How Forests Found Protection in Voluntary Carbon Markets

Environmental economist Mark Kenber remembers 2005 as a pivotal year for the climate challenge.

“It was the year that the Kyoto Protocol came into force, and it was the year that the EU ETS (European Union Emissions Trading Scheme) started in earnest,” he says. “Market-based instruments were gaining traction, and people could see they are a way of accelerating climate action.”

Conservationist Marco Cerezo (external) remembers 2005 differently. For him, it was a year of dwindling support for the endangered forests of Guatemala’s Caribbean Coast (external).

Cerezo had been struggling to protect those forests since the waning years of the country’s civil war, and the mid-1990s peace accords had the perverse effect of hobbling that effort.

“We’d never been able to meet our objectives with small donations, and international aid started drying up after the peace agreements,” he says. “We heard that carbon markets could, in theory, fill our funding gaps, but we saw them as something unrealistic and too hard to do.”

His assessment was accurate in 2005 because forests had received short shrift in the Clean Development Mechanism (CDM).

The CDM was the Kyoto Protocol’s market-based system for making companies in rich countries pay for clean development in poor countries, but it infamously failed to support sustainable farming and forest protection.

These activities were excluded despite repeated warnings (PDF) from the Intergovernmental Panel on Climate Change (IPCC) that deforestation and unsustainable agriculture were major drivers of climate change.

Together, farming and forestry generate a third of all greenhouse gas (GHG) emissions associated with human activities, and in the 15 years leading up to 2005, more than 12.5 million square kilometers (external) of forest had been lost. That’s more than all the land in Canada and India combined (external), and forested areas the size of France were disappearing annually.

In addition to the climate impacts, disappearing forests meant dwindling habitats of rare and endangered species, disrupted supplies of clean water, and decimated cultures of traditional and indigenous peoples.

Deforestation and unsustainable farming are classic wicked problems (external), which means they are, by definition (external), symptoms of a myriad of other problems, such as poverty, education, or, — increasingly, — climate change itself. The lion’s share (PDF) of all deforestation comes not from deep-pocketed agribusinesses that can be fined or regulated into compliance, but from smallholders struggling to feed their families.

Cerezo would eventually help thousands of Guatemalan farmers improve their lives and reduce their impact on neighboring forests. He would achieve this by using carbon finance to help them shift to sustainable land management, but the market he accessed had nothing to do with the Kyoto Protocol.

Instead, he would access the voluntary carbon market, which exists to promote emission reductions beyond what’s required by law.

The voluntary carbon market has accelerated emission reductions by funneling billions of dollars into unfunded climate solutions such as forest conservation, sustainable agriculture, and renewable energy in least-developed countries. It has also incubated scores of new technologies and practices, enabled hundreds of companies to reduce emissions beyond what they otherwise would have done, and created tens of billions of dollars in shared value.

Unfortunately the market is also poorly understood, largely because it evolved in the decades when most of the world was still turning a blind eye to the climate challenge.

The scientific consensus on forests, farms, and climate dates back to the United Nations’s First World Climate Conference in 1979. There, scientists unanimously warned (external) that deforestation and changes in land use were two of the three leading sources of carbon dioxide. More research over the ensuing 40 years showed that natural climate solutions (NCS) could flip our management of forests and farms from being a source of emissions to a sink. In 2017, a meta-analysis of existing literature concluded that NCS could get us nearly 40 percent (external) of the way to meeting the Paris Agreement’s 2 degrees Celsius target.

But executing that flip is no easy task.

In the 1990s and early 2000s, nongovernmental organizations (NGOs) like the World Resources Institute, The Nature Conservancy, Forest Trends, and Conservation International started experimenting (external) with ways to finance support for smallholders with performance-based metrics that attract long-term corporate support.

Toby Janson-Smith worked with all four NGOs, and by 2005, he was managing the Climate, Community & Biodiversity Standards (CCBS). There, he saw firsthand what worked and what didn’t.

The CCBS was one of more than a dozen (external) voluntary carbon standards emerging to fill gaps the CDM hadn’t filled. For Janson-Smith, the most glaring of them all was the CDM’s failure to finance activities that support climate-smart agriculture or reduce emissions from deforestation and forest degradation (REDD).

