On 13 October, Cambodia underlined its plan to reach net-zero emissions by 2050 while creating half a million jobs and increasing GDP by 3%: forest conservation. To save the country’s forests, the government intends to cut deforestation by 50% this decade via a massive scale-up of the UN’s so-called ‘REDD+’ projects. As a community-based model, REDD+ schemes ensure local communities protecting their forests receive direct investment that finances sustainable livelihoods, negating the need to deforest for subsistence or profit – a devil’s deal facing forest dwellers across the Global South.

“Many Cambodians live close to forests, where for generations they have been dependent on forest resources for their livelihoods, living sustainably and in harmony with the forests around them,” said Cambodia’s Minister of Environment, Say Samal, in a recent Innovation Forum webinar. “In order to protect our culture and precious resources, we have planned for continuing economic growth and prosperity for our people while also protecting our country’s forests.”

Across the world, private investors, governments, NGOs and businesses are increasingly purchasing carbon credits from REDD+ and other offsets projects to negate their own emissions – but this increased interest from international carbon markets comes with risks. Forest offsetting schemes are often found on land belonging to indigenous or local communities whose rights have not been secured, putting their well-being at risk – as well as threatening the future of carbon markets themselves.

An indigenous Maasai tribesman watching over the skyline of Kenya’s capital, Nairobi. (Photo by Lost Horizon Images via Getty Images)

At COP27, some of the most pressing discussions revolve around Article 6 and the future governance of carbon markets. Atop that agenda is how to ensure carbon markets help, rather than hinder, indigenous land rights.

Carbon markets and indigenous communities: Forest stewards

Carbon markets are the trading systems by which countries, companies and individuals can buy or sell units of greenhouse gas (GHG) emissions. They are a conduit for carbon offsetting, the notion of compensating for emissions in one location by cutting emissions in another. For instance, a German steel manufacturer relying on coal power might buy offsets from a reforestation project in the Amazon rainforest. There are four main types of carbon offsetting projects: forestry and conservation, renewable energy, energy efficiency and waste-to-energy (typically involving converting methane into electricity).

The carbon markets are divided into the “compliance” and “voluntary” segments. Compliance markets are created and regulated by mandatory national, regional or international carbon-reduction regimes, and typically incorporate only the largest emitters. Voluntary markets, on the other hand, function outside of compliance markets and enable companies and individuals to purchase carbon offsets on a voluntary basis with no intended use for compliance purposes.

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Voluntary carbon markets are growing fast. In 2021, the volume of voluntary carbon credits traded more than doubled from 2020 levels to more than $1bn, and it has already hit $2bn this year. Carbon sequestration projects in forest and soils make up the lion’s share of these credits, and are also likely to play an increasingly important role in compliance carbon markets, as countries step up their mandatory emissions reductions targets. A quarter of the world’s GHG emissions come from timber harvesting, agriculture and land use change, and carbon markets could play a vital role in reducing these emissions, while also protecting carbon sinks like forests, peatlands and wetlands in low-income countries.

Indigenous and local communities are the stewards of many vast carbon sinks that feed into carbon markets around the world. In fact, a 2017 report from NGO the Rights and Resources Initiative found that approximately 300,000 million metric tonnes of carbon are held in land managed by indigenous and local communities worldwide – equivalent to 33 times the global energy emissions for 2017 and a figure the report acknowledges may actually be a considerable underestimate.

It is therefore unsurprising that most of the lands and territories that have been targeted for forest carbon offsetting schemes overlap with areas that are occupied by indigenous communities. “When we are talking about carbon credits or carbon offsets in the context of carbon markets, we are often talking about land-based mitigation actions that are taking place on land customarily held and managed by indigenous peoples and local communities,” says Katherine Lofts, a lawyer and senior research associate with the Canada Research Chair in Human Rights, Health and the Environment at McGill University.

A growing body of research has demonstrated that forests managed by indigenous and local communities have lower rates of deforestation than similar lands managed by others. For instance, research by non-profit the World Resources Institute found the average annual deforestation rates in indigenous forests in Bolivia, Brazil and Colombia from 2000–12 were two to three times lower than in similar forest areas not managed by indigenous peoples.

In fact, indigenous territories prevent deforestation as effectively as fully protected national parks and nature reserves – some even more effectively. Between 2006 and 2011, indigenous territories in the Peruvian Amazon reduced deforestation twice as much as protected areas with similar conditions.

Recent research shows that at least 36% of the world’s “intact forests” – large, unbroken swathes of natural forest – are within indigenous lands, and they are better maintained than in non-indigenous areas.

Land grabbing

However, carbon markets have come in for criticism for encroaching on the lands of indigenous and local communities. A recent report by researchers from the Rights and Resources Initiative and McGill University found that many of the carbon sinks targeted by offsetting schemes are located in lands where indigenous or local rights have not been secured. Only about half of the land held by indigenous and local communities worldwide has been legally recognised by governments, and even where land rights are formally acknowledged, rights to carbon and tradable emission reductions connected to that land are seldom explicitly defined.

“The failure to adequately recognise the rights of indigenous and local communities and their role in global climate mitigation poses fundamental risks for these communities, exacerbating challenges they already face, including their exclusion from land use decisions, as well as threats of land grabbing, criminalisation, conflict and other human rights violations,” says Lofts, a co-author of the report. “It also threatens the viability of carbon markets themselves.”

The study analysed 31 countries that hold almost 70% of the world’s tropical forests, finding that only around a quarter of them explicitly recognise the rights of communities to govern and benefit from carbon rights. Even fewer have implemented the rules and safeguards required by the UN and the World Bank for forest carbon trading.

