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FEATURE STORY November 5, 2021

Healthy Forests Are Fertile Ground for Carbon Markets

Forest and blue skies in Mozambique

With natural forests covering 43% of the country, forests are a source of employment, income, and livelihoods in Mozambique’s rural areas. Photo: Andrea Borgarello/World Bank.


STORY HIGHLIGHTS

  • Mozambique is the first country to receive a payment from the World Bank’s Forest Carbon Partnership Facility.
  • 15 countries including Mozambique have signed Emission Reductions Payment Agreements (ERPAs) that will unlock up to $720 million, with the majority going to local communities.
  • Nature-based solutions, including forests, can provide up to 37% of the mitigation needed to keep the global temperature rise to below 2°C.

Mozambique’s national parks and rich biodiversity are globally renowned. But since the 1970s, the country has lost forest cover the size of Portugal. Today, Mozambique and development partners including the World Bank are working together to save the country’s forests and endangered species of plants and animals while helping people benefit from conservation.

A milestone was reached this year when Mozambique became the first country to be paid by the World Bank’s Forest Carbon Partnership Facility (FCPF) for reducing emissions. FCPF paid $6.4 million for 1.3 million verified emission reductions, or carbon credits, generated through community-based efforts in nine districts of the Zambézia Province over a 12-month period. The payment marks the first under Mozambique’s Emission Reductions Payment Agreement (ERPA), which will pay up to $50 million from the FCPF for 10 million tons of carbon emission reductions generated through 2024.

The transaction signals to international carbon markets that large-scale programs that reduce emissions from deforestation and forest degradation (known as REDD+) can produce the high-integrity, high-quality carbon credits that buyers demand. 

Strengthening Accounting and Confidence in REDD+ Carbon Credits

“There is huge interest across the globe in nature-based solutions and there is huge potential demand from the private sector for these types of natural credits, but the emission reductions must be real, durable, and calculated and verified using trustworthy accounting methods that meet the highest standards,” explains Marc Sadler, Practice Manager Climate Change Fund Management Unit, World Bank.

Deforestation and forest degradation contribute about 12% of the world’s greenhouse gas emissions, but nature-based solutions, including forests, can provide up to 37% of the mitigation needed to keep the global temperature rise to below 2°C. Nature-based solutions are included in 137 of the 165 Nationally Determined Contributions (NDCs) submitted by countries under the Paris Agreement.

To unlock this potential, the FCPF has created a standardized framework for calculating emission results at the jurisdictional scale, covering entire provinces, regions, or states within countries. Very large emission reductions programs not only encompass the many drivers of—and solutions to—deforestation, they also are better able to overcome some of the accounting and verification issues that can undermine the environmental integrity of smaller programs.

The FCPF partnership, which includes most of the key decision-makers in the global REDD+ community, agreed on the FCPF framework, and it is now being used in Mozambique’s ERPA and in an additional 14 agreements that the FCPF has signed with other countries to pilot results-based payments.

“This payment to Mozambique marks the first for jurisdictional REDD+ credits that meet a specific standard or framework,” says Simon Whitehouse, FCPF Fund Manager. “These FCPF credits also come with World Bank safeguards and with an approved benefit-sharing plan that guarantees funds are equitably shared with local communities and Indigenous groups implementing REDD+ activities on the ground.”


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Women planting trees in Mozambique.
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Mozambique received $6.4 million for preserving forests and using land more sustainably in the first payment of its kind from the World Bank’s Forest Carbon Partnership Facility.

Benefits for People and Planet

The ERPA program in Mozambique is about more than just a payment from the FCPF. It promotes conservation and climate-smart agriculture in forest communities, helps farmers tap into sustainable supply chains for cash-crop production, restores degraded land, stimulates more efficient charcoal production and consumption, and improves the management of protected areas. The promise of future payouts promotes buy-in and is reinforced by the benefit sharing plan - designed through extensive stakeholder engagement - that specifies how funds will be shared with the people who participate in activities on the ground, particularly forest-dependent communities.

“I used to have a small farm, but we didn’t always produce enough food to sell and support my family,” says Vitória Duarte, President of the Nathelaca Producers Association, who works on the ERPA program in Zambézia.  “Now I am working for the government program, I have planted eucalyptuses, I am taking care of the plantation and I am guaranteed payment by the government for the use of my land and for my work. Thanks to the project, my community will be able have a better future for their families and for our environment.”

Innovating Climate Finance to Accelerate Action

Mozambique is the first FCPF country to get paid for results but it will not be the last. This same level of rigor and credibility is embedded in every FCPF ERPA, bringing the total combined value of FCPF’s 15 agreements to over $720 million. The funding will be delivered as results-based payments for nearly 145 million tons of verified emission reductions achieved through 2025 in ChileCosta RicaCôte d’IvoireDemocratic Republic of CongoDominican RepublicFijiGhanaGuatemalaIndonesiaLao PDRMadagascarMozambiqueNepalRepublic of Congo, and Vietnam.

ERPAs are  demonstrating the viability of a budding market for jurisdictional REDD+ carbon credits. This market is part of an evolution in the climate finance landscape, which includes the acceptance of Verified Carbon Standard’s Jurisdictional and Nested REDD+ (JNR) and the Architecture for REDD+ Transactions (ART) into CORSIA, the United Nation’s new carbon offsetting and reduction scheme for international aviation, together with the conditional acceptance of FCPF.  This eligibility is a key indicator that jurisdictional REDD+ credits have the necessary integrity to be part of both voluntary and compliance carbon markets going forward. 

The World Bank has also introduced the Climate Emissions Reduction Facility (CERF), its new “one-stop shop” for Results-Based Climate Finance (RBCF).  CERF will support the reduction of carbon emissions across three pillars:

  • Natural climate solutions: agriculture, land use, forestry, oceans, and other sectors that support natural capital assets and vital ecosystem services
  • Sustainable infrastructure solutions: energy, water, transport, urban and other sectors providing public goods to underpin inclusive and sustainable economic activity
  • Fiscal and financial solutions: frameworks and regulatory measures that provide or mobilize resources for climate action (such as carbon taxes, the removal of fossil fuel subsidies, greening public financial institutions, or loans linked to sustainability).

By delivering climate finance at scale, the CERF aims to achieve greater emissions reductions in support of countries’ NDC implementation and increased climate ambition.

A green, resilient, and inclusive future is possible.  As Mozambique and the other ERPA countries are showing, the adoption of smart, sustainable, and innovative approaches to tackling climate change now will pay dividends long into the future.


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