Panoramic of Loboyoc town, Puerto Maldonado, Madre de Dios, Peru. Marco Simola, CIFOR

When selling carbon credits, give communities a cut

Lessons from part three of our carbon finance learning program

When designing restoration and reforestation projects for carbon markets, it’s crucial to demonstrate community buy-in and benefit sharing to attract carbon credit sales – and to ensure that the benefits reach those communities.

That was the main message from specialists at a digital training webinar hosted on 26 April, forming the third training course organized through the Global Landscapes Forum’s Carbon Finance Learning Program.

The four-course series, which started in August 2022, aims to help participants expand their knowledge of carbon finance and opportunities to finance nature-based solutions, including land use project types and business models that may be suitable for generating carbon credits, while highlighting opportunities for local action.

While the first course gave participants a general overview of carbon finance and how it can help finance nature-based solutions, the second course covered carbon accounting in landscape and sustainable land use projects.

This latest session was mainly attended by landscape practitioners and designed to create a general understanding of carbon markets, with a specific focus on both selling carbon credits and the importance of benefit sharing schemes.

Key to the success of a carbon project is a strong focus on involving the relevant local communities, understanding what they want, and ensuring their consent, presenters emphasized.

Brazil is a major player in the carbon credit market. Neil Palmer, CIFOR

“We believe in social benefits, and being impactful in the community is integral to having a successful carbon project,” said Hannah Simmons, founder and CEO of Brazil-based Ecosystem Regeneration Associates (ERA), a women-driven carbon project developer.

“You really need to focus on how you are benefiting the communities and how those communities are receiving benefits from the carbon project. We really need to harness the power of this market to catalyze change.”

This webinar series on carbon finance aims to increase understanding of key carbon finance concepts while highlighting opportunities for local action.

Anna Lehmann, a global climate policy director with Wildlife Works, outlined a revenue sharing model from the organization’s Kasigau Corridor project in Kenya, which generates more than 1.5 million tons of carbon credits each year and delivers certified credits under the UN’s Reducing Emissions from Deforestation and Forest Degradation (REDD+) framework.

These credits are mostly sold in voluntary carbon markets (VCMs), which are driven by private actors and initiatives, rather than governments or regulators. VCMs stand in contrast to mandatory, regulated markets such as those set by the European Union through its Emissions Trading System.

The project’s revenue sharing model begins with total project revenues, measured by gross verified carbon unit (VCU) sales, minus transaction costs. From that, 33 percent goes to Kasigau landowners, who aren’t necessarily involved in the project, she said.

Next, project implementation and operational costs – such as protecting crops from wildlife with electric fences, hiring rangers from local communities, and building infrastructure including roads and access to water – are subtracted, leaving the net profit, which is ultimately shared between stakeholders: Wildlife Works and local communities.

Overall profit sharing from 2017 to 2022 was USD 6 million, derived from revenue sharing of USD 18 million. Wildlife Works also reduced 45 tons of emissions between 2010 and 2022 in Africa, particularly in Kenya and the Democratic Republic of the Congo, where the organization works.

Maize near Yangambi, the Democratic Republic of the Congo. Axel Fassio, CIFOR

Carbon prices are currently about USD 15 per ton and may rise for high-quality carbon credits such as those certified by international standard-setting organizations like Verra, Lehmann said. Wildlife Works’ buyers are most often firms seeking to meet their social reporting requirements and range from such household names as Netflix to Audi, Microsoft and several banks.

To calculate carbon credits, Simmons explained, one tree can sequester 16 kg to 24 kg of carbon dioxide per year; and one hectare of reforested land can sequester 5 to 15 tons per year, depending on factors including soil management practices and tree planting density. This generates afforestation, reforestation and regeneration (ARR) carbon credits, which can be sold at a premium in carbon markets.

Ultimately, one reforested hectare could generate USD 75 to USD 450 in carbon revenues per year – money that can be used for important social benefits, including increased income for smallholders. That, in turn, increases longer-term resilience for the community.

But before reaching the carbon finance stage, every project must begin with a stakeholder engagement process to clearly understand what communities want and need, Simmons added. ERA also surveys women specifically – what they see, what gender biases exist – and then aim to bring them into the regenerative agriculture movement.

Reforested land can sequester carbon, which can generate carbon credits. Ollivier Girard, CIFOR

Another challenge is scaling up projects for higher returns, she said. A thousand hectares planted is the minimum needed for a successful project that could have real impacts for farmers. ERA’s social interventions include capacity building and education, training, financing and technical assistance, and they start by partnering with schools and students to reach families. They also require patience, as projects often take many years to yield benefits.

Impacts for families and communities, particularly in education, was the also the focus of Haron Wachira, CEO of Akili Group, a Kenya-based organization that works on carbon projects, offering benefits such as training for households on good agricultural practices that can lead to higher yields and incomes.

“We consider carbon credits to be the best tool for lifting a community out of poverty – a tool for development,” said Wachira, whose organization began by developing software for carbon verification mechanisms. These credits can have immediate as well as longer-term benefits through training and education.

“Our primary motivation is to deliver impacts on the ground,” he said.

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