A mere six countries either explicitly recognise community rights to carbon – Ethiopia, Peru and the Republic of Congo – or tie those rights to the legal ownership of lands and forests – Brazil, Colombia and Costa Rica. Just five countries — Costa Rica, Indonesia, Mexico, the Philippines and Vietnam – define how carbon and non-carbon benefits will be shared, with only Vietnam having an operational benefit-sharing scheme. Just two of the 17 countries that have developed feedback and grievance mechanisms have put them into operation: Costa Rica and Mexico.

On top of that, the rising economic value of the carbon sequestered in these lands promotes land grabbing by companies, NGOs and governments. One of the most notorious examples was a Kenyan programme for reducing deforestation that led to the forced eviction of thousands of indigenous people from their ancestral lands and forests.

“Central to the climate fight”

To avoid these pitfalls, all carbon finance stakeholders should adopt high-integrity, rights-based approaches to securing the legal rights of indigenous and local communities. “Communities must also be able to exercise and enjoy their rights to self-determination, full and effective participation, due process and compensation,” says Lofts.

According to the RRI/McGill study, that includes securing the legal recognition and protection of the land rights, including associated carbon; adopting safeguards protecting the communities’ human rights, including to free, prior and informed consent; ensuring the communities' participation in the projects, from initial design to implementation, monitoring and reporting; providing them access to independent legal counsel and grievance redress mechanisms; and increasing direct financing support for community-led initiatives.

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At COP26 in Glasgow last year, countries agreed on a series of rules to govern market-based activities under Article 6 of the Paris Agreement. These aimed to enhance environmental integrity, avoid the double counting of emissions reductions and increase transparency. However, yawning loopholes persist for using offsets, and negotiators in Sharm El Sheikh have their work cut out to further clarify and build on the rules for carbon market governance.

Getting stuck into COP27's second week, there have already been a couple of important developments. The Forestry Commission of Ghana and conservation project developer Wildlife Works have formed a partnership aimed at creating REDD+ projects in the West African nation. In addition to at least one conservation project, the pair will also collaborate to develop a best practices framework with guidance on how carbon credit projects in Ghana can be designed to ensure climate benefits, with full consent from indigenous and local communities. Also, the European Energy Exchange and the Coalition for Rainforest Nations have announced their intention to establish a market platform for REDD+ sovereign carbon credits, allowing rainforest nations to sell sovereign REDD+ carbon credits to the private sector.

“We are going to COP27 to make the case that countries and communities should be properly paid for their efforts to avoid and reverse deforestation,” says Gabriel Labbate, global team leader of the UN-REDD Programme at the UN Environment Programme. “The current price of carbon is completely inadequate to the scale of the emergency. Indigenous and local communities should have direct access to payments and the whole system should be streamlined, because we are running out of time.”

Labbate believes the Green Climate Fund – a UNFCCC financier helping developing countries counter climate change – should be replenished and commit to paying a carbon price of $30 per tonne (/t), which would set a floor price for high-integrity emissions reductions for the voluntary carbon markets. He also thinks the LEAF Coalition – a public-private partnership aimed at mobilising funds for rainforest protection – should be scaled up by a factor of ten, and compliance carbon markets in high-income economies like the US, EU and Korea should permit a portion of emissions reductions from low-income countries to provide a “signal” for the voluntary carbon markets.

“The prices in the European carbon market are about $80/t, and we are paying developing countries $5–10/t, when they are high-quality emission reductions. I really can’t understand why.”

There are, however, some pioneering projects that can light the way to a better-functioning carbon trading system. For instance, carbon offsetting standard Plan Vivo is leading a project partnering with the hunter-gatherer Hadza and pastoralist Datooga communities in north-western Tanzania that has successfully reduced deforestation, enhanced tenure security and provided local communities with additional income.

Similarly, in the Southern Cardamom REDD+ Project in south-west Cambodia, non-profit the Wildlife Alliance employs trained rangers to patrol protected areas and implement effective law enforcement in partnership with the government, ensuring 13,289 people are direct beneficiaries of carbon credit sales and project activities. Also in Cambodia, the Wildlife Conservation Society has helped the indigenous Bunong community secure legal rights over their ancestral lands within the Keo Seima Wildlife Sanctuary REDD+ Project area so they are no longer vulnerable to the land grabbing that was previously a significant contributor to deforestation.

In a bid to massively globally scale up projects like these, forest conservation marketing company Everland launched The Forest Plan in summer 2022, which aims to develop 75 community-based REDD+ forest conservation projects in critical hotspots around the world. The plan is expected to generate more than $2bn in financial flows over the next ten years that will be streamlined towards community-based forest conservation projects, generating up to 90 million tonnes of Verified Emission Reductions annually and more than 800 million tonnes in total by 2030.

“We must remind ourselves that preserving forests is central to the climate fight,” said Everland president Josh Tosteson on the Innovation Forum webinar. “Through aligned, dedicated and collective action, we can, in fact, end deforestation.”

Indeed, all eyes now turn to Egypt, with the hopes of indigenous and local communities everywhere pinned on what a select few climate negotiators can agree. Depending which way it goes, the next step in the evolution of carbon markets has the potential to exploit or liberate these communities in equal measure.

If done right, “carbon markets could incentivise governments to advance the recognition of the rights of indigenous local communities and strengthen governance across tropical forest areas”, says Lofts. “Carbon trading could also increase financial flows to communities for forest protection and conservation and could provide improved livelihood opportunities.”

It is fair to say there is a lot at stake.