Nature-based credit markets at a crossroads

Abstract

A swathe of recent impact evaluations demonstrating disappointing results suggest nature-based credits (derived from carbon or biodiversity offsets) are at a crossroads. Either nature-based credit markets are fundamentally reformed to adopt the latest scientific understanding on additionality, leakage and permanence, rebuilding investor confidence and allowing them to upscale, or they will continue to demonstrate non-additionality, lose investor confidence and constrain one of our most promising tools for drawing private investment into conservation. Scientific credibility can be established by releasing nature-based credits ex-post after proven demonstrably additional relative to a statistically-derived counterfactual. Credit markets must also be reformed to make them robust to, rather than resistant to, scientific improvements in credit estimation methods by conservatively estimating benefits whenever there is uncertainty. These principles imply a greater degree of regulation to ensure fundamental demand for these high-integrity, higher-priced mitigation outcomes. We argue these principles are necessary to support credit markets associated with sufficient market confidence to attract investment and deliver the environmental benefit embedded in the ambitions of the Kunming-Montreal and Paris agreements.

Sensitivity of estimates of the effectiveness of REDD+ projects to matching specifications and moving from pixels to polygons as the unit of analysis

“…The lack of credibility of the credits being issued poses a threat to this important revenue stream 35,48 . There is growing recognition that conservative credits issuance 49 can help address issues such as impermanence 50 , and leakage 51 The relative importance of the three validation criteria as the reasons matched sets were rejected. The three panels show differences in deforestation rates for the 44 REDD+ projects (% yr -1 ) during the first five years of project implementation, arranged by project-level average differences (x-axis).…”

“…The lack of credibility of the credits being issued poses a threat to this important revenue stream 35,48 . There is growing recognition that conservative credits issuance 49 can help address issues such as impermanence 50 , and leakage 51 . At time when confidence in the voluntary carbon markets is low, we hope our results provide reassurance that ex-post counterfactual estimates of avoided deforestation can deliver relatively consistent estimates of additionality, helping accelerate their widespread adoption and rebuild trust in nature-based climate solutions.…”