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Beyond Carbon Markets – Rethinking financing for forest climate action

Blog | Wed, 21 Feb, 2024 · 7 min read

Photo credit: FAO/Santiago Billy

In 2023, the Food and Agriculture Organization of the United Nations (FAO) and the Basque Center for Climate Change (BC3), as part of the NDC Aspects H2020 project, and in collaboration with the UN-REDD programme organized a series of dialogues aiming at better understanding the barriers, challenges, and enabling factors in the Forest and Other Land Use (FOLU) sector to achieve net zero emissions by mid-century.

The lessons learned from these dialogues recognize that FOLU investments fall far short of what is needed and underscore the need to scale up climate finance for forests, particularly for the implementation of on-the-ground mitigation actions.

The first dialogue, "Accelerating Mitigation Action on Forest and Links to Land Use," was held online on September 2023, under the Chatham House Rule. This session brought together REDD+ and FOLU experts representing UN agencies, multilateral financial organizations, and donors. The dialogue highlighted the need to reassess the value of forests, moving away from commodification (offsetting) to recognizing the role of forests as supporting elements of nature, which would require a shift from attribution to contribution. This shift in perspective becomes paramount as forests face increased vulnerability to climate impacts. The current transactional dynamic, which focuses on specific mitigation, adaptation, and biodiversity outcomes attributed to a particular source of finance, may compromise the effectiveness of policy strategies.

The second dialogue focused on the challenges faced by forest countries in securing investments and balancing public and private financing solutions. This session brought together forest country governments from Asia Pacific, Latin America and Caribbean, and Africa.  The slow flow of funds, insufficiency, and unpredictability of REDD+ Results-based Payments (RBPs), the increasingly stricter requirements and the need for robust institutional frameworks underscored the complexities faced by countries. In addition, the commoditization of forests, coupled with legal barriers and land tenure issues, limits the space for finance, necessitating exploration beyond traditional REDD+ RBPs.

Both dialogues highlighted the importance of “u p-front finance” as a critical factor, addressing the limitations of ex post finance and acknowledging the importance of understanding public expenditure. Given that approximately 80% of finance to nature origins from domestic public expenditures, coordination with the Ministry of Finance becomes pivotal for unlocking additional resources for forestry deliverables.

Countries were indicating the need for multilateral support to be better adapted to portfolios driven by national and local needs and circumstances to make finance more accessible to support the national goals under the Paris Agreement. The connection between REDD+, Nationally Determined Contributions (NDCs), Long-Term Strategies (LTSs), and the Global Stocktake process, becomes crucial for fostering effective cross-sectoral policy coordination.

The final dialogue, a side-event at COP28 titled "Climate Action in the FOLU Sector: Challenges for an Architecture of Support Fit for Rapid Action and Higher Ambition," featured insights from six panellists, who agreed that while REDD+ represents an unprecedented effort in international forest governance, has helped and continues to  help improving transparency under the UNFCCC, it will not fully cover the investment needed to achieve the goals  or expectancies towards the sector within the national development framework. Therefore, to strengthen and achieve the role of forests in climate change mitigation and broad climate action, it is imperative to consider also other sources finance, which would need to be predictable and adequate. Enhanced transparency, natural capital accounting, and the submission of the second NDC were highlighted as crucial opportunities for advancing ambition in the FOLU sector. 

The second round of NDCs could be an opportunity for countries to:

  1. identify and raise ambition of FOLU mitigation actions and ways of managing trade-offs,
  2. demonstrate the value of forests and their importance in other sectors,
  3. integrate mitigation and adaptation in the FOLU sector,
  4. link the NDC FOLU target with national policies and specific actions,
  5. link NDCs to financing scenarios into their national budget and to efforts under other conventions.

As part of the global efforts for halting and reversing deforestation and forest degradation by 2030, these dialogues underscore the urgency to strengthen and diversifying financing for forests beyond relaying solely on carbon markets, in a way that the multifaceted value of forests is recognized.