Maximizing private sector engagement: How tokeep nested projects as part of the solution
2016 International Seminar for Climate Change and Forests
The Future of REDD+Tokyo, Japan

28 January 2016

Naomi Swickard, Director, Land-based Frameworks

Emerging REDD+ market opportunities

REDD+ in Paris Agreement
Article 5
1. Parties should take action to conserve and enhance, as appropriate, sinks
and reservoirs of greenhouse gases as referred to in Article 4, paragraph1(d), of the Convention, including forests.
2. Parties are encouraged to take action to implement and support, including
through results-based payments, the existing framework as set out inrelated guidance and decisions already agreed under the Convention
for: policy approaches and positive incentives for activities relating to
reducing emissions from deforestation and forest degradation, andthe role of conservation, sustainable management of forests andenhancement of forest carbon FCCC/CP/2015/L.9/Rev.1 24 stocks indeveloping countries; and alternative policy approaches, such as joint
mitigation and adaptation approaches for the integral and sustainable
management of forests, while reaffirming the importance of incentivizing,as appropriate, non-carbon benefits associated with such approaches.

REDD+ in Paris Supporting Decision
Finance – Paragraph 55
Recognizes the importance of adequate and predictable financial
resources, including for results-based payments, as appropriate, for the
implementation of policy approaches and positive incentives for reducing
emissions from deforestation and forest degradation, and the role ofconservation, sustainable management of forests and enhancement of forest
carbon stocks;
as well as alternative policy approaches, such as joint mitigation and adaptation
approaches for the integral and sustainable management of forests; while
reaffirming the importance of non-carbon benefits associated with suchapproaches;
encouraging the coordination of support from, inter alia, public and private,bilateral and multilateral sources, such as the Green Climate Fund, andalternative sources in accordance with relevant decisions by the Conference ofthe Parties;

REDD+ in Paris Supporting Decision
Private Sector– Article 6 Paragraph 4. A mechanism to contribute to the mitigation of greenhouse gas emissions
and support sustainable development is hereby established under the authority
and guidance of the Conference of the Parties serving as the meeting of theParties to the Paris Agreement for use by Parties on a voluntary basis. It shallbe supervised by a body designated by the Conference of the Parties serving as
the meeting of the Parties to the Paris Agreement, and shall aim:(a) To promote the mitigation of greenhouse gas emissions while fostering
sustainable development;(b) To incentivize and facilitate participation in the mitigation of greenhousegas emissions by public and private entities authorized by a Party;(c) To contribute to the reduction of emission levels in the host Party, which will
benefit from mitigation activities resulting in emission reductions that
can also be used by another Party to fulfil its nationally determined
contribution; and(d) To deliver an overall mitigation in global emissions.

REDD+ public funding & sources of demand
Source of demand

Accounting requirements

Potential size of demand

Bilateral (e.g. Norway, Bilaterally-negotiated; notGermany - REDD Early offset-grade/less rigorousMovers)e.g. KfW REDD Early
Movers ~14 Mt (2015-2020)

Multilateral (e.g.
FCPF, ISFL/BioCarbon Fund)

FCPF Methodological
Framework; offset-grade/morerigorous

e.g. BioCarbon Fund ~28 Mt;
FCPF Carbon Fund ~50-100
Mt (2015-2020)

Green Climate Fund
UNFCCC (INDCs)

Requires compliance withUNFCCC; additional
requirements likely, including
for market mechanisms

Unknown ($10s of billions
for REDD+ annually >2020)

REDD+ private finance & market demand
Source of demand

Accounting requirements

Potential size of demand

Private funds (e.g. Althelia, Typically offset-gradePermian)required; rigorous

Several hundred million
dollars (2015-2020)

International voluntarymarket

Offset-grade required;rigorous (e.g. VCS, GoldStandard)~87 Mt (2013-2017)

Domestic voluntarymarkets (e.g. Costa Rica,Chile, Colombia…)

Varies by country; typicallyrigorous

Unclear

Regulatory markets (e.g.
CA, Japan, South Africa…)

Offset-grade required;rigorous (e.g. California
Offset Credits)

e.g. CA ~30-40 Mt (20182020)

Aviation sector / ICAO

Likely market-based
mechanism, including
REDD+ (project and/orjurisdictional); rigorous~8-10 Bt (2020-2050)

Forest carbon markets

Forest carbon markets

Voluntary market is holding steadyPositive policy signals could ramp-up voluntary demandGrowing confidence in REDD projects

REDD is now voluntary offset of choiceJurisdictional and Nested REDD+

Jurisdictional and Nested REDD+ (JNR) standard
•••
•

•

Provides a comprehensive, flexible and immediately
operational accounting and verification platform forjurisdictions and nested projects
Ensures fungibility of emission reductions and establishes
environmental integrity across scales
Aligns policies, programs and project activities
Scales up emission reduction potential, and provides
opportunity to harmonize and increase market andresults-based public-funding streams
Potential to link with green supply chain commitments

Original nesting concept - Scenario 2••••Projects given ‘grandparenting period’ to adapt tonew jurisdictional RL
Where using JNR, jurisdictions submits RL/ spatially
explicit baseline to VCS
Projects “cookie cut” out project area from spatially
explicit baseline to define their new baseline, whichtakes place of baseline requirements in the project
methodology
Monitoring done at both jurisdictional and projectlevels (due to timing issues), with a process forreconciling results at least every 5 yrs
16 February 2016

