Forests cover approximately 31% of the Earth's land area, with more than one-third classified as primary forests. Primary forests refer to naturally regenerated forests consisting of native species.1 These forests store roughly 45% of the organic carbon found in the planet's biomass and soils.2 When considering both older and regenerating forests, they collectively capture around 2 gigatonnes of carbon (GtC) annually, thus playing a significant role in enhancing the terrestrial carbon sink.3 In the realm of carbon offset, forestry presently accounts for the majority of both removal offsets and total offsets measured in tCO2e across all registries. In 2021, forestry constituted 40% of all registered offsets, encompassing both projects available on the market (termed "issued" projects) and those that have already been purchased (referred to as "retired" projects).
On the voluntary carbon market (VCM), private companies, non-governmental or public organisations, and even individuals can purchase carbon credits to offset their emissions, thereby claiming carbon neutrality in relation to their emissions account. This is a voluntary process and operates independently of public regulations and the United Nations Framework Convention on Climate Change (UNFCCC). The UNFCCC, under Art. 6.4 of the Paris Agreement (PA), provides mechanisms for countries to reduce their carbon emissions using the Emission Trading System (ETS) to fulfil their nationally determined contributions (NDC).
While private entities are permitted to take part in the Art. 6.4 PA mechanisms, they must gain approval for their projects from their country and a UN Supervisory Body or utilise the VCM for trading "unauthorised credits," which are not authorised by a country or the UNFCCC Body. Although the VCM is less regulated, Carbon Credits eligible for issuance must be certified by foundations and NGOs that evaluate projects based on their climate, livelihood, and environmental benefits to ensure their legitimacy.
This setup poses a potential risk of double counting, where credits could be issued to multiple entities for the same emissions abatement project, as unauthorised credits do not entail the same adjustments as the Art. 6.4 mechanism. However, it is anticipated that "adjusted credits" will be considered of higher quality in the market before issuance.
Currently, the most established voluntary carbon credit (VCC) framework, primarily centred on forests and forest-related projects, goes by the name REDD+ ("reducing emissions from deforestation and forest degradation and the role of conservation, sustainable forest management, and enhancing forest carbon stocks in developing countries"). The primary goal of REDD+ is to provide financial incentives to developing nations for safeguarding their forests by attributing a financial value to the stored carbon within them. This objective is endorsed in Art. 5 (1) of the Paris Agreement, which emphasises the need to take appropriate actions to preserve and enhance greenhouse gas sinks and reservoirs. REDD+ further offers guidance on national forest monitoring systems, technical assessments of reference levels, and programs related to finance and results-based payments. It operates at two distinct levels: Jurisdictional (a government-led, publicly funded approach that encompasses all administrative regions or an entire country) and Project-based REDD+ (a VCM-funded approach focused on emissions reduction within a defined project area).
Recognising the pivotal role of ecosystem conservation and preservation in the fight against climate change, it is imperative that current carbon market mechanisms acknowledge these approaches. This recognition is essential to prevent the economic undervaluation of standing forests.
High-quality climate-positive carbon initiatives should integrate stringent quality standards from recognised forest carbon offset projects while delivering multiple ecological and socio-economic benefits to local communities and the environment. This approach aligns with global Sustainable Development Goals (SDGs) and Environmental, Social, and Governance (ESG) commitments.
From an environmental perspective, high-quality carbon credits should contribute to the global efforts to preserve natural lands by protecting standing forests or redirecting deforestation away from high biodiversity areas. This aligns with the conservation objective outlined in COP26 agreements, which aims to protect 30% of land and ocean for conservation by 2030. Such credits should also support biodiversity goals through actions like planting diverse tree species or monitoring and safeguarding wildlife and healthy ecosystems. Many existing forestry projects primarily involve single-species tree farms, which do not contribute to overall ecosystem health.
From a social standpoint, to create genuinely socially beneficial biodiversity credits, forestry projects should focus on the sustainable development of indigenous people and local communities (IP&LCs) residing in protected areas. This can be achieved by creating job opportunities and granting access to forests for activities such as agriculture, tourism, and recreation. IP&LCs should be regarded as partners at all levels, participating in roles like project stakeholders, management, and monitoring. A sustainable forestry project should empower IP&LCs by involving them in decision-making processes and sharing the profits generated from carbon sales. Special attention must be given to indigenous communities, which have historically served as stewards of biodiversity. The carbon market mechanism has often excluded these groups from decision-making and profit-sharing, leading to land and resource exploitation.
From a governance perspective, a genuine ESG (Environmental, Social, and Governance) carbon project must prioritise transparency and truthful assessment disclosure, supported by a robust monitoring strategy. This transparency should include a fair profit-sharing structure involving all relevant parties. For too long, buyers of carbon credits under REDD+ have reaped profits from rising carbon prices while disregarding the communities that issued the credits. A better system must ensure that market profits are reinvested in the countries that sold the credits.
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1FAO, 2020. The State of the World’s Forests.
2Bonan (2008). Forests and climate change: forcings, feedbacks, and the climate benefits of forests.
3Pugh et al. (2019). Role of forest regrowth in global carbon sink dynamics.
4J.P. Morgan Asset Management (2021). ESG360° | Kapnick on Climate: The global carbon market: How offsets, regulations and new standards may catalyse lower emissions and create opportunities
