Beyond Carbon Credits: the potential of climate finance to promote greater ambitions in tropical forest conservation

By Beto Mesquita, BVRio’s Director of Forests and Public Policies.

Exceeding expectations, climate finance was treated as a key issue at COP27, but the conference outcomes still fall far short of what is needed to increase the world’s climate ambition. The historic decision to create a loss and damage fund for developing countries and those most affected by climate change in the Sharm el-Sheikh Implementation Pact, remains undefined. Aside from the fact that the impasse needs to be solved, the pact does not bring enough definition to the fund’s operating rules.

Director of Forests and Public Policies, Beto Mesquita, participated in three important debates at the conference, bringing in points from an article published prior to the conference by Pedro Moura Costa, BVRio co-founder and Executive Director, about how Article 6 of the Paris Agreement — which deals with the instruments for creating a global carbon market — “will be a flop”, or at least not as promising as expected.

Here, Beto reflects on the themes and outcomes of those debates, and states why BVRio believes – and are actively creating alternative financial solutions and approaches – that climate finance must go beyond carbon credits to leverage forest conservation and restoration initiatives in Brazil and other tropical forests countries. 

The current landscape is, at best, challenging. First, it is essential to strengthen a strong and broad global movement to accelerate the protection and revitalisation of ecosystems and put the world on the path to a sustainable future. The United Nations Decade of Ecosystem Restoration (2021-2030) is the best opportunity the world has to avoid catastrophic climate change, protect biodiversity and maintain essential ecosystem services such as food security and water supply. 

Meanwhile, Brazil – ranked at the top of the list of the world’s largest carbon emitters (1) – is wasting a huge opportunity to attract investments due to the slow implementation of the Forest Code. If fulfilled, the Code has the potential to conserve more than 150 million hectares of native vegetation and store around 100 GtCO2. However, currently, Brazil is falling short on forest conservation; in order to just comply with the obligations of this robust legal framework, the country needs to restore at least 21 million hectares of native vegetation. 

Therefore, from the point of view of resource allocation, it is crucial to increase the scale of conservation and forest restoration initiatives in Brazil, which are still very small. In the Brazilian Amazon, only 115 thousand hectares are being restored, and at most 1 million hectares in all the Brazilian biomes. Climate finance, even if only through carbon credits, is the most viable option to give scale to these initiatives. However, the country must first deal with several bottlenecks to implement effective conservation and restoration policies.

Bottlenecks for financing forest conservation and restoration in Brazil

Climate scientist Carlos Nobre, co-chair of the Scientific Panel for Amazonia, laid the size of the ambition (and challenge) on the table at the panel ‘Financing nature-based solutions and scaling up forest restoration in Brazil’ on 12 November at the Brazil Hub at COP27. Nobre said it is necessary to restore at least 50 million hectares to save the Amazon Rainforest, 38 million more than the country has committed to in the Paris Agreement for all biomes (2).

In response,  we were emphatic saying that no restoration will be possible without effective actions from the federal and state governments to promote the environmental regularisation of rural properties in Brazil. The power to attract climate finance is directly associated with the capacity of a country to propose and implement its public policies.

Meanwhile, 99.8% of deforestation in Brazil is illegal or, at least, irregular (3). Even in areas that can be legally deforested, such as Legal Reserve surplus, the landowner must apply for an authorisation to suppress vegetation, and even that isn’t being done. According to MapBiomas, at least 70% of deforested areas in the Amazon have exceeded the 20% legal  limit, reaching more than 35% of the property area.

Comparing the country’s legal obligations with the carbon market requirements, such as Verra’s Verified Carbon Standard, it is evident that what is supposed to be an incentive, becomes an obstacle. Carbon credit standards assume that the laws are enforced in the country and that actions to implement legal obligations are not eligible for carbon finance. Otherwise, there would be no guarantee of ‘regulatory surplus’, i.e. evidence that a project is doing more than what is mandatory to comply with legal requirements. Criteria for regulatory surplus can create obstacles to the restoration and protection of the Legal Reserves and Areas of Permanent Preservation (especially along riverbanks) unless it is acknowledged that landowners and governments have systematically ignored compliance with these obligations.

