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Ethical carbon offsettingGuidelines and lessons from smallholder and community carbon projects
Ina Porras, Geoff Wells, Chris Stephenson and Paraskevas Kazis
Issue paperJuly 2016
Green economy
Keywords: Ecosystem services, Smallholders, Communities, Carbon offsetting, Markets
About the authorsIna Porras (corresponding author, [email protected]) is a senior researcher at the International Institute for Environment and Development, with long-standing experience in environmental economics and the design of markets for environmental services and other financial mechanisms to tackle ecosystem conservation and rural poverty in Latin America, Africa and Southeast Asia. She teaches at the University of Edinburgh and currently chairs the board of trustees at the Plan Vivo Foundation.
Geoff Wells is a consultant with IIED and a PhD candidate at the University of Edinburgh’s School of GeoSciences. He has experience in natural resource management projects in East African arid lands and currently works supporting the design and monitoring of a number of ecosystem service projects in the tropics. His PhD research focuses on how to efficiently manage complexity and uncertainty in local natural resource management while supporting local participation and empowerment.
Chris Stephenson is the executive director of the Plan Vivo Foundation. He is a carbon management and corporate sustainability professional who oversees the development of the Plan Vivo Standard in its application to land use and forestry projects that deliver tangible benefits to natural ecosystems and the communities they support. Previously, Chris worked in the private sector in FTSE 100 and IBEX 35 companies in London and Madrid, as well as conducting conservation and capacity-building work in Central America, sub-Saharan Africa and Asia.
Paraskevas Kazis is a graduate from the University of Edinburgh’s School of GeoSciences with an MSc in ecological economics. His dissertation focused on valuing preferences in voluntary carbon markets. He is currently a consultant at IIED supporting work on smallholder and community carbon and natural capital accounting in Southeast Asia.
Produced by IIED’s Sustainable Markets GroupThe Sustainable Markets Group drives IIED’s efforts to ensure that markets contribute to positive social, environmental and economic outcomes. The group brings together IIED’s work on market governance, environmental economics, small-scale and informal enterprise, and energy and extractive industries.
Partner organisationThe Plan Vivo Foundation is an international, Edinburgh-based charity which has created a set of requirements for smallholders and communities wishing to manage their land and natural resources more sustainably. The foundation has developed the Plan Vivo Standard, which certifies the implementation of project activities that enhance ecosystem services and allow communities to formally recognise and quantify carbon sequestration, biodiversity or watershed protection. As such, Plan Vivo projects enable participants to gain access to Payments for Ecosystem Services (PES) which allow smallholder farmers and rural communities in the developing world to diversify their income streams, restore local ecosystems and protect biodiversity.
Acknowledgments We would like to thank the team members of the Ecosystem Services for Poverty Alleviation (ESPA) project Streamlining Monitoring in Smallholders and Community PES Projects. They provided much of the background information for this report, especially Casey Ryan and Janet Fisher from the University of Edinburgh; Eva Schoof from the Plan Vivo Foundation; Pauline Nantongo from the Environmental Conservation Trust of Uganda (Ecotrust); Elsa Esquivel Bazán from Plan Vivo’s Scolel Té project in Mexico; Khalil Baker from Communitree in Nicaragua; as well as the Plan Vivo Foundation’s wider network of stakeholders. This report also draws important lessons from the Hivos/IIED/International Center for Tropical Agriculture (CIAT) study on agriculture and value chains in several countries (Porras et al. 2015b). All errors and omissions are the responsibility of the authors.
Funding for this project was provided by Ecosystem Services for Poverty Alleviation (ESPA). Additional research and publication of this paper were funded by UKaid from the UK Government.
Published by IIED, July 2016.
Porras, I., Wells, G., Stephenson, C. and Kazis, P. (2016) Ethical carbon offsetting. Guidelines and lessons from smallholder and community carbon projects. IIED, London.
Product code: 16612IIED
ISBN: 978-1-78431-317-3
Printed on recycled paper with vegetable-based inks.
Photo caption: Women planting seedlings, Nicaragua. Sales from seedlings can boost the family income.
Photo credit: Khalil Baker, from a Taking Root project in Nicaragua.
International Institute for Environment and Development 80-86 Gray’s Inn Road, London WC1X 8NH, UK Tel: +44 (0)20 3463 7399 Fax: +44 (0)20 3514 9055 email: [email protected] www.iied.org
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Smallholder and community carbon projects have shown they can deliver local livelihoods and non-carbon benefits and promote climate resilience. Their emphasis on these co-benefits provides an advantage when it comes to selling in voluntary carbon markets, as they appeal to companies’ corporate social responsibility (CSR) agendas. They also provide effective platforms for implementing and accounting for several Sustainable Development Goals – such as food security and ending poverty – along existing value chains for commodities such as timber or coffee. But they are also more expensive to implement, and many operate in remote areas with scattered and small properties, and/or in areas with social conflict. Before deciding whether to enter into these markets, project developers must have a clear, viable business model with realistic targets and benefit-sharing strategies, and a clear communication and marketing plan.
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ISSUE PAPER
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects
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ContentsSummary 6
Glossary of terms 7
Other acronyms, abbreviations and initials 9
1 Carbon offsetting 10
1.1 The International climate change agenda 111.2 Voluntary carbon offsets 111.3 About this document 11
2 Carbon within agroforestry systems 12
2.1 Mitigating climate change and generating community benefits 132.2 Understanding the science: land-based emissions reductions 132.3 Transforming carbon into a tradable commodity 132.4 Monitoring accountability 142.5 Co-benefits at the core 162.6 A strong SDG score 16
3 Viable businesses 20
3.1 Adding value at farm level 213.2 State of voluntary carbon markets 253.3 What drives buyers’ preferences? 26
4 Key messages 29
4.1 Payments for ecosystem services are incentives 304.2 Demand for ecosystem services exists 304.3 Recognising co-benefits 304.4 Project developers play a key role 304.5 Credibility is essential in ecosystems value chains 31
References 32
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List of figures and boxesFigure 1. The value chain for smallholder and community carbon offsets 14Figure 2. Monitoring along the value chain 15Figure 3. Smallholder carbon offsetting and the SDGs 18Figure 4. Biogas, carbon and smallholder agriculture in Kenya 22Figure 5. Value chain for domestic biogas and carbon in Indonesia 23Figure 6. Opportunities and bottlenecks for biogas, carbon and smallholder agriculture in Indonesia 24Figure 7. Average historic price of voluntary carbon offsets (US$/tC02e) 25Figure 8. Distribution of responses to buyers’ attitudes to carbon offsetting 26Figure 9. What are the most important factors affecting your purchase? 27Figure 10. Why do you or your company buy carbon offsets? 27Figure 11. Which monitoring strategy do you think is more accurate? 28
Box 1. The smallholder agriculture monitoring and baseline assessment (SHAMBA) tool 13Box 2. From the experts: views on different types of monitoring 16Box 3. Improving knowledge of monitoring strategies 17
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Smallholder and community carbon projects have shown they can deliver local benefits and promote climate resilience. Their emphasis on co-benefits – such as food, energy, carbon sequestration and the protection of water quality and habits for biodiversity – provides an advantage when it comes to selling carbon certificates in voluntary carbon markets, as they appeal to companies’ corporate social responsibility (CSR) agendas.
Smallholder and community carbon projects also provide effective platforms for implementing and accounting for several Sustainable Development Goals (SDGs) (such as reducing poverty and achieving food security) along existing value chains such as timber or coffee. But these types of projects can be more expensive to implement, and many operate in remote areas, with scattered and small properties, and/or in areas with social conflict.
This document, designed in collaboration with the Plan Vivo Foundation, compiles some guidance designed to help smallholder and community projects enter carbon markets and make successful sales. Experience shows that smallholder projects using payments for ecosystem services (PES) (which provide farmers with an incentive to maintain the natural resource base on which those services depend) are better placed to succeed if they improve productivity on the farm, and if transaction costs from linking farmers to buyers are manageable (Porras et al. 2015b). Clear project design and monitoring are essential to generate legitimacy and credibility for all stakeholders involved. Tools like SHAMBA, value-chain mapping and business models help to map out the dynamics of product flows associated with the ecosystems, key actors and their relations – and to identify opportunities, gaps and bottlenecks.
There is real demand for carbon offsets from forest protection or renewal and ‘climate-smart’ agriculture. But for community carbon projects to succeed, project developers must ensure delivery of carbon sequestration to offset buyers and on-farm benefits to the farmers. Ensuring credibility along the value chain through clear project design and monitoring and evaluation processes is also key.
This issue paper is based on the learnings from a three-year project funded by the Ecosystem Services for Poverty Alleviation Programme (ESPA), focusing on evidence-based lessons for poverty reduction and improved climate resilience. This issue paper is aimed at practitioners who are considering entering carbon markets and donors or policymakers interested in implementation strategies to reach smallholders and communities. It will also be of interest to anyone who wants to learn more about what ethical carbon offsetting means in practice. Key lessons include:
• Activities that generate carbon and ecosystem services must be aligned with strategies for food security and climate resilience.
• Participants need a clear understanding of the business model attached to carbon offsetting, including costs, expected revenues and actors along value chains.
• Project developers need a clear communication strategy, with targeted monitoring and reporting that informs marketing strategies.
• Partnerships are vital, to share risks and costs of supporting resilience in smallholder and community projects.
Summary
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Glossary of termsThis glossary was developed as part of a Hivos/IIED/CIAT study looking at carbon offsets in timber, coffee and biogas smallholder value chains (Porras et al. 2015b).
Additionality In the context of carbon offsets, a project activity is ‘additional’ if anthropogenic greenhouse gas (GHG) emissions are lower than those that would have occurred in the absence of the project activity. In the context of other ecosystem services, additionality refers to incremental services being delivered by the project.
Carbon dioxide equivalent (CO2e)
The universal unit of measurement used to indicate the global warming potential of each of the six GHGs regulated under the Kyoto Protocol. Carbon dioxide – a naturally occurring gas that is a by-product of burning fossil fuels and biomass, land-use changes and other industrial processes – is the reference gas against which the other GHGs are measured, using their global-warming potential (Kossoy et al. 2014).
