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With the launch later this month of a new platform to trade REDD+ forestry credits, there are hopes the oil major’s $300m investment will kickstart demand for nature-based solutions to climate change. Terry Slavin reports
The recent IPCC report on land use was only the latest high-level paper to highlight the importance of forests in protecting the world from climate change.
A peer-reviewed report earlier this year by The Nature Conservancy estimates that natural climate solutions such as protecting forests, grasslands and wetlands could cut 11bn gigatons of CO2 equivalent a year, or up to 37% of the solutions needed by 2030 to meet the Paris Agreement.
But with only 3% of climate finance going into nature-based solutions, there’s an urgent need to step up funding.
Shell earned cautious praise from ESG investors when it launched its Net Carbon Footprint ambition to cut its energy intensity in half by 2050
An oil and gas major such as Shell seems an likely champion for forests, but at Ethical Corporation’s Responsible Business Summit Europe in June Mark Gainsborough, the head of Shell’s New Energies business, said the company can play a big role in increasing global demand for forest offsets, buying enough to remove an estimate 60m tonnes of CO2 in the next three years alone. It's annual investment of $100m will double the roughly $100m currently going into nature-based climate projects around the world through the voluntary carbon market, according to Environmental Defense Fund (EDF).
Shell earned cautious praise from ESG investors earlier this year when it launched its Net Carbon Footprint ambition to cut its energy intensity in half by 2050, and became the first oil and gas to include in its targets the CO2 emitted by its customers, known in the carbon accountancy world as scope 3, which account for 80-85% of its entire footprint.
However, the move also generated accusations of greenwash by environmental groups like Greenpeace, which said offsets should not be used to justify an unsustainable business model (see 'We want to be at the leading edge, not the bleeding edge')
The company, which said it would be setting aside $100m a year to invest in natural ecosystem projects by 2021, says this is in addition to the money it will invest in forestry offsets through a new scheme offering customers in the Netherlands the opportunity to "drive neutral".
This is be done at no extra cost for those filling up their cars with premium V-Power petrol or diesel, while those who fill up with regular Shell petrol or diesel can opt to pay an extra 1 cent a litre.
Shell is not the only oil and gas company to offer carbon offsets to its customers. BP has been running Target Neutral, a platform for anyone to buy carbon credits, for some years, and claims to have offset some 3 million metric tons of carbon dioxide.
This is a massive take-up rate compared to any other carbon offsetting scheme in the history of the planet
But Gainsborough said the Dutch scheme is the largest of its type and has enjoyed an unprecedented take-up rate of 10-20% since its launch in April. He said this is particularly impressive in comparison with offsetting schemes run by airlines, which typically only attract 1% of customers.
“This is a massive take-up rate compared to any other carbon offsetting scheme in the history of the planet,” says Gainsborough, who Ethical Corporation interviewed ahead of his keynote address to Responsible Business Summit Europe in June.
The scheme will be rolled out in the UK later this year, and then to other markets if it proves successful, he said.
Shell is no newcomer to the market for forest carbon credits. In 2010, the Dutch-Anglo major was accused of running roughshod over the rights of indigenous people through its involvement in Rimba Raya, a project to buy 100,000 ha of tropical rainforest in Indonesia.
A Shell spokesperson said Shell is no longer involved in Rimba Raya. Asked how he can be sure the new projects wouldn’t get mired in similar controversy, Gainsborough said: “The challenge with some projects in the past is that they didn’t have proper community support, which is absolutely essential for us.”
Gainsborough said Shell is being advised by internationally recognised NGOs such as The Nature Conservancy, and projects will be subject to vigorous third-party verification by organisations such as The Verified Carbon Standard. “The ability to track the benefits [of projects] is much higher than it was 10-20 years ago,” he said. “There’s a lot of technology to monitor what’s happening in terms of land use change and habitat change such as satellite monitoring, tree drones – things that weren’t possible then.”
Not only are projects taking CO2 out of the atmosphere but they are creating sustainable livelihoods for communities and improving biodiversity
“If you do the projects in the right way, not only are they taking CO2 out of the atmosphere but they are creating sustainable livelihoods for communities and improving biodiversity. That’s a real sweet spot from a sustainable development perspective.”