Furthermore, Brazil still needs to solve other bottlenecks to implement and scale up conservation and forest restoration policies and programmes, starting with the considerable problem of land disputes in the Amazon.

Another crucial point is the creation of structural resources for native species’ production chain of seeds and seedlings. The lack of business and operational experience of forest restoration agents is at the root of this problem in scaling up restoration initiatives. Lastly, we should mention investments in forest products, creating jobs and income and adopting criteria to monitor natural forest regeneration, which is essential to make restoration in Brazil one of the induction levers of a low-carbon economy.

Alternative approaches 

There is both a need and an opportunity for the development of programmatic approaches to raise finance for climate action at scale in Brazil. Climate finance, beyond carbon credits, can be delivered through, for example, the combination of a regulatory framework overseen by civil society and implemented with support from international and private funds. The question to be addressed is: how to combine private capital investments with managing landscapes and sectors controlled by public bodies?

Two good examples of how market mechanisms can positively impact the effectiveness of public policies are SIMFlor (Support for the Implementation of the Forest Code) and the Responsible Commodities Facility (RCF) programmes, launched by BVRio and partners in 2022. 

The SIMFlor Programme aims to remunerate the voluntary conservation of surplus Legal Reserve areas. To this end, the program has made available R$ 1 billion for financing forest conservation and other environmental assets associated with the surplus of vegetation beyond the Legal Reserve. The programme will result in the conservation of 500,000 hectares of native vegetation (of which 100,000 hectares of Legal Reserve surplus) and the storage of 300 million tCO2e in these areas.

In addition to SIMFlor, BVRio coordinates the Environmental Committee of the Responsible Commodities Facility, a financial innovation for sustainable agriculture in Brazil. The RCF pilot programme has secured an $11 million investment from the UK’s largest supermarket chains to fund Deforestation and Conversion-free (DCF) soy production in the Brazilian Cerrado.

Nevertheless, it will only be possible to scale initiatives like these by investing in subnational strategies, especially in a Federative Republic such as Brazil. It is essential to invest in the states, where much of the responsibility for monitoring, commanding, controlling and fostering the implementation of the Forest Code lies. If we consider an NDC (Nationally Determined Contributions) distributed in states, why don’t we consider climate finance as an adoption of the NDC? Hence, we will continue to debate alternative and complementary approaches, starting by establishing the conditions for implementing the Forest Code. 

The Brazilian Forest Code is one of the most advanced and detailed national legislations on native vegetation protection. However, a decade after its last revision in 2012, its effective implementation is still pending, especially in addressing the vegetation deficit on properties that still need the minimum coverage required by law. The voluntary carbon market and contributions to nature-based climate action have enormous potential to accelerate and amplify the implementation of the Forest Code. In order to do so, however, it is vital to invest in a nationwide strategic plan that places this legal framework at the centre of a process of sustainable development and economic recovery, or a Green New Deal for Brazil.

Footnotes:

(1) ​​ When Brazil signed the Paris Agreement in 2015, along with 195 other nations, the country was emitting 1.4 billion tons of carbon dioxide (CO2) per year. In a recent survey on the historical accumulation of carbon dioxide emissions, Brazil was ranked 4th nation with the highest emissions of greenhouse gases since 1850 (Carbon Brief, 2021). 

(2)  The Paris Agreement targets have the common goal of limiting the planet’s average temperature increase by 1.5°C from pre-industrial levels. Extreme weather events in recent history reflect global overheating that stands at 1.1°C. According to a United Nations report, with a lack of progress and implementation of current targets alone, the planet is on course for a rise of up to 2.8°C. A 2°C increase would result in up to 14 times more heat waves and 70% more droughts, according to the IPCC (Intergovernmental Panel on Climate Change).

(3) According to the MapBiomas report, 99.8% of deforestation instances in Brazil are illegal and only 2% have been acted upon by IBAMA (Brazilian Institute of the Environment and Renewable Natural Resources).