Certification Certification is a market-based mechanism, guaranteed by a third party, designed to encourage environmentally sustainable and socially responsible practices. Certification can also offer ‘chain of custody’ information.
Clean Development Mechanism (CDM)
This is a mechanism provided by Article 12 of the Kyoto Protocol, designed to assist developing countries in achieving sustainable development by allowing entities from Annex 1 Parties to participate in low-carbon projects and obtain CERs in return (Kossoy et al. 2014).
Co-benefits In carbon projects, this refers to well-managed and sustainable projects associated with a variety of benefits beyond reduction of GHG emissions, such as increased local employment and income generation, protection of biodiversity and conservation of watersheds.
Certified Emission Reduction (CER)
A unit of GHG-emission reductions issued pursuant to the Clean Development Mechanism of the Kyoto Protocol and measured in metric tons (tonnes) of carbon dioxide equivalent (tCO2e). One CER represents a reduction in GHG emissions of one metric ton of carbon dioxide equivalent (Kossoy et al. 2014).
Ecosystem services/environmental services
Ecosystems services are the benefits that people obtain from ecosystems, and include provisioning services (such as food or timber); regulating services (such as climate regulation, flood management, water purification and disease control); cultural services (eg recreation or spiritual); and supporting services that contribute to soil productivity through nutrient cycling, soil formation and primary production (MEA 2005).
Ex-ante offsets Ex-ante offsets are determined by the future carbon fixation of an activity (often forest based). Accredited projects are then able to sell credits on the agreement of future activities within a set timeframe.
Greenhouse gas (GHG)
Both natural and anthropogenic, GHGs trap heat in the Earth’s atmosphere, causing the greenhouse effect. Water vapour (H2O), carbon dioxide (CO2), nitrous oxide (N2O), methane (CH4), and ozone (O3) are the primary GHGs. The emission of GHG through human activities (such as fossil-fuel combustion or deforestation) and their accumulation in the atmosphere is responsible for an additional forcing, contributing to climate change (Kossoy et al. 2014).
Inclusive business models
A profitable core business activity that also tangibly expands opportunities for the poor and disadvantaged in developing countries. They engage the poor as employees, suppliers, distributors or consumers and expand their economic opportunities in a wide variety of ways (BIF 2011).
Inclusive trading relationships
Inclusive trading relationships are the result of business models that do not leave behind smallholder farmers and in which the voices and needs of those actors in rural areas in developing countries are recognised.
Insetting Investments focus from stakeholders higher up in the supply chain on activities that reduce environmental risks at the base of the supply chain (farmers) that may affect the quality of the final products.
Intermediary An intermediary is a mediator or negotiator who acts as a link between different parties, usually providing some added value to a transaction that may not be achieved through direct trading.
IPCC (Inter-governmental Panel on Climate Change)
The IPCC is the international body for assessing the science related to climate change. It was set up in 1988 by the World Meteorological Organization (WMO) and United Nations Environment Programme (UNEP) to provide policymakers with regular assessments of the scientific basis of climate change, its impacts and future risks, and options for adaptation and mitigation. See: www.ipcc.ch
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Offset An offset designates the emission reductions from project-based activities that can be used to meet compliance or corporate citizenship objectives vis-à-vis GHG mitigation (Kossoy et al. 2014).
Outgrower schemes
Partnerships between growers or landholders and a company for the production of commercial (usually forest or agricultural) products. The extent to which inputs, costs, risks and benefits are shared between growers/landholders and companies varies, as does the duration of the partnership. Growers may act individually or as a group in partnership with a company, and use private or communal land.
Payments for ecosystems services (PES)
In this paper we understand PES as follows, based on Porras et al. (2008) and Ferraro (2009):
An instrument that addresses an environmental externality through variable payments made in cash or kind, with a land user, provider or seller of environmental services responding to an offer of payment by a private company, non-governmental organisation (NGO) or local or central government agency.
A user of ecosystems services, who is distinguishable from the seller, makes payments to enhance or protect these services through pre-agreed activities (including sustainable land management and energy-based activities like cooking stoves or biodigesters).
The ecosystems service provider enters into the transaction voluntarily.
Payment is conditional upon previously agreed activities (eg land use, biodigesters) that are expected to provide the service in question. They can be in cash or in-kind (or a mix of both), continuous or one-off, depending on each individual arrangement.
PES is anchored in the use of payments to correct an economic externality (Pigou 1920, Coase 1960). Coase argues that socially sub-optimal situations, in this case poor provision of ecological services, can be corrected through voluntary market-like transactions provided transaction costs are low and property rights are clearly defined and enforced (Pattanayak et al. 2010).
Poverty While there can be many definitions of poverty, we understand it as the lack of, or inability to achieve, a socially acceptable standard of living, or the possession of insufficient resources to meet basic needs. Multi dimensions of poverty imply going beyond the economic components to wider contributory elements of well-being. Poverty dynamics are the factors that affect whether people move out of poverty, stay poor or become poor (Suich 2012).
REDD+ All activities that reduce emissions from deforestation and forest degradation and contribute to conservation, sustainable management of forests, and enhancement of forest carbon stocks.
Small producers/small farms
Although no common definition exists we follow Nagayets’ (2005) approach, defining small farms on the basis of the size of landholding. This has limitations as it does not reflect efficiency. Size is also relative. Individual agricultural plots of <2 hectares are common in Africa and Asia but are generally larger in Latin America. Community forest land can include considerably larger patches.
Supply chain ‘Formal’ = ‘modern’ = ‘coordinated’ supply chains: coordinated supply chains are durable arrangements between producers, traders, processors and buyers about what and how much to produce, time of delivery, quality and safety conditions, and price. They often involve exchanges of information, and sometimes also help with technology and finance. They are usually initiated by investments of private traders and food companies, who act as chain leaders. They have characteristics of partnerships and joint interest (van der Meer 2006).
Transaction costs Pagiola and Bosquet (2009) define transaction costs in reducing emissions from deforestation and forest degradation (REDD+)/PES as those necessary for the parties to reach an agreement that results in the reduction of emissions. The costs are associated with identification of the programme, creating enabling conditions for reducing emissions, and monitoring, verifying and certifying emissions reductions. Costs fall on different actors, including buyers and sellers (or donors and recipients), market regulators or institutions responsible for administration of the payment systems, project implementers, verifiers, certifiers, lawyers and other parties. The costs can be monetary and non-monetary, ex-ante (initial costs of achieving an agreement) and ex-post (implementing an agreement once it is in place).
Validation and verification
Validation is the process of independent evaluation of a project activity by a designated operational entity (DOE) against the requirements of the CDM. Verification is the review and ex-post determination by an independent third party of the monitored reductions in emissions generated by a registered project approved under CDM or another standard during the verification period (Kossoy et al. 2014).
Verified Emission Reduction (VER)
A unit of GHG emission reductions that has been verified by an independent auditor. Most often, this designates emission reductions units that are traded on the voluntary market (Kossoy et al. 2014).
Voluntary carbon market
The voluntary carbon market caters to the needs of those entities that voluntarily decide to reduce their carbon footprint using offsets. The regulatory vacuum in some countries and the anticipation of imminent legislation on GHG emissions also motivates some pre-compliance activity (Kossoy et al. 2014).
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Other acronyms, abbreviations and initialsCIAT International Center for Tropical Agriculture
CPO Construction partner organisation
CSR Corporate social responsibility
ESPA Ecosystem Services for Poverty Alleviation Programme
FFI Flora & Fauna International
FSC Forest Stewardship Council
IIED International Institute for Environment and Development
LPG Liquefied petroleum gas
M&E Monitoring and evaluation
MFIs Microfinance institutions
NGO Non-governmental organisation
PIN Project idea note
SDGs Sustainable Development Goals
tCO2e Tonne of carbon dioxide equivalent
UN United Nations
UNFCCC United Nations Framework Convention on Climate Change
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This section introduces this issue paper and discusses why it is a good idea to use smallholder and community projects to deliver climate resilience and adaptation strategies.
1
Carbon offsetting
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1.1 The International climate change agendaClimate change is one of the most pressing problems of the 21st century. Climate change is a natural phenomenon that happens when the atmosphere warms up. However, the speed at which the atmosphere is heating has been accelerated by high levels of man-made pollutants – known as greenhouse gases (GHG). This is having major impacts, such as changes in local temperatures and precipitation patterns and rising ocean levels. A recent review commissioned by the United Nations (UNFCCC 2015) shows that the impacts of a two-degree rise in temperature poses serious risks for many countries, for example small island states. The report also noted the risks for regions or countries with heavy economic dependence on climate-sensitive sectors, for example agriculture and tourism, with limited opportunities for economic diversification.
At the global level, negotiations on how to reduce emissions are moving slowly. Recent results from the 2015 United Nations Climate Change Conference in Paris (COP 21) are encouraging, with countries committing to reducing emissions to ‘to well below 2 degrees C’. The agreement, however, will have to be signed and ratified to be legally binding. And importantly, it needs to be adopted by the countries within their own legal systems.
1.2 Voluntary carbon offsetsThe idea of carbon offsetting takes place within this context, allowing trade between those who emit GHGs and those who reduce them.
Voluntary carbon markets emerge as an option where people or organisations can reduce their unavoidable carbon emissions by purchasing certified carbon offsets from smallholder and community projects. Working in partnerships with local organisations, companies can offset their carbon emissions while promoting their corporate social responsibility (CSR) agenda by supporting small farmers and communities. And, in the case of insetting (see glossary), some companies – like coffee roasters – can offset their emissions while tackling procurement costs, strengthening links with local suppliers and helping them to increase their resilience to climate change.