Projects include the Katingan Mentaya project in Indonesia, which is protecting 157,000 ha of peatland, home to critically endangered species including Bornean orangutans. Other projects involve planting millions of trees in the Netherlands and north-west Spain, and the regeneration of 800 ha of endangered forest in Australia.
He said that at costs as low as $5 per tonne of CO2 mitigated, nature-based solutions are highly cost-effective, compared with the price of CO2 on the EU Emissions Trading Scheme, now just under €30.
Ethical Corporation put the question of Shell’s role in creating demand for forest-based carbon offsets to Frances Seymour, distinguished senior fellow at the World Resources Institute and chair of the new Architecture for REDD+ Transactions (ART), a multi-stakeholder platform that will be formally launched at this month’s climate summit in New York.
ART is developing The REDD+ Environmental Excellency Standard, known as TREES, which will specify requirements for quantifying, monitoring, reporting and verifying greenhouse gas emission reductions from REDD+ activities at a jurisdictional and national scale.
“The world desperately, desperately needs demand for emissions reductions projects from the land sector. That’s unquestionable,” Seymour said, adding that the recent UNFCC land use report had underlined the climate mitigation potential of decreasing tropical deforestation and restoring peatlands and mangroves.
Having a market in forest carbon offset is far preferable to what we have at the moment, which is no incentives for tropical forest countries to conserve their forests
The issue of fossil fuel companies using offsets to cover their CO2 emissions is contentious, however. The Science Based Targets Initiative, for example, does not permit offsets to count towards companies’ CO2 mitigation efforts.
Seymour noted that she does not speak for WRI, which does not have a position on offsets. She said the best option would be for governments to impose aggressive carbon taxes onfossil fuel use that could be allocated in part to protect tropical forests through REDD+ payments.
“But for those of us who don’t see that on the near horizon having a market in forest carbon offset is far preferable to what we have at the moment, which is no incentives for tropical forest countries to conserve their forests.”
She drew a distinction between project-based REDD+ and jurisdictional REDD+, which involves state and federal governments.
Even highly regarded projects like Katingan Mentaya in Indonesia, which she described as “meeting the gold standard” for verified carbon sequestration and local community buy-in, are problematic because they aren’t able to control for “leakage”, as deforestation activity can be simply displaced elsewhere rather than reduced.
Seymour said project-level REDD+ projects aren’t compliant with the 2015 Paris Agreement, "which endorsed only the transfer of mitigation outcomes incorporated into countries’ national-level climate programmes (or sub-national programmes as an interim measure), to prevent double-counting".
And nor will they be accepted for compliance in California’s cap-and-trade scheme, with the California Air Resources Board’s proposed Tropical Forest Standard including only credits from jurisdictional REDD+ schemes.
Governments are the ones that issue permits, enforce the law, and defend land rights.You have to have them as part of the solution, or the solution isn’t going to stick
Seymour said she hopes when the International Civil Aviation Organisation hones its rules for airlines offsetting their emissions for international travel through the CORSIA scheme, it will follow California’s lead and only accept jurisdictional REDD+ offsets. “It’s not that project-scale interventions aren’t needed,” she said. “It’s just that they have to be ‘nested’ within jurisdictional-scale accounting.”
As Ethical Corporation has reported previously, a growing number of jurisdictions around the world, led by the states of Acre and Mato Grosso in Brazil, are taking a landscape-level approach to addressing deforestation, integrating land planning, sustainable forest management and commodity production.
According to the Earth Innovation Institute, 28% of the world’s tropical forests are located in 39 subnational jurisdictions that have taken this holistic approach, and half have seen deforestation drop below projected levels, adding up to 6.8 giga-tonnes of avoided CO2.
But as was clear from speakers at a workshop at last year’s Oslo Tropical Forest Forum, companies are wary of partnering with government officials in developing countries, where this is often a culture of pay-offs and corruption.
Seymour acknowledged that companies prefer projects that are free of political entanglements. “But governments are the ones that issue permits, enforce the law, and defend land rights … You have to have them as part of the solution, or the solution isn’t going to stick.”
