Reducing Emissions from Deforestation and Forest Degradation (known as REDD+) is essential for keeping the 1.5C warming target in sight and is second only to wind and solar as climate solution. While well-publicised media attacks pushed prices significantly lower in 2023, resilient retirement demand and Verra’s new consolidated methodology should see confidence – and prices – rebound in 2024.
Since REDD+ began to scale in 2017, the project type has accounted for around 27% of all carbon credit issuances and 30% of retirements. This has seen the volume of outstanding credits remain steady with the current inventory equal to the levels in Q1, 2022. This stable retirement demand persisted in 2023, coming in at 31% of all retirements, despite the negative media commentary seen throughout the year and which peaked in January and September. This resilient demand through adverse conditions gives us confidence that REDD+ will regain lost pricing in 2024 as more ambitious offset targets are made and met including through the use of forest carbon credits.
Carbon markets have long played a key role in financing forest conservation and driving climate action. REDD+ pays forest owners, in many cases Indigenous Peoples and Local Communities, to protect the forest from threats like illegal logging or mining, bringing resources to those communities that they wouldn’t have access to, like jobs, education, training, and health care. Without this source of revenue, deforestation would occur because of the lack of economic incentive to keep the forest standing. In this way REDD+ compensates forest owners for their lost economic opportunities, and to allow them to defend the forest that many of them rely on for their food and livelihood.
Despite their critical importance, the integrity and additionality of some REDD+ projects have faced scrutiny over concerns about baseline setting and leakage. These technical science accounting rules determine how many credits can be issued by a project; small variations in baseline assumptions and reference sites can make significant volumetric differences across large projects areas.
To deal with this variability, Verra, the global standard that oversees REDD+ introduced a consolidated methodology – called VM0048 – that will replace three existing methodologies – VM0007, VM0009 and VM0015. VM0048 introduces deforestation consistent baseline setting across relevant jurisdictions. The methodology introduces several groundbreaking changes:
- Verra now directly handles the baseline setting process, using high-resolution satellite imagery and advanced risk modelling to establish standardized jurisdictional baselines. This removes potential conflicts of interest around project proponents setting their own baselines.
- Baseline activity data is allocated to projects proportionately based on deforestation risk modelling, ensuring a more robust quantification of emission reductions across entire jurisdictions.
- Key features are aligned with Paris Agreement commitments and national climate plans, opening the door for greater alignment with government-led REDD+ programs.
- A new module provides a standardized approach for quantifying and monitoring emission reductions at the project level.
Verra has also outlined a clear transition process to move existing REDD+ projects across to the new methodology framework over the next two years. This represents a major step forward in strengthening the integrity and impact of REDD+ activities for climate change mitigation. By directly overseeing baseline setting and standardizing key accounting elements, Verra’s new methodology aims to bolster confidence in REDD+ credits and channel more results-based finance to critical forest protection efforts.
The launch of the new methodology has been broadly well received and is a priority for evaluation under the ICVCM’s Core Carbon Principles Assessment Framework. This increase in confidence, demand and pricing can come none too soon. Deforestation has continued steadily for the past 40 years, threatening forest peoples, biodiversity, water and food security and of course the carbon sinks that stabilise our climate.
CGP has investments in several REDD+ projects and we will be working with the project developers and Verra to move the projects and our credits through the transition process. Once through, the market value of the credits should increase greatly as the uncertainty that has clouded the REDD+ market for the last year will be removed. We expect that this process will unfold over the course of the next 6-12 months and will keep you updated.