1.3 About this document In this document we highlight the main steps to consider for developing smallholder and community PES projects – in particular involving carbon offsets. There is an emphasis on systems that promote more equitable benefit sharing or sharing of revenues, costs and risks. We draw on:
• The team’s experience in PES and carbon offsetting
• Information from workshops, focus groups and conferences involving the Plan Vivo Standard stakeholder network, including project developers in many countries, technical staff, and retailers of carbon offsets, held between 2012 and 2015
• Information from the ESPA-funded project Streamlining Monitoring for Smallholder and Community PES Projects
• The Hivos/IIED/CIAT-funded project PES in Agriculture and Forest Value Chains.
We focus on two main areas: the process by which offsets are created (Section 2) and what is involved in offsetting as a viable business (Section 3). This issue paper is aimed at practitioners who are considering entering carbon markets and donors or policymakers interested in implementation strategies to reach smallholders and communities. It will also be of interest to anyone who wants to learn more about what ethical carbon offsetting means in practice.
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This section explains the process by which a carbon offset is created – the science of the process, the link to activities on the farm, and how these offsets enter the market.
2
Carbon within agroforestry systems
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2.1 Mitigating climate change and generating community benefitsSmallholder and community land-based projects are good vehicles for mitigating climate change and generating local benefits, such as jobs, food security, access to sustainable energy sources and better health. Practices that combine agricultural crops and animal husbandry with trees can help tackle multiple dimensions of poverty, providing short- and long-term benefits such as food and timber. By improving the natural base, these activities improve resilience to climate change. This approach has given rise to a new set of projects and programmes that combine reductions in greenhouse gas emissions with local benefits. The resulting reductions of carbon emissions can be packaged as ‘carbon offsets’ and sold in international markets, becoming an additional short-term cash ‘crop’ for the farm system.
2.2 Understanding the science: land-based emissions reductionsChange to land use in forests and croplands is one of the major contributors of greenhouse gas (GHG) emissions (see glossary; IPCC 2014b). The burning of trees and crop residues, overuse of organic and synthetic fertilisers, and use of fossil fuels are all sources of the three major GHGs: carbon dioxide (CO2), methane (CH4) and nitrous oxide (N2O) (IPCC 2014a).
On the other hand, improvements to land use can help with climate change. Planting and maintaining trees and plants removes CO2 from the atmosphere through photosynthesis, and stores the carbon in stems, roots and soils (known as carbon pools). Also, by better managing GHG sources such as fire, fertilisers and fossil fuels, other GHG emissions can be reduced (IPCC 2014a). When land use is improved, such as through tree planting, stopping deforestation and improving crop management, it is possible to monitor the change in the carbon pools and the GHG sources to quantify and certify emission-reduction credits for trade in carbon markets.
A variety of certification standards and monitoring methodologies exist (VCS 2011, Plan Vivo 2013, The Gold Standard 2014, University of Edinburgh 2014), the most advanced of which focus on measuring indicators such as above-ground tree growth, fertiliser use, crop yields and residues, fire frequency and fossil fuel use. This information is used to estimate changes in tree root and soil carbon pools. A series of equations is then
used to estimate the GHGs sequestered by the carbon pools, and the emissions avoided by reductions in GHG sources. Finally, to combine the emissions reductions of the three different GHGs (which, per unit, all have different climate-warming potentials) into one tradable commodity, all pools and sources are combined into tonnes of carbon dioxide equivalent (tCO2e) for certification.
BOx 1. The SmallhOldeR aGRiCulTuRe mOniTORinG and BaSeline aSSeSSmenT (ShamBa) TOOlSHAMBA is a carbon accounting tool that promises to make community-driven climate projects even more viable, while also making these projects more transparent to businesses who invest in them. The carbon accounting software sets out to make it easier and affordable for rural communities and grassroots project developers to create good projects. It offers the potential to reduce costly technical consultancy inputs, while at the same time increasing carbon and financial benefits to smallholders. See: https://shambatool.wordpress.com and www.planvivo.org/latest-news/shamba-new-video
2.3 Transforming carbon into a tradable commodity Any growing tree can fix and reduce carbon emissions. But it takes a series of extra steps to turn this action into a commodity that can be traded.
Offsets from agroforestry activities, like those described in the previous section, are usually traded in voluntary carbon markets where carbon co-benefits help fetch better prices, by appealing to the ethical principles of buyers. International buyers rely on independent ‘speciality’ standards to ensure transparency and reliability, like the Plan Vivo Standard or the emerging Fairtrade carbon credits.
Figure 1 shows how a typical Plan Vivo carbon offset project operates. A project developer works with smallholders, communities and supporting agencies to develop a project idea note (PIN). This is submitted to Plan Vivo where it is initially checked against the eligibility criteria set out by the Plan Vivo Standard. Amongst other key aspects, the Plan Vivo Standard has a particular focus on whether the project secures land tenure or carbon rights for participating communities and uses native or naturalised species in its project activities. If it fulfils the eligibility criteria, the carbon accounting methodology goes into the
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project design stage. After submission, the carbon accounting methodology is evaluated through a peer-review process and assessed by Plan Vivo’s technical committee. Successful projects go through validation and project registration. Through the submission of annual reports, projects can demonstrate compliance with their project design and monitoring targets, which will lead to the issuing of valid carbon certificates. The project developer is then able to sell these certificates in voluntary carbon markets. Regular third-party evaluation takes place to ensure the validity and permanence of carbon sequestration rates and that the distribution of funds to communities is done in a way that is equitable, benefit sharing and transparent.
The value chains associated with carbon offsets are simple and yet complex. At first glance, they resemble agro-commodity value chains: approved activities to reduce emissions, like reforestation or agroforestry, are carried out by smallholders or communities on their plots. An intermediary or project developer manages the project, ensuring that activities take place to the required standard, distributing payments and selling ensuing credits to (usually international) buyers. Although direct sales can take place, thereby skipping a few steps in the chain, most transactions are formalised through resellers. Certification by an independent agent – such as Fairtrade for social norms or the Forest Stewardship Council (FSC) for sustainable forest management – is increasingly required to ensure quality standards are met throughout the process (Swallow and Goddard 2013).
Yet carbon offsets are different from agro-commodities because they are ‘invisible’. They enter financial markets in similar ways to tradable permits, insurances and some derivatives – not necessarily linked to a physical commodity but to its trading or management systems. Companies and their shareholders demand trust in and clarity about what they purchase, and they need assurance that carbon emissions are really being
reduced. Clarity is required at the bottom of the chain as well. For farmers, understanding the ‘carbon’ element of their activities can be confusing, and they require clarity over the process by which their efforts result in offsets for which they would be entitled to compensation, and at what price.
The process of transforming carbon into a tangible and marketable commodity relies on an understanding of the science that measures and reports these emissions at the point of origin (eg, with the landowner), and the institutions and legal frameworks that provide incentives to ensure permanence and avoid displacement of harmful activities. Furthermore, many smallholder and community carbon projects are traded in niche markets where their strong social component is more likely to be recognised in the form of a price premium. Thus, the perception is that carbon offsets are already linked to additional benefits, like better incomes for small farmers or enhancement of habitats for biodiversity protection.
2.4 Monitoring accountability Monitoring and evaluation (M&E) becomes the tool by which projects are able to prove the existence of the carbon offset and its co-benefits. International certification bodies such as the Plan Vivo Foundation or the Gold Standard act as independent agents that ensure transparency and credibility of these transactions.
Monitoring is important along the chain for several reasons (see also Figure 2):
• For farmers, it checks compliance of agreed activities, and provides useful feedback to them on the quality of their activities – for example, how well their trees are growing or if any remedial actions are necessary if operational concerns arise.
Figure 1. The value chain for smallholder and community carbon offsets
Smallholder and community carbon projects can be effective vehicles to deliver climate change solutions. The chain linking farmers to offset buyers, however, can become a barrier to entry if transaction costs are high.
Engagement with farmers and communities
Project idea note (PIN)
Project designValidation and project
registration
Reporting and issuance of
certificates
Periodic third-party verification
Over the counter offset sales
Buyers offset their emissions
CO2 absorption
Technical experts
Third-party carbon standard
Independent verifier/ auditors
Offset resellers
CO2 emission and offset purchase
Project development chain
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• For project managers, it helps align incentives for performance and triggers payments
• For transferring technology, capacity and feedback related to the activities promoted from project developers to farmers, creating a wider community of practice and sharing lessons and strategies with other smallholder and community projects
• For validating assumptions for model development
• For supporting transparency and credibility for buyers to foster sales.
But monitoring can be challenging, especially for smallholder and community projects. Many of these projects operate in places with very limited access to technical support, a crucial element, especially at the early stages of planting. Project coordinators within the Plan Vivo Standard network are highly committed to providing this support (‘Each tree, each person,’ according to Pauline Nantongo of Ecotrust in Uganda), as it enhances the legitimacy at farmers’ level. But it comes at a cost. The increased precision demanded by emerging voluntary carbon markets adds to stretched budgets, and with slumping international carbon prices it is important to match expectations with prices.
Community monitoring plays an important role in REDD+ projects in monitoring carbon stocks (Larrazábal et al. 2012). For example, communities can provide a large workforce to facilitate collection of large amounts of data at large scales; they can bring their local skills and knowledge to complement expertise (Berkes et al. 2000), and they can provide ecological data where there are gaps in academic studies (Doswald et al. 2010). The cost of hiring local labour is, for the most part, relatively cheap (see Box 2). There are, however, some risks. For example, training is required to ensure that protocols and procedures approved by IPCC are met (see glossary). Supervision is required (especially in early stages) and procedures to ensure the reliability of data collected must be adhered to. Larrazábal et al. (2012) also point out that local people might be tempted to exaggerate the carbon stock increases if this is linked to payments received.
Figure 2. Monitoring along the value chain
Source: Porras and Stephenson (2015).
Voluntary carbon offset buyers
Farmers Project developers independent standards Buyers
Who are they?
Heterogeneous. Seek added value to agriculture.
Carbon-generating activities must combine with existing farming activities.
Commitment: long-term to access project
Absorb risk of price volatility.Carbon as single activity or part of portfolio.
Must comply with requirements.
Manager and seller.
