The United Nations (UN) has come out publicly with what it believes is an impactful pricing floor on carbon credits so that the world doesn’t experience the devastating climate impact of deforestation.
The UN Program on Reducing Emissions from Deforestation and Forest Degradation (UN-REDD) acknowledges that the current price does little to deter people from continuing deforestation.
The concept of carbon credits relies on companies or entities such as governments purchasing carbon credits that will pay for other companies or entities to make sustainable decisions—such as not to clear the land for livestock, or not to cut down trees in the Amazon rainforest, for example. The balance lies in the price of the carbon credit being commensurate with the price of a climate-aggressive action, such as what clearing for cattle grazing might make the landowner.
Carbon credits also work to mitigate the effects from industries that cannot decarbonise—or are a long way technologically and economically from a low-carbon business model.
Research into the cost of forest protection puts the price floor at $30-$50 USD per ton carbon dioxide. The carbon credits, in comparison, only attract $4.70 USD per ton carbon dioxide (2021 prices). It is this gap that the UN is hoping can be reduced so that carbon credits can make a real difference in slowing warming to no more than 1.5 degrees Celsius—a target of the Paris Agreement on Climate Change.
UN-REDD works with companies or entities such as governments to explore forestation carbon credits (and with that look at ways to reduce forest emissions and bolster forest volume so that forestation carbon credits can be a viable trade).
The forest carbon framework, known as REDD+, guides forest activities focussed on emissions’ reduction and bolstering carbon stocks. A report into REDD+ by the UN Environment Program World Conservation Monitoring Center (UNEP-WCMC) and the Green Gigaton Challenge (GGC) found that one-gigaton of emissions’ reductions were required by 2025, and yearly following 2025—currently the world’s companies and countries have only committed to a 24% reduction—a sobering thought.
Concerns about REDD+ forest projects and over-crediting these have played into the price floor discussion. Valuing carbon credits is challenging for emissions avoidance credits—it’s easier to quantify emissions removal than emissions avoidance. For example, it is easier to quantify the emissions removed from a project that replants a formerly deforested land parcel than it is to calculate the emissions that would be avoided from not cutting down vegetation in the first place. It must be noted that without carbon credits to stop deforestation there is greater and farcical risk that market forces would prefer to clear land to then reforest it than to leave it be in the first place.
Incentivising companies and countries to invest more in low-carbon living by valuing carbon credits more (and pricing them higher) is one way to tackle the climate disaster we’re heading straight for.
We’re not as far from this as we think—the European Union recently had a record-high carbon credit price of 100 Euro per metric tonne. Engaging in high-carbon lifestyles is becoming ever-increasingly costly for the world’s companies and countries.
If you want to speak to a carbon specialist about a REDD+ project, and discuss how Viridios Capital can support you, contact us at [email protected].