And the key thing about jurisdictional REDD+ is that payments are only made once results are demonstrated, she said, giving the example of Indonesia, which in February was informed it would receive its first REDD+ payment from the government of Norway after showing a 60% drop in primary forest loss in 2017.
If we are concerned about corruption you need to be concerned about ex-ante payments from traditional development aid
“If we are concerned about corruption you need to be concerned about ex-ante payments from traditional development aid, where you pay the money and wait and hope to see results, or business-as-usual deforestation, where the local administrator gets a pay-off for approving an oil palm plantation in a protected forest.”
At the moment, she said, there are few if any incentives for local government officials to protect forests. But combined with the emerging practice of companies, like Unilever and Mars, to preferentially source commodities such as palm oil and soy in jurisdictions protecting forests, she said there was an opportunity “to build a value proposition” for forests to be left standing.
But there needs to be a rapid acceleration in the number of jurisdictions that can have certainty they will receive payment for their performance, from the “handful” that have received them today, Seymour says.
She worries that a boom in project-based REDD+ due to demand from airlines and fossil fuel companies could actually apply a brake to the needed shift to jurisdictional REDD+.
“One of the reasons it’s been difficult to establish jurisdictional scale exclusivity for access to REDD+ markets is because of vested interest of the holders of project-scale credits,” who may lose them if the credits aren’t transferable, Seymour says. “By allowing [project-scale REDD+] even in the transition stage, you are making it less likely in the long run that we will get to jurisdictional.”
However, the NGO Environmental Defense Fund hopes a new transactional platform that it will launch at Climate Week New York this month could overcome the hurdles to companies investing in jurisdictional REDD+ programmes, and unlock a huge market for nature-based credits in compliance with the Paris Agreement.
It’s hard to really commit to something ambitious when there’s no certainty of finance
Ruben Lubowski, chief natural resource economist at the US-based NGO, said the platform will be an aggregator of buyers and sellers of REDD+ credits. It will guarantee a floor price, which will be underwritten by public and philanthropic sources of funding.
“Right now there’s a lot of market uncertainty, particularly for the countries [as sellers of credits]. It’s hard to really commit to something ambitious when there’s no certainty of finance. We are trying to build a supply and make it easy for companies to access these jurisdictional scale credits.”
He said companies will be able to buy a portfolio of credits from a variety of programmes, meaning they will not have to negotiate directly with governments, and be exposed to significantly less risk than investing in individual projects.
He said a new non-profit was being set up to administer the platform, whose name will be revealed at the launch later this month.
The programmes would meet the new TREES standard, which is still out for consultation, but aims to apply the highest technical, environmental and social standards, including the principle of no double counting, so they are aligned with the Paris Agreement, which takes effect from 2020.
Lubowski said he expected that credits could be issued as early as next year, in time for 2021, when carbon offsetting will be mandatory for airlines.
We could take nature-based solutions to a whole other level and make a dent in the climate problem
He said EDF has been working with numerous companies in developing the new platform, including oil companies, airlines and other companies that have made commitments to get to achieve net zero CO2 emissions.
Although he would not name any companies, Eldar Sætre, chief executive to Norway’s Equinor (formerly Statoil), informed UN climate chief Patricia Espinosa last year that the company wanted to help develop a robust international carbon market based on jurisdictional REDD+. Asked whether Shell would also invest in jurisdictional REDD+ projects, a spokesman said: "What's important is that investment in nature-based solutions actually happens. We think both jurisdictional and project-level REDD+ are necessary and aren't mutually exclusive."
Lubowski said until now the voluntary market for nature-based solutions has amounted to roughly $100m a year. Another $5bn has been pledged by public donors such as Norway, Germany and UK, but that full amount has yet to be disbursed.
But with demand due to expand as the Paris Agreement comes into effect, the market could potentially amount to tens of billions of dollars per year.
“We could take [nature-based solutions] to a whole other level and make a dent in the climate problem. That’s why we are so focused on this,” he said.
This article is part of the in-depth Carbon Pricing briefing. See also:Shell Climate Action 100+ WRI Environmental Defense Fund ESG REDD+