Standardisation of carbon as over-the-counter commodity.
Establish criteria to provide credibility.
Offsets as compliance or CSR. Heterogeneous and not grouped. Individuals or companies.
Respond to shareholder and public pressure.
link to m&e
Useful feedback on the quality of their activities but may divert from other activities.
Helps understand when they may be at risk of default and why.
Legitimacy to access international markets but need to keep transaction costs down.
Trust that is reflected in market share.
Trust re. legitimacy of transaction is reflected in prices and repeat purchases.
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects
16 www.iied.org
2.5 Co-benefits at the coreMost smallholder and community projects propose activities in line with the needs of local people. The Plan Vivo Standard, for example, requires their approved projects to include strategies that result in local socio-economic and biodiversity benefits. For example, projects have to demonstrate that activities exclude large-scale reforestation with exotic species, will not result in negative impacts on local water sources or biodiversity, and will not compromise food security. Instead, Plan Vivo projects focus on smallholder forestry activities, in which trees or shrubs are protected or planted around crops or pasture, resulting not only in increased carbon sequestration but improved soil fertility and nutrient cycling. The activities are designed to provide the farmer with a range of concurrent benefits – such as energy, food supply and the creation of new jobs – while also protecting water sources and biodiversity. An increasing part of the portfolio now also covers forest custody and regeneration. It includes, for
example, community forest management in Indonesia with Fauna & Flora International and forest protection in the South Pacific Islands. Cataloguing co-benefits and effectively communicating them to buyers may improve offset sales and overall project income.
2.6 A strong SDG scoreThe Sustainable Development Goals (SDGs) are a new, universal set of targets and indicators. UN member states are expected to incorporate them into their agendas and political policies over the next 15 years. They include a commitment to end poverty and hunger, improve health and education, make cities more sustainable, combat climate change and protect oceans and forests. The investment required will run into trillions of US dollars. This will mean forming partnerships across the whole spectrum of society: government, the private sector, international and local NGOs, and communities.
BOx 2. FROm The exPeRTS: VieWS On diFFeRenT TyPeS OF mOniTORinGOpportunities
• Participatory monitoring builds local capacity and provides new jobs for local technicians, and is relatively cheap to do. Depending on the culture/location, these jobs can represent opportunities for youth and women (eg in Uganda and Nicaragua). In the Flora & Fauna International (FFI) carbon projects in Indonesia, communities rotate the people (mostly male youths) who do the monitoring to enlarge the pool of those who benefit directly.
• Farmer-to-farmer training and monitoring is good for community and smallholder projects. Those farmers whose plots perform well like to support others. This adds to their social status, and represents another source of income.
• Information obtained through remote sensing can be used beyond the PES project. For example, information from the Indonesia FFI project (currently in the Plan Vivo pipeline) is linked to national forestry monitoring.
• Linking to global initiatives like the Forest Global Watch1 can be very useful and reduce the cost of monitoring for individual projects. The results, however, many not be tailored to the project site.
Barriers
• The cost of labour is relatively low but educating the farmers and the technicians for community monitoring can be a time-consuming process.
• Local understanding of monitoring results may decrease as tools become more technical, for example going from tree measurement to remote sensing and computer modelling.
• Remote sensing without local corroboration is not perceived as adequate for agroforestry projects, especially for native species that lose their leaves during dry seasons and which are not captured by remote sensing.
• Costs of remote sensing can be too high, especially if higher resolutions are needed but are not freely available. Technologies are evolving rapidly.
Source: Monitoring Strategies in Smallholder and Community Projects capacity-building workshop, IIED, University of Edinburgh and the Plan Vivo Foundation, Entebbe, Uganda 26th March 2015. The workshop brought together practitioners from Uganda, Nicaragua, Mozambique, Indonesia, Mexico and Kenya, as well as international facilitators and researchers to discuss effectiveness and legitimacy of different monitoring strategies in smallholder and community projects.
1 See: www.globalforestwatch.org
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects iied issue paper
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The mutually beneficial, ethical partnerships promoted by Plan Vivo are well placed to support the implementation of at least seven of the SDGs (Porras 2015b), as shown in Figure 3 and outlined below.
SDG1: End poverty. Partnerships can cut through many of the roots of poverty in several ways. Direct cash transfers estimated in proportion to the amount of carbon absorbed in the plot provide short-term poverty alleviation. Projects build human and natural capital within communities, helping eliminate long-term poverty. And Plan Vivo operates in many places ignored by others. For instance, it works in remote locations/farms and in areas divided by conflict. In these situations, the projects provide much-needed technical support in the design of the individual farm-management plans. The farmers own the trees planted and are able to use and/or sell the timber in both the medium and long term
depending on the species used. Some projects help communities establish small-scale timber workshops, and local people are learning how to produce furniture or crafts.
SDG2: Achieve food security. During the initial stages of a project, farmers and project developers hold regular meetings. Their objective is to design a management plan that will ensure the long-term survival of tree species without compromising family food security. Plan Vivo promotes a mixed portfolio of activities to spread risk, considering what works best with the agricultural crops farmers have available. For example, different types of tree species are appropriate for timber, fruit, fodder and shade for intercropping. Activities like beekeeping produce honey for household consumption or sales income while encouraging natural pollination.
BOx 3. imPROVinG KnOWledGe OF mOniTORinG STRaTeGieSThe Ecosystem Services and Poverty Alleviation Programme (ESPA) funded a three-year project to assess different types of monitoring strategies for smallholder carbon-offsetting projects in terms of scientific robustness, equity and legitimacy. Working with local partners, the project has provided an in-depth review of two long-established projects in Uganda (Trees for Global Benefits) and in Mexico (Scolel Té), as well as the wider Plan Vivo Foundation portfolio of projects.
The techniques vary in terms of local participation, capacities required and the use of techniques like remote sensing or computer modelling. They were tested in relation to their ability to predict the carbon potential in smallholder agroforestry systems. The project collected biophysical and socio-economic data and perceptions using a variety of techniques such as plot inventories, interviews with farmers, and scenario-development exercises with implementers to run iterations of models, and benchmark current monitoring as baselines. It also used remote sensing land-cover analysis exercises, both participatory (with local technicians) and external (with specialists in the UK). The project has also evaluated if and how buyers react to these monitoring strategies.
The key findings were:
• Out of the tested agroforestry monitoring strategies, those tools with a high spatial resolution (ie at farm level as opposed to regional level) and which included field visits increased accuracy and project flexibility (and potentially profitability) for farmers, while maintaining cost effectiveness, equity and legitimacy.
• Remote-sensing tools that involved fewer or no field visits (ie remote sensing) performed poorly in accuracy, cost, local legitimacy and equity for smallholder agroforestry projects.
• The choice of monitoring regime appeared to have little or no impact on buyers’ preferences for different carbon offsets. Buyers’ preferences were more related to price and perceived co-benefits of a project. As a result, smallholder agroforestry projects are empowered to reform their monitoring without fear of losing buyers, as long as the reforms do not impact local co-benefits and related legitimacy and equity.
• Participants reported that a key factor in successfully attracting buyers was marketing and provision of information. Therefore, smallholder projects may benefit from investments in efficient data management, communications and marketing.
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects
18 www.iied.org
SDG7: Affordable and sustainable energy. A significant amount of timber is generated by removing branches to encourage tree growth and through the thinning process – when younger trees are removed to provide space for others to mature. Many projects, like Scolel Té in Mexico, also promote the adoption of efficient cookstoves. These are excluded from the carbon account but financed through the support of committed offset buyers either as donations or through agreements to increase the price per offset.
SDG8: Growth and employment. The introduction of carbon markets has created a major new supply chain. At the local level, this includes project developers who carefully orchestrate the participation of smallholders and remote farmers. They provide cash payments and technical support, and sell carbon offsets to international buyers. Community monitoring creates jobs for forest technicians, many of them women, as well as young people eager to learn new technological
skills. Demand for tree cultivation also promotes seed collection and the creation of local nurseries. All Plan Vivo projects are independently verified, and most of the voluntary carbon offset marketing is carried out through a growing network of retailers in the USA and Europe.
SDG13: Urgent action to combat climate change. Reforestation, and protection and management of forests help diminish the threat of climate change. Collaborations with the research and academic sectors, such as the ESPA project with IIED and Edinburgh University, have a role to play here. For instance, they help develop rigorous and streamlined scientific methodologies employed to measure the environmental footprint of these activities in cost-effective ways. Once verified and validated, these reduced emissions become a tradable commodity sold in voluntary carbon markets. Companies and governments are then more confident in purchasing these offsets and can use them to meet emissions reduction targets.
Source: Porras (2015a).
Figure 3. Smallholder carbon offsetting and the SDGs
SDG1: Reduce poverty through (1) Short-term improvement in food security and cash payments from PES and (2) long-term investment in resilience to climate change
SDG2: Food security through promotion of agroforestry systems
SDG 13: Reduce climate change threat through
offsetting unavoidable carbon emissions
SDG 8: Growth and employment through creation of multiple jobs along carbon value chain, especially for youth and women (monitoring, technical support, nurseries, etc)
SDG 15: Protect local ecosystems and biodiversity by using native species and promoting conservation and enhancement of existing habitats
SDG 7: Sustainable energy through timber from managed forests
Project developer
Communities get paid to reduce carbon emissions
Private sector buys carbon offsets
CSR
COMMUNITIES PRIVATE SECTOR
SDG 17: Means of implementation through a certified ethical carbon market in partnership with local partners, including
governments
CO2
CO2
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects iied issue paper
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SDG15: Protect biodiversity and ecosystems. The sustainable principles underpinning each management plan seek to balance food and timber cultivation while broadening the area of impact to other ecosystem services. Better farm management contributes to improved water retention and reduces sedimentation. Planting new trees, especially native species, helps rehabilitate degraded landscapes. The Yaeda Valley REDD+ project in Northern Tanzania is an example of a project working with hunter–gatherer communities to reduce pressure on existing forests while improving livelihoods. Projects like the Nakau Programme in the Pacific Islands put forward a ‘habitat protection’ unit that promotes rainforest and mangrove protection to reduce indigenous communities’ vulnerability to climate risks. This link to biodiversity conservation is also a key proposition for community forest management in Indonesia. It is currently piloted by Flora & Fauna International and shows great potential for being scaled up across the rest of the country.