Grandparenting options
Recognize full project accounting1)••+ Recognizes early action, clear requirements forprojects- Potential discrepancies in ERR results between projectand jurisdiction

Recognize, but take some kind of conservative
discount, such as:2)••••

Set deduction as additional buffer, tax or benefit sharing togovernment, or;
Set a cap, based on national accounting (eg, estimate ofreductions in project area)+ Recognizes early action; provides means to reconcile
results to some extent; encourages collaboration/alignment with national/ sub-national programs- May impact project financing

Nesting options
1)

2)

3)

Finalize and register a spatially explicit
reference level (ie, JNR scenario 1), for which
projects “cookie cut” their area to set newbaseline
Set specific requirements for projects to update
their own baselines, consistent with
sub/national RL
Apply jurisdictional RL equally to all areas

16 February 2016

Nesting options (1)1) Finalize and register a spatially explicit reference level,
for which projects “cookie cut” their area to set newbaseline
Pro:•Recognizes spatial distribution of deforestation•
Easily reconcilable with jurisdictional results•
Most simple approach for projects•
Provides projects clear guidance and more certainty over ERR
estimates
Con:•
Some projects may still not be viable, depending on model
predictions•“Picks winners” in terms of who can achieve reductions(disincentive to develop a project in other areas)•Model may be open for debate
16 February 2016

Nesting options (2)2) Set specific requirements for projects to update
their own baselines, consistent with national RL (eg,same EFs, approval process to review/adjust referencearea, etc)
Pro:
• Provides clear guidance to projects• Recognizes counterfactual/ BAU of project area
• Likely most viable financially viable for projects• Likely perceived as most fair option to projects
Con:• Less clarity for jurisdiction over project results• Still need to ‘reconcile’ monitoring results between levels
16 February 2016

Nesting options (3)3) Apply national RL equally to all areas (ie, apply thesame rate to the project areas)
Pro:• Simple• Easily reconcilable with jurisdictional resultsCon:• Ignores that deforestation and degradation are notequally distributed across the jurisdiction• Could bankrupt early-action projects, who targeted
high-risk areas• Disincentives action in high-risk areas and could
reward actors who do nothingGuidance under development•••

VCS guidance document on methodological issues
for nested projects and subnational jurisdictions
Provides additional guidance (beyond JNR) andmethodological recommendations to ensure that
VCS projects (and subnational nested programs)
appropriately adopt jurisdictional RLs, and maintainconsistency with national and subnational REDD+programs (which may or may not be using the VCS
JNR framework)
Will help project developers and governments find asolution to the problems associated with nested
accounting

Guidance under development• Guidance to include recommendations on:
 Introductory/basic guidance on nesting and validation/verification
 Maintaining consistency/ reconciling differences in the‘grandparenting period’ Project (and subnational jurisdiction) nesting, where jurisdictional
baseline does not use JNR (such in the case of baselines
developed for FCPF and/or UNFCCC, which may or may not be
consistent with JNR requirements)
 Project (and subnational jurisdiction) nesting, where jurisdictional
baseline is spatially explicit and uses JNR
 Nesting, where jurisdictional baseline is not spatially explicit, usesJNR
 Guidance on institutional arrangements or criteria/rules for project(and subnational jurisdiction) nesting, related to monitoring,leakage, non-permanence, safeguards and benefit distribution, etc•
Timeline: Draft w/in 3 months, finalized by mid 2016

Private investment opportunities in REDD+Stand-aloneprojects

Nested projectsJurisdictional (govt)
programs

Financial
returns

Medium – accessvoluntary markets

High – access voluntary andcompliance markets; potential
to leverage public funding

Medium – accesscompliance markets, but
returns may be limited;
potential to leverage
public funding

Risks

Med/High – govts
may limit projectapprovals or ERRs

Medium – dependent on initial High – completely
govt baseline
dependent on govt
ability to generate ERRs
and deliver on contracts

Scalability / Medium – many ofReplicability most attractive

projects have beendeveloped

Additionalbenefits••

Fastest todevelop
Existing pipelineof investableprojects

High – new arena withpotential to establish
replicable modelMedium – large ERR
potential, but limited
number of advanced J
programs to work with••••

Leadership play
Create new investmentfriendly market construct
Strengthen donor & REDD
govt relations (PPPs)

Strengthen donor &REDD govt relations(PPPs)

REDD+ recommendations for private sector•

Nested projects could leverage public funding and supply
emerging compliance markets, while minimizing
implementation and crediting risks•California, Aviation and GCF represent major REDD+ market
opportunities and warrant private sector engagement•

Critical to work with donor and forested countries to incorporate
jurisdictional and nested REDD+ construct into their NDCs, andestablish clear pathway for private investment (incl. PPPs) andcredit use for GHG compliance (whether under UNFCCC“cooperative approaches” and/or new crediting mechanism)•VCS nesting guidance provides pathway to credibly bringscales together, ensuring projects are integrated in national
programs•

VCS welcomes the opportunity to work with private sector
players to create such attractive and scalable models

Thank you!
Naomi Swickard
Director, Land-Based
Frameworks
nswickard@v-c-s.org
Verified Carbon Standard
One Thomas Circle, NW
Suite 1050
Washington, DC 20005
www.v-c-s.org