Proposals to Support Premium Forest Credit Valuation Processes
Since the launch of the UN REDD+ program in 2008 to finance forest conservation, the world has reluctantly watched deforestation rates continue to climb. Rejuvenated political will and financial innovations, together with new remote sensing, computational, and communication technologies, make innovation possible, cost effective and necessary.
As a team of innovators from diverse institutions, we offer some proposals to help issue and valuate forest credits. Current credit regimes represent two polarities of scale, accounting and challenges to implementation. On the larger, more comprehensive end, the EMERGENT Finance Accelerator / ART TREE Standard requires jurisdiction-level performance, reporting and more. On the less challenging end, the Brasil Mata Viva Standard / Amapa Green Treasure Program works at the level of particular plots of land, does not have jurisdiction-wide requirements and operates through satellite monitoring and periodic field measurements of ecosystem resources and services. To incentivize a variety of stakeholders, EMERGENT uses price guarantees to help overcome a chicken-or-egg problem that has hindered jurisdictional implementation, with financiers waiting for local governments to take action and local governments waiting for financiers to take action. At the same time, BMV / Green Treasure is easier to implement but faces a potential oversupply of forest credits given the extensive regions that may be eligible for conservation finance in Amapa, Brazil and beyond.
To match the varied interests of diverse financiers and to facilitate collaborative action, we propose the following process to help generate and value forest credits by leveraging new data sets and technologies that improve monitoring and conservation. Based on these steps, we expect investments in the premium forest credit strategy outlined here to appreciate in value as performance matures and expands to jurisdictional scales.
1) Land Use and Rights
The International Standards Organization developed the Land Administration Domain Model (LADM) to standardize data management pertaining to land and resource rights, restrictions and responsibilities, as well as the value and use of the land, ensuring that information is interoperable between systems. To bridge the gap between “formal” statutory rights in western economies and “informal” community tenure scenarios in which multiple rights might overlap, the Social Tenure Domain Model (STDM) serves as a fit-for-purpose version of the LADM.
Using ESRI-based tools (the global leader in geospatial information system software), experience in the property and land rights sector, and local partnerships, the Cadasta Foundation developed an innovative platform, protocol and service based on these standards to help local organizations and populations document their living environments and strengthen recognition of land rights.
By documenting legal status (conservation reserve, indigenous territory, privately owned, undesignated etc.) and determining land use, demographic, and geospatial information with these technologies in partnership with local stakeholders, forest credit issuers can gather data to help valuate and verify community benefit characteristics of their credit regimes.
New forest credit issuers are encouraged to consider the work of the Cadasta Foundation and its Land Rights Challenge Fund when designing their own forest credit programs.
2) Ecosystem Service Measurements, Forest Carbon Stocks and Government Certification
The International Standards Organization developed ISO 65.020 to standardize data management of agricultural and forest assets and practices. In 2018, following these protocols along with IPCC guidelines on forestry biomass assessment, the Brazilian state of Amapa started the Green Treasure program in partnership with Brasil Mata Viva to quantify, value and define ownership of ecosystem benefits to facilitate conservation finance and forest preservation. The process was developed in partnership with Sao Paulo State University, is audited periodically by Ernst & Young, and is registered on a blockchain to prevent double counting. While protecting 50 million hectares of pristine forest, the program currently monitors the surrounding 1 million hectares of frontier forest that is at high risk of deforestation. Adaptable for multiple ecosystems, the program can scale.
Key to the data gathering and valuation process is the seal of approval from the state (Amapa), the bio-physical metrics and changes over time.
Tropical forest jurisdictions are encouraged to consider the work of BMV and the Amapa Green Treasure program when designing their own ecosystem service payment regimes.
3) Statistical Model of Avoided Deforestation Cost
In line with scaling up programs to the ART TREE Standard mentioned above, a team of scientists involving the Environmental Defense Fund joined forces to create a jurisdiction-aware statistical model that calculates avoided deforestation cost by taking into account regional land values (prices of crops included), accessibility (proximity to roads, rivers and other cleared land), biophysical measures (soil quality, slope, climate, etc.), and legal status of land (privately owned/indigenous territory/conservation area/undesignated/ etc.).