SDG17: Partnerships for implementation. The increasing number of projects promoting reforestation, organic agriculture and cleaner energy technologies requires multiple partners along the value chain. These include farmers, technical and capacity-building specialists, project managers, office administrators,
carbon experts (modelling specialists, auditors and certifying agents), offset resellers, and importantly, offset buyers. Project developers are increasingly becoming leading figures in the design of national public initiatives, such as Ecotrust in Uganda and Fundación Ambio in Mexico.
The importance of including and accounting for local co-benefits is bound to increase as projects seek differentiation in markets and as governments and businesses are required to demonstrate greater accountability. Greater effort, however, is needed to convince policymakers and other actors to mainstream the concept and move away from the ‘niche’. Specific efforts are needed to:
• Clarify terminology and communicate to targeted discussion platforms
• Build capacity to quantify costs and benefits beyond monetary units, and transfer experience across projects and countries
• Go beyond just demonstrating the existence of co-benefits. More effort is needed to design instruments and institutional arrangements that financially recognise co-benefits, reduce barriers to investment (such as risk) and attract the interest of investors.
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects
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This section presents the current state of voluntary carbon markets in smallholder projects and discusses how PES can contribute to sustainable smallholder agriculture.
3
Viable businesses
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects iied issue paper
www.iied.org 21
3.1 Adding value at farm levelA recent project by IIED and HIVOS assessed the potential of PES, and specifically carbon offsets, to contribute to sustainable smallholder agriculture. The study looked at ongoing projects in different countries (Nicaragua, Guatemala, Peru, Kenya and Indonesia), at different scales (local and national), with farmers engaged in a variety of production activities (biogas, coffee and timber as well as subsistence agriculture), and using different certification bodies to sell carbon offsets (Gold Standard, Plan Vivo and Cambio2).
Working in partnership with the local projects, the project used value chains and business model canvas tools, originally developed by CIAT (2012) to analyse agricultural commodities. Emphasis was placed on mapping stakeholders, interests and roles along the value chain, and how carbon interacts with existing agricultural activities. For example, in Kenya (see Figure 4) and Indonesia (see Figure 5 and Figure 6) the value-chain mapping tool looked at how biogas is linked not just to carbon offsets, but also to agriculture (through bioslurry, a natural fertiliser, which is a by-product of the biogas process) and to dairy-farming activities (for example, selling milk to Nestle or increasing the value of the livestock within the farm).
The study found that PES can indeed provide a viable financing strategy for smallholder agriculture, but it depends on how well it integrates within the smallholder enterprise – as well as the level of payoffs from the carbon markets (Porras et al. 2015b). The main insights suggest that:
• Carbon in smallholder agriculture is new, and the learning process is still developing.
• Expectations of revenues from carbon sales need to be realistic. There is a marked disassociation between costs of implementing climate-resilience activities, and the price that carbon markets are willing to pay.
• The share of costs and benefits along the value chain need to be clearer, including the impact of risk for project developers and farmers.
• Transaction costs need to decrease – to make business viable to upscale and ensure meaningful benefit sharing for the farmers.
• Projects need to sell offsets – demonstrating the existence of co-benefits is not enough and projects need to improve their marketing strategies.
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects
22 www.iied.org
Figu
re 4
. Bio
gas,
carb
on a
nd sm
allh
olde
r agr
icul
ture
in K
enya
Not
e: T
he K
enya
Nat
iona
l Dom
estic
Bio
gas
Pro
gram
me
(KE
ND
BIP
): th
is f
igur
e sh
ows
how
the
act
iviti
es t
hat g
ener
ate
biog
as g
ener
ate
carb
on o
ffse
ts, p
rovi
de lo
cal b
enef
its in
term
s of
acc
ess
to c
lean
en
ergy
, and
incr
ease
fer
tility
of
soil
thro
ugh
bios
lurr
y, a
by-
prod
uct o
f bi
ogas
. Sou
rce:
Por
ras
et a
l. (2
015
a).
Gov
ernm
ent s
uppo
rtD
utch
gov
ernm
ent a
nd
emba
ssy
Indo
nesi
an c
ount
erpa
rt
min
istr
y (M
inis
try
of
Ene
rgy
and
Min
eral
R
esou
rces
/Bio
gas
Exp
ertis
e C
entr
e)
Fina
ncia
l ins
titut
ions
N
atio
nal b
anks
Pro
ject
adv
isor
y se
rvic
esP
roje
ct A
dvis
ory
Com
mitt
eeIn
tern
atio
nal t
echn
ical
ad
viso
r (S
NV
)R
esea
rch
and
deve
lopm
ent
inst
itutio
ns
hiv
os
(impl
emen
ting
agen
cy)
nat
iona
l bio
gas
supp
ort o
ffice
Pro
vinc
ial b
ioga
s pr
ogra
mm
e of
fices in
put p
rovi
ders
B
ioga
s: c
ontr
acto
rs
and
mas
ons
Inpu
ts fo
r rai
sing
cat
tle
(Nes
tlé)
Agr
icul
tura
l too
ls/
mac
hine
ry
Fina
ncia
l ins
titut
ions
Lo
cal b
anks
, co
oper
ativ
es,
mic
rofin
ance
in
stitu
tions
Te
chni
cal s
ervi
ces
Trai
ning
inst
itutio
ns
Pro
mot
ion
agen
cies
D
istr
ict g
over
nmen
ts
Live
stoc
k ex
tens
ion/
en
ergy
ser
vice
national level Provincial and district level n
ew p
rodu
cts
Car
bon
offs
et
Bio
slur
ry (
by-p
rodu
ct) a
s fe
rtili
ser a
nd fo
od
for c
atfis
h
Bio
gas
for d
omes
tic u
se
hou
seho
ld fa
rm
syst
em
Trad
ition
al
prod
ucts
Food
and
ca
sh c
rops
milkK
omna
s m
PB
(C
lean
D
evel
opm
ent M
echa
nism
N
atio
nal C
omm
ittee
)
Gov
ernm
ent s
teer
ing
com
mitt
ee (
unde
r ES
DM
) &
Tech
nica
l Com
mitt
ee
idB
P ii
pro
gram
me
2013
-1
6 im
plem
enta
tion
units
Car
bon
emis
sion
redu
ctio
n sa
les
desk
(ob
tain
s ca
rbon
rig
hts
from
the
farm
ers)
hiv
os +
Sn
VFu
ndin
g, a
dvic
e, m
anag
emen
t, su
ppor
t
Car
bon
mar
ket
inde
pend
ent
cons
ultin
g fir
ms
prov
idin
g ve
rifica
tion,
eg
Clim
ate
Focu
s
inde
pend
ent
audi
tor a
ccre
dite
d by
the
UN
FCC
C
Cle
an D
evel
opm
ent
Mec
hani
sm
Exe
cutiv
e B
oard
Gol
d S
tand
ard
Mon
itorin
g, v
erifi
catio
n,
cert
ifica
tion
& is
suan
ce
of c
arbo
n of
fset
s
Volu
ntar
y m
arke
tC
ompa
nies
, NG
Os,
in
divi
dual
s, e
tc. H
as
pote
ntia
l due
to h
igh
co-b
enefi
ts
Exp
orte
rs
Nei
ghbo
urs/
loca
l m
arke
ts
Vend
ors
Nes
tlé
Sm
all r
etai
lers
Pro
cess
ors
Coo
pera
tives
(eg
Puj
on, D
odol
an
d K
erta
jaya
in E
ast
Java
)
Trad
ers/
colle
ctor
s
Coo
pera
tive
soci
etie
sTr
ader
s
Pas
teur
ised
milk
Key
Trad
ition
al m
arke
t and
link
ages
Bio
gas
and
bios
lurr
y lin
kage
s
Car
bon
offs
et li
nkag
es
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects iied issue paper
www.iied.org 23
Figure 5. Value chain for domestic biogas and carbon in Indonesia
The Indonesia Domestic Biogas Programme (known as BIRU) is a national programme that promotes biodigesters for households linked to milk, horticulture and cattle activities. The carbon component looks at marketing offsets created through reduced firewood for energy, and could potentially expand into reducing GHGs through the use of natural fertiliser (bioslurry). Source: Vorley et al. (2015).
1. Cows must be kept in specially built pens at all times, where dung is collected
2. Dung is mixed with water to achieve required consistency and enters the digester system
3. The process moves through a series of interconnected underground containers
4. The biogas is transferred to the household for clean, on-demand energy
5. Bioslurry is used as a highly valuable natural fertiliser for agriculture
6. Carbon offsets from avoided deforestation are issued to international markets
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects
24 www.iied.org
Figu
re 6
. Opp
ortu
nitie
s and
bot
tlene
cks f
or b
ioga
s, ca
rbon
and
smal
lhol
der a
gric
ultu
re in
Indo
nesi
a
Not
es. U
sing
a c
ombi
natio
n of
val
ue-c
hain
map
ping
and
bus
ines
s m
odel
can
vas
it is
pos
sibl
e to
iden
tify
oppo
rtun
ities
and
pot
entia
l bot
tlene
cks
to t
he im
plem
enta
tion
and
upsc
alin
g of
the
bio
gas/
carb
on/a
gric
ultu
re
prop
ositi
on. S
ourc
e: V
orle
y et
al.
