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Exploring carbon markets: Perspectives from Costa Rica’s Climate and Forest Finance Forum

Blog | Mon, 11 Sep, 2023 · 9 min read

Costa Rica recently hosted a Climate and Forest Finance Forum with support from the UN-REDD Programme. The forum covered a broad agenda, including country experiences with Results-based Payments for REDD+, climate finance opportunities, debt for nature swaps and jurisdictional REDD+. The forum also highlighted a key game changer in the forest-climate finance toolkit and the star of the show: carbon markets. Here's an overview of the Forum’s session on Carbon Markets led by UNEP, with the support of FAO.

The wake-up call

The session started with an introductory presentation delivered virtually by Leticia Guimaraes, UNDP’s Senior Global Advisor on carbon markets, which provided a comprehensive outlook on the current landscape of regulated and voluntary carbon markets; principles and criteria for ensuring high integrity; and strategic considerations for countries to maximize their emissions reduction potential and contribution to national and climate goals. You can view a complete version of this presentation here.

The introductory presentation was followed by an opening speech, by Judith Walcott, UNEP Regional Coordinator for UN-REDD for Latin America and the Caribbean, who provided a serious reminder that the world is  knee-deep in a climate crisis and forests offer a powerful solution: While we are making progress in decarbonizing our energy sector, our forests have been raising their hands, eager to contribute. Forests can slash emissions by contributing up to 30 percent of the solution to mitigate climate change, in line with Paris Agreement targets. According to the Intergovernmental Panel on Climate Change (IPCC), forests are the sector, after energy, with the lowest abatement cost. Therefore, protecting, restoring, and sustainably managing them is a cost-effective way to battle climate change while also having a positive impact on protecting biodiversity and other ecosystem services. Carbon markets can be a useful  source to unlock and scale up financing for forests and climate, but it must be done with high environmental integrity and social inclusion. Indigenous peoples and local communities (IP and LCs) have demonstrated how to manage and protect forests for centuries and must have a key role in decision-making and actions related to forests.

The session was organized around a series of parallel roundtable debates on the following aspects of carbon market engagement:

  • Safeguards: Ensuring inclusive participation in forest governance was a pivotal point of discussion, where participants pointed to the importance of including women, Indigenous peoples and local communities and considering language and culturally appropriate communications. This is key to helping build capacities and enabling understanding of and more equitable access to carbon markets. Integrated safeguards frameworks that consider the requirements of different donors and standards are also important tools to facilitate access.
  • Integrity and carbon accounting: Efforts in the Latin American and Caribbean region are being directed toward strengthening the integrity of carbon accounting practices. This involves robust estimations, particularly by assessing uncertainty and enhancing data from the ground. Robust institutional arrangements, mapping initiatives contributing to NDCs, and transparent reporting are also on the agenda of the countries. Furthermore, engaging sub-national and national actors in dialogue to raise awareness of their contributions at national levels was identified as a priority, as well as the development of standard instruments to inform accounting rules, national-level data generation for subnational initiatives, and the facilitation of nesting approaches.
  • Nesting: REDD+ activities occur at various levels, including national, sub-national, and project levels. Navigating the complexities of various scales of initiatives presents shared challenges. Integrating these various levels, while ensuring consistency, transparency, and effective emissions reduction is a formidable task. As countries develop their new FRELs (Forest Reference Levels), they are considering approaches and tools to allow for nesting initiatives at different scales, despite the significant challenges that persist. Governance issues, capacity-building needs, deforestation risk allocation and complexities around land tenure and carbon ownership were identified as key obstacles. Addressing these challenges will be crucial to establishing effective, nested REDD+ systems in the region.
  • Opportunities to access to carbon markets: Four priority topics in this area were identified: The first is a need to improve regulatory frameworks to allow countries, the private sector, and Indigenous communities to implement forest carbon projects and programs at scale. The second is the urgent need to review methodologies for baseline calculations to avoid overestimation, without which it will be impossible to scale up efforts and achieve the results required to fulfill the Paris Agreement goals. Third, ongoing capacity building and knowledge sharing is needed, as these are key to shaping and reshaping the discussions within the country and strengthening national practices. Lastly, the main issue raised by donors and buyers was higher forest carbon prices.

In sum, the UN-REDD Programme sparked an active discussion on country lessons and best practices on carbon markets, highlighting their potential for providing sustainable finance to scale forest climate action and the importance to do so following high integrity principles.

Author: UN-REDD