2017, Mato Grosso’s success led Germany’s Ministry for Economic Cooperation & Development to award the state $54 million. Remarkably, 60% of the resources Mato Grosso received went to local communities — including Indigenous and traditional peoples and smallholder farmers — doing their part to protect the forest. And Mato Grosso has maintained relatively low deforestation despite deforestation recently spiking across Brazil.

While the state didn’t trade credits during this period, this is the kind of performance we can expect from tropical forest jurisdictions that participate in a market for high-quality, high-integrity tropical forest carbon credits that deliver the greatest impact for climate, biodiversity and people, allowing companies to purchase these credits with confidence.

Equitable inclusion and benefits are key

Mato Grosso and other REDD+ jurisdictions show that successful carbon pricing must be equitable and just — by supporting local forest communities who are stewards of the forest or by tackling climate pollution and harmful local air quality at the same time.

This can be done with the right policies.

In 2019, Colorado passed a mandate to cut statewide climate pollution while requiring strategies to cut air pollution in overburdened communities. In 2021, Washington State passed a cap-and-invest program that mandates increased local air monitoring — and new standards to improve air quality where necessary.

Revenues from California’s cap-and-trade market, a joint effort with Quebec, led to investments that are the equivalent of taking 14 million cars off the road and cutting 66,000 tons of pollution — while adding 170,000 jobs.

The Yurok tribe is one of the beneficiaries of California’s carbon market. The Yurok sold offsets for the carbon sequestered by forests they bought from a timber company, using the proceeds from their offset sales to invest in sustainable forest management practices and to buy additional ancestral land.

Huge climate and community impact

Carbon markets can drive private capital to countries and sectors that need it most. In 2021, the LEAF coalition (Lowering Emissions by Accelerating Forest finance) mobilized $1 billion of voluntary payments to tropical forest jurisdictions around the world — the largest-ever public-private effort to protect tropical forests.

And let’s be clear: Companies in the LEAF coalition are complementing — not replacing — their efforts to cut their own supply-chain emissions. LEAF investments are also designed to deliver social safeguards and benefits for communities that are preventing deforestation.

The $1 billion LEAF has mobilized so far is a drop in the bucket compared with what will happen when this effort expands. Let’s imagine a future in which LEAF jurisdictions prevent 2.5 gigatons of CO2 emissions per year from deforestation or forest degradation. That could easily amount to $25 billion a year or more in results-based payments.

Lower costs and just outcomes

When done right, carbon-pricing policies can cut the costs of achieving lowered emissions targets, which can lower political barriers to more ambitious goal-setting.

Carefully crafted carbon markets can secure billions of tons of emissions reductions, ramp up global ambition, support forest communities and help realize the full promise of the Paris Agreement — speeding our transition to a safer climate for everyone.

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