(201
5)
Gro
win
g fo
rce
of
capa
ble
mas
ons
and
CP
Os
Nee
d su
ffici
ent c
ash
flow
s fo
r adv
ance
d in
stal
latio
ns Gov
ernm
ent r
ole:
mix
ed
sign
als
to fa
rmer
s fro
m m
ultip
le
smal
l gov
ernm
ent b
ioga
s pr
ojec
ts, o
ften
with
10
0%
su
bsid
y bu
t poo
r ser
vice
Gov
ernm
ent s
ubsi
dies
on
LPG
un
derm
ine
valu
e of
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gas‘L
ow-h
angi
ng
frui
t’ of
cap
italis
ed
entr
epre
neur
ial
farm
ers
mos
tly
pick
ed (
E Ja
va)
Very
low
car
bon
fixed
pe
r bio
dige
ster
and
hig
h tr
ansa
ctio
n co
sts
from
sc
atte
red
farm
ers
But
pot
entia
l to
use
aggr
egat
ion
mod
els,
eg
ex-a
nte
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edita
tion
or fu
ture
sal
es, t
o in
crea
se s
tart
-up
fund
ing
Unc
erta
in p
rices
an
d re
lativ
ely
high
tr
ansa
ctio
n co
sts
to
acce
ss
Pot
entia
l for
inse
ttin
g al
ong
dairy
indu
stry
Pot
entia
l to
use
carb
on m
arke
t in
com
e to
fina
nce
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D, p
rom
otio
n,
afte
r-sal
es s
ervi
ce
Pot
entia
l to
stre
ngth
en m
arke
t (a
nd v
alue
) for
bi
oslu
rry
But
gov
ernm
ent
subs
idie
s on
ch
emic
al fe
rtili
ser
unde
rmin
e va
lue
of
bios
lurr
y
Bio
slur
ry m
arke
t de
velo
pmen
t nee
ds
a lo
t of s
uppo
rt
(tra
nspo
rt, l
inks
bac
k to
farm
er)
Bio
gas
mar
ket g
row
th c
urre
ntly
co
mpl
etel
y de
pend
ent o
n la
rge
subs
idie
s
Key
par
tner
sin
put p
rovi
ders
: C
oope
rativ
es, I
DB
P,
CP
Os
Fina
nce
serv
ice
prov
ider
s: 1
) Coo
pera
tives
2
) coo
pera
tives
(cha
nnel
su
bsid
y fr
om N
estlé
) 3
) co
oper
ativ
es –
0%
inte
rest
cr
edit
4) I
DB
P 5
) Pro
vinc
ial
and
dist
rict g
over
nmen
t
Tech
nica
l ser
vice
pr
ovid
ers:
1) I
DB
P 2
) C
oope
rativ
es 3
) CP
Os
Key
act
iviti
es•
Milk
pro
duct
ion
(1/2
to 2
/3
of b
usin
ess)
• P
astu
re a
nd fo
rage
pro
duct
ion
and
colle
ctio
n•
Valu
e ad
ded
from
bio
slur
ry
e.g.
ear
thw
orm
pro
duct
ion,
aq
uacu
lture
(min
ority
)
Valu
e pr
opos
ition
Tow
ards
the
mar
ket
• Q
ualit
y m
ilk s
uppl
y fo
r m
oder
n pr
oces
sing
sec
tor
• C
arbo
n of
fset
s fr
om re
duce
d us
e of
no
n-re
new
able
s (L
PG
, fir
ewoo
d)
Tow
ards
the
farm
hou
seho
ld•
Gas
is p
rimar
y at
trac
tion
of th
e te
chno
logy
–
redu
ced
cost
of
LPG
, red
uced
tim
e to
col
lect
fire
woo
d.
Qua
lity
and
relia
bilit
y of
ID
BP
inst
alla
tion
• O
rgan
ic fe
rtili
ser
(bio
slur
ry) a
s hi
gh-v
alue
by
-pro
duct
. Red
uctio
n in
fe
rtili
ser c
osts
mai
n re
latio
nshi
ps•
Coo
pera
tives
. No
sigh
t of p
rodu
ct
beyo
nd N
estlé
(i.e
. to
con
sum
er)
• ID
BP
repu
tatio
n (q
ualit
y, a
fter
-sal
es
serv
ice)
cre
ates
trus
t in
CP
O•
CP
O a
nd m
ason
Cus
tom
ers
Coo
pera
tives
an
d fr
om th
ere
to N
estlé
Res
ourc
esh
uman
cap
ital
: Org
anis
atio
n in
to c
oope
rativ
es g
ives
farm
ers
econ
omie
s of
sca
le, m
arke
t ac
cess
, som
e m
arke
t pow
er.
Fina
ncia
l cap
ital
: 1) O
wn
capi
tal
2) B
ank
loan
s an
d m
icro
finan
ce
man
ufac
ture
d ca
pita
l: 1)
Zer
o-gr
azin
g da
iry h
ousi
ng 2
) Bio
gas
dige
ster
(mai
nly
6m
3, t
houg
h in
crea
sing
num
ber o
f 4m
3)
nat
ural
cap
ital
: 1) D
airy
cat
tle
(2–
3 pe
r hou
seho
ld) 2
) Lan
d fo
r pas
ture
~1h
a (t
houg
h la
nd
owne
rshi
p no
t ess
entia
l)
Cha
nnel
s•
Del
iver
to
coop
erat
ives
for s
ale
to m
oder
n da
iry-
proc
essi
ng s
ecto
r•
Farm
er s
igns
car
bon
clau
se w
ith ID
BP
to
cede
righ
ts to
Hiv
os•
Hiv
os to
vol
unta
ry
carb
on m
arke
t
Cos
t str
uctu
re•
Cow
s•
Labo
ur•
Farm
er c
ost-s
hare
for d
iges
ter (
up to
IDR
6 m
illio
n)•
Tim
e an
d sp
ace
for d
ryin
g bi
oslu
rry
– 1
wee
k to
dry
dow
n fr
om
90
% to
70
% w
ater
con
tent
• Ti
me
and
effo
rt fo
r tra
nspo
rtin
g bi
oslu
rry
to c
rops
and
pas
ture
s.
Diffi
cult
to a
pply
in ra
iny
seas
on
• La
bour
cos
t of a
pply
ing
slur
ry ID
R 4
00,
00
0/h
a (c
ompa
red
to
IDR
50
–10
0,0
00
/ha
for c
hem
ical
fert
ilise
r)
inco
me/
bene
fits
• S
ale
of m
ilk to
dai
ry p
roce
ssor
(Nes
tlé, U
ltraj
aya,
Indo
lakt
o): p
rice
from
coo
pera
tive
up to
IDR
4,7
00
/l if
high
qua
lity.
Lar
ge fa
rmer
s (5
–10
cow
s; 2
5%
of c
oope
rativ
e m
embe
rs) d
eliv
er 5
0l/
day.
Hal
f of
coo
pera
tive
mem
bers
(1–2
cow
s) d
eliv
er <
10l/
day.
A 3
-cow
sy
stem
at 3
5l/
day
and
IDR
4,3
00
/l w
ould
giv
e sa
les
of ID
R15
0,0
00
(€10
.6) p
er d
ay•
0%
inte
rest
cre
dit f
rom
Nes
tlé fo
r ins
talla
tion
• B
ioga
s –
savi
ngs
on L
PG
• C
ost s
avin
gs fr
om re
duce
d fe
rtili
ser u
se: e
g re
duct
ion
of 2
00
kg/h
a w
orth
aro
und
IDR
270,
00
0•
Hig
her c
rop
prod
uctiv
ity: e
g m
aize
yie
ld in
crea
se o
f 0.5
t/ha
w
orth
IDR
1 m
illio
n/ha
• P
oten
tial s
ale
of b
iosl
urry
• P
oten
tial a
dded
inco
me
from
val
ue-a
dded
act
iviti
es fr
om b
iosl
urry
us
e –
wor
m c
ultiv
atio
n, a
quac
ultu
re e
tc
Trad
ition
al m
arke
t lin
kage
s (f
ood,
milk
)
B
ioga
s an
d bi
oslu
rry
linka
ges
Car
bon
offs
et li
nkag
es
Key
par
tner
s•
CP
Os
• ID
BP
• C
oope
rativ
es
• P
rom
oter
s
Key
act
iviti
es•
Con
stru
ctio
n of
bio
dige
ster
s (4
0–
80
% o
f tur
nove
r)
• R
est o
f bus
ines
s, h
ousi
ng
cons
truc
tion,
inst
allin
g ap
plia
nces
etc
Valu
e pr
opos
ition
• ID
BP
sta
ndar
d•
Gua
rant
ee o
f pe
rfor
man
ce (‘
won
’t go
hom
e un
til
it w
orks
’)•
Acc
ess
to s
ubsi
dy
Rel
atio
nshi
ps•
Pos
t-ins
talla
tion
cust
omer
car
e/af
ter-s
ales
se
rvic
e, d
ealin
g w
ith
teet
hing
pro
blem
s•
Ther
e is
no
asso
ciat
ion
of m
ason
s
Cus
tom
ers
• C
oope
rativ
e m
embe
rs
espe
cial
ly N
estlé
su
pplie
rs (E
ast J
ava)
• In
divi
dual
farm
ers
or fa
rmer
s gr
oupe
d ar
ound
col
lect
ive
stab
les
or v
illag
e (L
ombo
k)R
esou
rces
• ID
BP
sta
ndar
d•
IDB
P g
uara
ntee
of
per
form
ance
• ID
BP
pro
mot
ion
• C
PO
s
Cha
nnel
sID
BP
Coo
pera
tives
Net
wor
k of
pro
mot
ers
(incl
udin
g vi
llage
hea
ds) p
aid
IDR
50,0
00
per n
ew u
ser
CP
O
Cos
t str
uctu
re•
Ow
n an
d hi
red
labo
ur•
Car
ry c
ashfl
ow ri
sk –
no
paym
ent u
ntil
inst
alla
tion
final
ised
and
app
rove
d•
Pro
mot
ion
(may
pay
pro
mot
ers
IDR
50,0
00
per n
ew
inst
alla
tion)
, fiel
d de
mon
stra
tions
•
Insu
ranc
e (t
houg
h ra
rely
use
d at
pre
sent
)
inco
me/
bene
fits
• m
ason
s re
ceiv
e ID
R 1
.25
–1.8
5 m
illio
n (fi
xed
pric
e) fo
r 5–
6 da
ys’ l
abou
r. C
an c
lear
IDR
1 m
illio
n pe
r dig
este
r aft
er c
osts
. CP
Os
rece
ive
IDR
1
mill
ion
per d
iges
ter
• C
onst
ruct
ion
of b
iodi
gest
ers
mor
e pr
ofita
ble
than
alte
rnat
ive
cons
truc
tion
jobs
(eg
hous
ing
) •
Oth
er e
nter
pris
es: h
ouse
build
ing,
farm
ing
on o
wn
land
etc
Trad
ition
al m
arke
t lin
kage
s (f
ood,
milk
)
B
ioga
s an
d bi
oslu
rry
linka
ges
Key
par
tner
sin
put p
rovi
ders
: C
oope
rativ
es,
IDB
P, C
PO
s
• Fi
nanc
e se
rvic
e pr
ovid
ers:
IDB
P
(sub
sidy
from
D
istr
ict M
inis
try
of E
nerg
y an
d M
iner
al
Res
ourc
es o
r M
EM
R) a
nd
Hiv
os v
ia C
PO
s
• K
iva
(via
sm
all
farm
er g
roup
s)
Key
act
iviti
es•
Mix
ed fa
rmin
g (r
ice,
mai
ze,
vege
tabl
es, p
astu
re, b
eef)
• W
age
labo
ur (o
ther
farm
s)•
Sal
es o
f drie
d bi
oslu
rry
(min
ority
– n
ew b
usin
ess)
Valu
e pr
opos
ition
Tow
ards
the
mar
ket
• S
uppl
ier o
f ric
e,
mai
ze, v
eget
able
s,
beef
for l
ocal
and
re
gion
al m
arke
ts•
Car
bon
offs
ets
from
re
duce
d us
e of
non
-re
new
able
s (L
PG
, fir
ewoo
d)
Tow
ards
the
farm
ho
useh
old
• G
as is
prim
ary
attr
actio
n of
the
tech
nolo
gy –
re
duce
d co
st o
f LP
G, r
educ
ed ti
me
to c
olle
ct fi
rew
ood.
