JREDD+ 'playbook' sets out sales strategy for governments
Quantum Commodity Intelligence – Experts in the trading of country-wide 'jurisdictional' carbon credits have released a new guide aimed at avoiding governments overselling emissions rights as 'corresponding adjustments' and therefore jeopardising their national climate goals.
The advice, which is packaged as a "playbook" authored by The Environmental Defense Fund and the Wildlife Conservation Society, is pitched mainly at carbon credits resulting from the jurisdictional-level Reducing Emissions From Deforestation and Degradation (JREDD+) sector.
"The overselling of CA [corresponding adjustment] credits before meeting NDC [Nationally Determined Contributions] targets could have the perverse effect of lowering carbon prices and reducing demand for CA credits perceived to be weakening the foundation of the Paris Agreement," the introduction to the guidelines pointed out.
The paper also calls on governments to consider the trade-offs between selling credits in the voluntary carbon market (VCM) or authorising CA-backed credits.
CAs are an accounting measure required under the rules of the Paris Agreement that prevent double counting, whereby the 'seller' of the emissions reduction transfers it from its domestic emissions ledger to that of the buyer.
However, how and when a CA should be applied have not yet been agreed at UN climate talks, and look likely to be a major issue at COP29 in Baku in November.
The forestry sector is so far mainly the preserve the Paris Agreement's country-to-country Article 6.2 mechanism, but also feeds into the UN agency International Civil Aviation Organization's (ICAO's) Corsia aviation decarbonisation scheme.
In Corsia, ICAO wants guarantees from suppliers of credits if the CA accounting procedure is later revoked.
The concern is that countries later find out they cannot meet their domestic emissions goals contained in NDCs – climate goals under Paris – and attempt to cancel 'oversold' CA emissions rights.
The playbook suggests this scenario can be avoided if countries keep on track in meeting their NDCs, particularly in the land sector, where there has been a significant growth in price premiums for forest carbon credits perceived as having high integrity.
Governments that want to sell jurisdictional REDD+ (JREDD+) credits should consider three main issues when devising their strategies, the guidelines recommend. They are:
- What is the breakeven price when selling in the VCM, without CAs?;
- What is the breakeven price for selling credits with CAs?; and
- At what price does it make financial sense to authorise and sell CA credits versus non-CA credits to VCM buyers?
In addition, the playbook said national governments that rely on subnational jurisdictions, indigenous territories, or 'nested' projects from private owners for the provision of JREDD+ should adopt several approaches.
First, countries should set an "ambitious, yet pragmatic five-year NDC for 2030, aligned with the Paris Agreement and longer-term country goals".
Second, sellers should establish marginal abatement curves by sector, including forestry. to estimate the most efficient pathways to achieve a country's 2030 NDC.
Third, CAs will require higher abatement across the economy to still achieve their NDC, and so this incremental cost should be assessed leveraging MAC curves.
Fourth, governments should calculate breakeven prices, which are the point where costs are recovered, for selling JREDD+ credits in both VCM and CA markets.
Finally, if breakeven prices are met, they should sell and authorise CA credits only if the price is greater than the price a country could receive in the VCM, plus the additional cost of abatement to meet a country's NDC.