The quantitative measures of these metrics will be key to calibrating forest credit values that vary according to geography.
New forest credit issuers are encouraged to consider the statistical models mentioned and the work of the Environmental Defense Fund and the EMERGENT Finance Accelerator when designing their own forest credit regimes.
4) Acoustic Technology, Chainsaw Alerts, Drones and Legal Processes
Rainforest Connection has developed a solar-powered acoustic technology that uses Guardian sensors and artificial intelligence to detect chainsaw and animal noises in real-time at a distance of 1.5km or less. Through partnership with the satellite internet provider Hughes Brazil, these devices can be deployed affordably anywhere in the Amazon. Key for monitoring and enforcement, an upstream alert management system can change the dynamics of forest protection by relying on the following processes:
- Automated filing of court cases that require legal action and trigger mobilization of law enforcement.
- Automated deployment of drones to photograph perpetrators and their vehicles.
- Automated facial recognition of perpetrators based on drone images with reporting to relevant authorities.
- Periodic drone deployment to retrieve high-quality audio records stored on Guardian sensors to support biodiversity monitoring and assessment.
Key to the validation of the process outlined here will be the legal mechanisms employed and the ability to quantify the biodiversity co-benefits of carbon sequestration efforts.
New forest credit issuers are encouraged to collaborate with Rainforest Connection and relevant legal partners when designing their own forest credit systems.
5) Technology Innovations and Contracts with Voluntary Carbon Market Buyers
Building off the acoustic, visual and legal monitoring outlined above, there is an opportunity to collaborate with voluntary carbon market partners when designing the premium forest credits suggested here. Pachama, a new Silicon Valley startup, uses technology to automate forest credit management processes through enhanced satellite monitoring mechanisms. The system addresses several traditional REDD+ stumbling blocks like Additionally (by comparing current images with historic baselines), Permanence (by tracking duration of forest project contracts), and Leakage (by monitoring the wider region). With many high level carbon market buyers as clients, the company is well positioned to help establish new standards.
In response to market demands, Pachama recognized that packaging units of “avoided deforestation” together with projects of “reforestation” improved forest credit appeal. In the future, if reforestation plots are adjacent to conservation plots by requirement, new forest credit models will encourage the development of “green buffers” thus further protecting land at high risk of being cut.
Pachama processes also consider local community benefit-sharing regimes. Key to the design of the premium forest credit strategies outlined here, will be the dynamics of local consultations.
New forest credit issuers are encouraged to follow the protocol outlined in Chapter 10 of the California Tropical Forest Standard titled “Social and Environmental Safeguards” and to reference the work of Pachama and the Cadasta Foundation to document these processes and identify indicators that can inform credit valuations as appropriate.
6) Good Delivery Standard for Credit Specification
As premium forest credits mature and become suitable for sale on the AirCarbon Exchange (like other assets) they will have to meet the traditional requirements of Good Delivery standards in line with the Monetary Authority of Singapore and the Commodities Trading Act. Key for the credit valuation process will be understanding the quality control requirements for credits authorized by sub-national governments.
The securitization of forest credits into fungible assets using AirCarbon’s blockchain-based technology will promote liquidity and unleash previously sidelined pockets of capital. This will drive pricing and result in increased investment into the sector.
New issuers of forest credits are encouraged to bundle the previous 5 elements of the process outlined here and negotiate certification with AirCarbon program for sale on their system.
While the Emergent Finance Accelerator uses a jurisdiction-wide approach for forest financing and the BMV / Amapa Green Treasure program uses ecosystem service payments, both systems can benefit from the additional value-adding elements suggested here and could increase in value as they mature. This presents a significant wealth creation opportunity and should incentivize entrepreneurs, investors, policy makers and those in between to invest in these strategies and help conserve forests. Key to the success of the processes recommended here, will be giving a weighted value to each of the 6 elements named in the process of designing new forest credit regimes. Some will be more important than others and will correspondingly add more value. Further experimentation, analysis, and modeling will be necessary to come up with final recommendations, not to mention negotiations with first-round buyers.