Q
ualit
y an
d re
liabi
lity
of ID
BP
inst
alla
tion
• A
lso
used
for l
ight
ing,
as
35
% o
f Lom
bok
is
off t
he g
rid.
• O
rgan
ic fe
rtili
ser
(bio
slur
ry) a
s hi
gh
valu
e by
-pro
duct
: re
duct
ion
in
fert
ilise
r cos
ts•
Sub
sist
ence
pro
duce
Cus
tom
er
rela
tions
hips
• Tr
ader
s an
d lo
cal m
arke
t –
mai
nly
info
rmal
• id
BP
repu
tatio
n (q
ualit
y,
afte
r-sal
es s
ervi
ce)
crea
tes
trus
t in
CP
O•
CP
O a
nd m
ason
Cus
tom
er
segm
ents
Dom
estic
mar
ket
Res
ourc
esh
uman
cap
ital
: Far
mer
s no
t or
gani
sed
into
coo
pera
tives
, bu
t som
e gr
oup
arou
nd
colle
ctiv
e st
able
s
Fina
ncia
l cap
ital
: 1) O
wn
capi
tal 2
) Ban
k lo
ans
and
mic
rofin
ance
3) G
over
nmen
t pr
ogra
mm
e of
sub
sidi
sing
co
ws:
Bum
i Sej
uta
Sap
i (B
SS
)
man
ufac
ture
d ca
pita
l: 1)
Z
ero-
graz
ing
dairy
hou
sing
2
) Bio
gas
dige
ster
(mai
nly
6m
3, t
houg
h in
crea
sing
nu
mbe
r of 4
m3
)
nat
ural
cap
ital
: Bee
f cat
tle
(1–
3 pe
r hou
seho
ld –
min
imum
2
to o
pera
te d
iges
ter)
con
vert
ho
useh
old
was
te. M
ay n
ot o
wn
the
anim
als
(cat
tle-s
harin
g sy
stem
)
Cha
nnel
s•
Del
iver
cat
tle to
loca
l m
arke
t for
sal
e•
Farm
er s
igns
car
bon
clau
se w
ith ID
BP
to c
ede
right
s to
Hiv
os
Cos
t str
uctu
re•
Cow
(s)
• La
bour
• Fa
rmer
cos
t-sha
re fo
r dig
este
r (up
to ID
R 2
.4 m
illio
n; ID
R 1
.74
mill
ion
in N
Lom
bok)
• Ti
me
for c
olle
ctin
g an
d ap
plyi
ng b
iosl
urry
(>us
ing
chem
ical
fert
ilise
r)•
Tim
e an
d sp
ace
for d
ryin
g bi
oslu
rry
• W
ater
(whi
ch is
sca
rce
in N
Lom
bok)
to m
ix w
ith s
lurr
y in
the
dry
seas
on
inco
me/
bene
fits
• S
ale
of c
rops
(mai
ze, r
ice,
fres
h fr
uit a
nd v
eget
able
s)•
Sal
e of
labo
ur•
Sal
e of
bee
f cat
tle•
Bio
gas
– sa
ving
s on
LP
G•
Cos
t sav
ings
from
redu
ced
fert
ilise
r use
.•
Hig
her c
rop
prod
uctiv
ity: e
g m
aize
yie
ld in
crea
se o
f 0.5
t/ha
wor
th
IDR
1 m
illio
n/ha
• P
oten
tial s
ale
of d
ried
bios
lurr
y (I
DR
1,0
00
/kg
)
Unc
lear
ben
efits
from
car
bon
mar
ket
Trad
ition
al m
arke
t lin
kage
s (f
ood,
milk
)
B
ioga
s an
d bi
oslu
rry
linka
ges
Car
bon
offs
et li
nkag
es
mas
ons
Nes
tlé w
ants
to
see
biog
as ro
lled
out a
t sca
le
+C
arbo
n of
fset
buy
ers
dai
ry fa
rmer
s
Bee
f/cr
op fa
rmer
s
Key
Tr
aditi
onal
mar
kets
link
ages
(fo
od, m
ilk)
B
ioga
s an
d bi
oslu
rry
linka
ges
C
arbo
n of
fset
s lin
kage
s
Opp
ortu
nitie
s
Bot
tlene
cks
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects iied issue paper
www.iied.org 25
3.2 State of voluntary carbon markets Projects that include activities like reforestation, organic agriculture and cleaner energy technologies are increasing their presence in voluntary global carbon markets. These emerging projects are important for road-testing the economic viability of climate change, and the potential for incorporating ‘co-benefits’ – the indirect benefits gained from efforts to reduce greenhouse gas emissions, like community rights and biodiversity protection. The actions of voluntary projects and buyers play an important role in sending signals to project developers, other buyers and governments, and helping to shape and inform global climate talks and policies.
According to Forest Trends, in 2012, buyers committed more than US$ 523 million to offset 101 million tonnes of greenhouse gas emissions from projects including reforestation, protection of tropical forests and clean cookstoves (Peters-Stanley and Yin 2013). Their recent publication reports a demand for carbon offsets of 87 tCO2e in 2014 (Hamrick and Goldstein 2015).
Currently, the majority of offsets are transacted in large countries (USA, Brazil, India and China) and smallholder projects still play a very small role – with smallholder agriculture just beginning to make an entrance. Government-to-government agreements under REDD+ have made it the dominant instrument in the forest sector, reaching an all-time high of 25 million tCO2e in 2014.
Voluntary offset prices have remained relatively resilient with respect to global compliance markets but they are decreasing. The average price of voluntary offsets rose to its highest level in 2008, but has been declining ever since. At US$3.80/tCO2e, it reached its lowest level in 2014 (see Figure 7). Projects that generate co-benefits get, on average, an additional US$2.70/tCO2e, and also show significantly more variations in price, depending on the type of project. The downward trend in prices is a worrying factor: many projects need to either adjust their expected payoffs from future carbon sales, or they need to revamp their marketing skills to convince buyers to pay more for the co-benefits; and they certainly need to streamline their approach to keep transaction costs competitive. Dropping prices reflects a situation of supply exceeding demand: while certificates representing 76 tonnes of offset CO2e were sold in 2014, nearly the same amount (63 tCO2e) remained
Figure 7. Average historic price of voluntary carbon offsets (US$/tC02e)
Notes: Average price of voluntary carbon offsets has been declining since 2008, with a lowest price (US$3.80/tCO2E) in 2014. Average REDD prices vary: planned deforestation offsets – like timber or large-scale agriculture conversion – had an average of US$3.10/tCO2E; unplanned deforestation – from smallholder agriculture, informal mining or rural development – held a price of US$5.20/tCO2E. Source: Hamrick and Goldstein (2015).
Cumulative 2014 2007–2014
Average voluntary offset price 3.8 5.8Average additional amount for projects with co-benefits (cookstoves, community sharing, etc)
2.7 NA
Average REDD price 4.3 5.2Cookstove project offsets (large-scale projects tend to work under CDM only)
5.8 10.2
Afforestation/reforestation 8.9 7.7Wind projects (bulk offsets) 2.1 4.6
8
7
6
5
4
3
2
1
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Historical average price per tCO2e By type of project (US$/tCO2e)
4.14.1
6.1
7.36.5
6 6.25.9
4.9
3.8
US
$/t
CO
2e
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects
26 www.iied.org
as unsold stock, either because of a lack of buyers or because of project developers waiting for better future prices.
The added revenues and investment from an ecosystem service approach in agriculture and forestry can help shield farmers from market volatility, increase producers’ yields and promote a long-term approach. This demand enables the development of innovative ways to help reduce emissions, and road tests strategies that can inform policy developments. However, because they are new and have to develop and test methodologies, these projects bear the brunt of the costs for research and development, and standard methodologies to provide transparency in the markets still remain very expensive and restrictive in the smallholder context.
3.3 What drives buyers’ preferences? Accessing private carbon markets requires a better understanding of what buyers want when they purchase carbon offsets. This in turn needs to be transformed by project developers into a strategy that highlights how the project responds to these preferences.
