Four Reasons Why “Nationalization Risk” Is Not So Risky

Over the past few months, various governments have declared their intentions to exercise more control over carbon market activities in their jurisdictions. These include Zimbabwe, where a ministerial press briefing in late May referred to past arrangements as “null and void,” and Kenya’s Kajiado region, where a public notice last month stated that existing carbon credit agreements would be “revoked.” Similar declarations are planned elsewhere in the region, which follow steps taken previously elsewhere in the world, and it seems likely that the world is witnessing a broad movement toward a new era.

Good! While some observers frame the issue in doom-and-gloom terms, Verra views the long-term implications of these moves as broadly positive. Specifically, a more significant role for governments is a welcome sign of the overdue mainstreaming of carbon markets in public policy. It is far less an example of “nationalization risk” than a case of a maturing market where countries are making an understandable and arguably inevitable assertion of sovereignty over their natural resources.

Of course, what happens next matters quite a bit. The ongoing discussions in this space are part of important policy processes. We trust that all stakeholders can find a path forward that will channel the scaled-up flows of finance, technology, and capacity to communities around the world.

All that said, there are four good reasons to welcome these developments.

• Governments can do this. It is well within the mandate of a country to regulate the activities that take place within its borders, and projects to reduce or remove carbon are no exception. As such, the narrative around these developments should shift from one of “nationalization” to one of “resource sovereignty,” a term used by several commentators on LinkedIn and elsewhere.
• That governments are paying attention is a good sign. Until recently, carbon crediting was a niche, boutique sector. With more attention being paid to the climate emergency – and the power of carbon crediting to help solve it – governments are taking greater notice and are thinking increasingly carefully about how they can establish systems that are attractive to investors while also providing sufficient safeguards that ensure that their jurisdictions, including local communities, truly benefit. This process is not easy or straightforward and often must be jurisdiction-specific.
• Governments may require projects to seek authorization – which is normal. We may expect governments to put in place arrangements requiring projects to register with them, such as an approval process to request and receive a letter of approval or authorization. This is standard and was also a rule for projects in the Clean Development Mechanism and Joint Implementation under the Kyoto Protocol. This process may also specify the decision of the host country on whether the carbon accounting benefits of the emission reductions or removals remain with, and contribute to, the host country’s Nationally Determined Contribution, or are exported to another country.
• The long-term policy signal is positive. The broader, long-term arc of policymaking in this area – from Kyoto to Paris to Glasgow and beyond – is that governments increasingly support the role of international cooperative approaches to reduce and remove emissions and to support sustainable development, with high-integrity carbon crediting programs being the world’s most sophisticated approaches to do so. Further, it is clear that carbon crediting programs run by non-governmental organizations, such as Verra’s Verified Carbon Standard, have a role to play in helping governments meet their emissions goals.

This is an exciting moment for the voluntary carbon market, and any moment of transformation brings questions. But if the decisions made over the coming months maintain a strong signal – specifically that global investments in climate action and sustainable development can bring real value – then the era of resource sovereignty will be one that helps carbon markets reach their full potential.