Several studies have looked at the institutions and motivations linked to carbon and other ecosystem services and how this affects demand for voluntary environmental services (ES) certificates (Dargusch et al. 2010; Peters-Stanley et al. 2011; Swallow and
Goddard 2013). But relatively little is known about how these preferences affect the willingness to buy offsets from smallholder and community projects, and how it affects the final prices paid. A recent study (see Figure 8) by IIED and the Plan Vivo Foundation tried to fill this gap by looking at market attitudes towards several attributes, like bundling carbon and other ecosystem services; whether buyers feel that a certification by a third party standard is needed; and what they think of monitoring strategies and the existence of co-benefits.
While the final results are not yet available, initial results (Porras et al. forthcoming; see also Figure 9 and Figure 10) suggest that:
• A significant proportion of those who buy offsets buy again: 39 per cent have bought carbon offsets once before but are planning to buy more, while only 23 per cent bought but are not planning to make any more purchases. Nearly 40 per cent of the respondents buy carbon offsets on a regular basis.
• The size of the purchase varies: of those who specified amounts, nearly 30 per cent buy in relatively small quantities (under 100 tCO2e) in each purchase, but 36 per cent buy in quantities of more than 100 tCO2e. Larger quantities are preferable for projects, as they reduce the individual transaction costs and provide more financial stability.
• The type of certification standard used is the main factor affecting which offsets they buy. Price is the second most important factor.
Figure 8. Distribution of responses to buyers’ attitudes to carbon offsetting
Note: The survey targeted existing offset buyers, primarily from the Plan Vivo Foundation’s portfolio of buyers, contacted directly or through approved retailers. Total sample 117 respondents. Map data © 2016 Google.
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects iied issue paper
www.iied.org 27
• In an increasingly competitive market, price can have a large impact on projects which are competing against each other to drive down the price of carbon offsets. The danger is that the cost of climate change is then transferred to the farmer.
• 37 per cent of buyers buy carbon offsets because of the co-benefits they deliver: when asked about the types of co-benefit they prefer,
impacts on the environment was ranked relatively higher than impacts on local people. The data does not show if this is because buyers are not interested, or because they assume that co-benefits for people are inherent to the type of offsets tested (smallholder and community projects). Buyers also demonstrated a strong belief in the need to reduce the individual’s or the company’s environmental footprint.
Figure 9. What are the most important factors affecting your purchase?
Figure 10. Why do you or your company buy carbon offsets?
Notes: Sample size 117 responses.
30%
25%
20%
15%
10%
5%
0%Standard Price Co-benefits eco Co-benefits social Monitoring
For their co-benefits on biodiversity and people
Moral obligation to deal with environmental footprint
It helps reduce climate change
Show leadership and support value chains
CSR
Public image
Preparation for future regulations
Others do it
0 10 20 30 40 50 60 70 80 90 100
Percentage of respondents who agree
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects
28 www.iied.org
When asked about their opinions regarding monitoring strategies, few respondents were interested in the details of how monitoring takes place (ie using community monitoring or remote sensing systems), provided that the project is certified. When asked about their perceptions of how accurate different monitoring strategies are in estimating carbon offsets, results suggest that buyers consider that field visits – however frequent or infrequent – play a key role in ensuring accuracy of carbon estimates in smallholder and community projects. The survey shows that respondents rated modelling using frequent field measurements as the most accurate tool, very closely followed by remote sensing with modelling and infrequent field visits. Methodologies that fully rely on external remote sensing and modelling only were considered the least accurate (see Figure 11).
The survey results (and several follow-up questions) show that most carbon buyers are not aware of the costs attached to monitoring carbon offsets. Responses suggest that while buyers think that combining remote sensing, modelling and field visits is the most accurate approach, they also think it is probably the most expensive, closely followed by field measurement with local participation. Remote sensing combined with modelling was considered the least expensive tool, suggesting that for carbon buyers the key factor increasing costs of monitoring is field visits. This is an interesting result, not in line with reported costs from community monitoring that highlight their relatively cheap cost in terms of local salaries (see Section 2.3).
Figure 11. Which monitoring strategy do you think is more accurate?
100%
75%
50%
25%
0%Field measurement with
local participationModelling using frequent
field measurementsExternal remote sensing
and modellingRemote sensing with
modelling with infrequent field visits
■ Most accurate ■ Least accurate
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects iied issue paper
www.iied.org 29
Sustainable smallholder agriculture generates benefits for farmers and society, such as food, energy, carbon sequestration, and the protection of water quality and habitats for biodiversity. Experience shows that smallholder projects using payments for ecosystem services (PES) are better placed to succeed if they improve productivity on the farm, and if transaction costs from linking farmers to buyers are manageable (Porras et al. 2015b). Clear project design and monitoring are essential to generate legitimacy and credibility for all stakeholders involved. Tools like SHAMBA, value-chain mapping and business models help to map out the dynamics of product flows associated with the ecosystems, key actors and their relations, and from there identify opportunities, gaps and bottlenecks.
4
Key messages
Ethical carbon offsEtting | Guidelines and lessons from smallholder and community carbon projects
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Sustainable smallholder agriculture generates benefits for farmers and society, such as food, energy, carbon sequestration, and the protection of water quality and habitats for biodiversity. Experience shows that smallholder projects using payments for ecosystem services (PES) are better placed to succeed if they improve productivity on the farm, and if transaction costs from linking farmers to buyers are manageable (Porras et al. 2015b). Clear project design and monitoring are essential to generate legitimacy and credibility for all stakeholders involved. Tools like SHAMBA, value-chain mapping and business models help to map out the dynamics of product flows associated with the ecosystems, key actors and their relations, and from there identify opportunities, gaps and bottlenecks.
4.1 Payments for ecosystem services are incentivesPayments for ecosystem services (PES) are mechanisms that reward landowners for ecosystem services that are used by the society. They provide farmers with an incentive to maintain the natural capital that provides the ecosystem services used by others. Besides compensating farmers, the mechanism also engages those who benefit – known as ‘users, or beneficiaries’ – from these ecosystem services into sharing the costs of their protection.
4.2 Demand for ecosystem services existsDemand for carbon offsets from forest protection or renewal and ‘climate-smart’ agriculture grew 17 per cent in 2013, totalling US$ 192 million from governments and companies. Plan Vivo offsets sold at an average of US$80/tCO2e. Water utilities in Bolivia compensate farmers; governments pay landowners for forest protection in Costa Rica; and UN-led efforts compensate nations that avoid carbon emissions from deforestation.
4.3 Recognising co-benefitsThe importance of including and accounting for local co-benefits is bound to increase as projects seek differentiation in markets and as governments and businesses are required to demonstrate greater accountability. Greater effort, however, is needed to convince policymakers and other actors to mainstream the concept and move away from the ‘niche’. Specific efforts are needed to:
• Clarify terminology and communicate to targeted materials and discussion platforms
• Build capacity to quantify costs and benefits beyond monetary units, and transfer experience across projects and countries
• Go beyond just demonstrating the existence of co-benefits. More effort is needed to design instruments and institutional arrangements that financially recognise co-benefits, reduce barriers to investment (such as risk) and attract the interest of investors.
4.4 Project developers play a key roleProject developers work to ensure delivery of carbon sequestration to offset buyers and on-farm benefits for the farmers. Spatial scale is important to impact on the provision of ecosystem services and requires aggregation of participants. Project developers provide technical support and reduce transaction costs associated with linking farmers to buyers of ecosystem services. They also play a key role in ensuring revenues return to the farmer – for example, as direct cash payments to farmers or to the communities, or providing technical assistance. Successful developers (eg Ecotrust in Uganda and Taking Root in Nicaragua) operate within existing produce channels and forge alliances with governments and other groups.
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4.5 Credibility is essential in ecosystems value chainsCredibility along the chain – a key step to access international streams of revenue – is obtained from understanding product creation and delivery, through clear design and monitoring and evaluation (M&E).
• Field monitoring visits and analysis are key. For smallholders, these are the two most important factors in supporting accurate, equitable and legitimate monitoring.
• Monitoring should only be as complex as is necessary. It should satisfy the expectations of certification standards and buyers – and no more. New monitoring technologies and complex project design can increase costs without always achieving more accuracy or credibility.
• Documenting and communicating co-benefits are integral. They support local benefits and make offsets more attractive to buyers.
Credibility combines accuracy of measurement or models used to make predictions, transparency in processes for collecting and using information, fairness in participation and feedback channels, accessibility of tools in terms of resources and capacities required, and fairness in terms of who bears the burden of cost of risks associated with non-compliance. Revenues from carbon offsets in voluntary markets depend on how much trust buyers place in existing systems, which results in repeated purchases of offsets.
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IIED is a policy and action research organisation. We promote sustainable development to improve livelihoods and the environments on which these livelihoods are built. We specialise in linking local priorities to global challenges. IIED is based in London and works in Africa, Asia, Latin America, the Middle East and the Pacific, with some of the world’s most vulnerable people. We work with them to strengthen their voice in decision-making arenas that affect them – from village councils to international conventions.
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Smallholder and community carbon projects have shown they can deliver local livelihoods and non-carbon benefits and promote climate resilience. Their emphasis on these co-benefits provides an advantage when it comes to selling in voluntary carbon markets, as they appeal to companies’ corporate social responsibility (CSR) agendas. They also provide effective platforms for implementing and accounting for several Sustainable Development Goals – such as food security and ending poverty – along existing value chains for commodities such as timber or coffee. But they are also more expensive to implement, and many operate in remote areas with scattered and small properties, and/or in areas with social conflict. Before deciding whether to enter into these markets, project developers must have a clear, viable business model with realistic targets and benefit-sharing strategies, and a clear communication and marketing plan.
Funding for this project was provided by Ecosystem Services for Poverty Alleviation (ESPA). Additional research and publication of this paper were funded by UKaid from the UK Government. The views expressed in the paper do not necessarily reflect the views of ESPA or the UK Government.