Farms and forests had been purged from the CDM at the 2001 Marrakesh Climate Talks, following intense ideological opposition – often misleadingly framed in technical terms (external) – from groups who feared the inclusion of nature would exclude, rather than enhance, industrial reductions.

In the end, the CDM did recognize tree-planting projects, but only as “temporary” credits, effectively killing demand. Without long-term, sustainable finance, deforestation would continue to surge.

The argument for carbon markets is clear.

“Carbon markets help mobilize resources and reduce costs to give countries and companies the space to smooth the low-carbon transition,” according to the World Bank (external). “It is estimated that trading in carbon credits could reduce the cost of implementing [national climate action plans] by more than half.”

Cutting the cost in half means doubling the reductions per dollar spent, but only if the market works. For many, the CDM’s problems went beyond just the exclusion of farming and forestry. The mechanism was also seen as clumsy and bureaucratic.

“The torturous delays and transaction costs and needless steps in the reviews of the CDM were driving everybody crazy,” says Ken Newcombe, who had been the World Bank’s point person on climate and investment until Paul Wolfowitz took the Bank’s helm in 2005.

“Wolfowitz was passionately against the idea of human-induced climate change,” says Newcombe, who’d initiated eight carbon funds while there, including the world’s first, the Prototype Carbon Fund.

Enter Mark Kenber, who had spent the 1990s helping NGOs and government agencies in Ecuador develop financing instruments for reducing industrial pollution.

He’d also helped set up the voluntary Gold Standard, which is a carbon standard spearheaded by WWF in 2002.

In 2004, he joined the Climate Group, a UK think tank formed to fix the narrative on climate change.

“At the time, it was all doom and gloom,” he says. “At the Climate Group, we wanted to create motivation for solutions by emphasizing that climate change was an opportunity as much as a threat.”

That’s where he was when the Kyoto Protocol took effect.

Seeing the fragmented voluntary initiatives emerging, Kenber decided to survey environmental NGOs, academic institutions, and industry groups to test the appetite for unified rules around them.

“My inbox exploded,” he says. “The appetite for unified rules was there, but nobody knew what those rules should be.”

As in medical treatments, climate solutions are based on probabilities instead of certainties. They are, by necessity, implemented with incomplete information, and they often work in tandem with other treatments. What’s more, their efficacy is measured against viable alternatives, and not against pet theories, miracle cures, or imagined states of perfection.

Several studies – most recently in October, 2023 – have demonstrated the folly of holding any individual interpretation of ecological data out as perfect and inviolable. The fact is it’s simply impossible to find a single answer that everyone agrees on, but we progress by identifying those areas where most experts agree.

To create unified rules, Kenber proposed a global consultative process akin to that of the IPCC. That meant engaging representatives from the NGO community, the academic community, and the business community to identify the sweet spots where leading experts aligned on issues such as additionality, fungibility, and double counting.

Several NGOs embraced the idea, which quickly became an agenda item at leading climate conferences.

“This quickly got too big for the Climate Group, which was a small and fairly unknown entity,” he recalls. “We needed more resources and a higher profile.”

So, he reached out to the International Emissions Trading Association (IETA) for input from those emitters most likely to use credits. IETA’s CEO at the time was an energy specialist named Andrei Marcu, who agreed to support the initiative. He passed responsibility for the Voluntary Carbon Standard (VCS) to a tropical forester named Edwin Aalders, who had spent a dozen years with the Switzerland-based testing and certification group SGS. There, he helped set up the Forest Stewardship Council, the Marine Stewardship Council, and Global Gap. IETA also brought in the World Economic Forum and World Business Council for Sustainable Development to access even more networks.

The VCS would unfold over three tedious years of meetings and workshops involving top scientists from the IPCC, scruffy environmentalists from leading NGOs, and entrepreneurs and accountants from businesses big and small. They convened at their own expense on the fringes of global climate talks, at dedicated events in remote areas, and in windowless conference rooms in major cities. The meetings were online and offline, sometimes cordial but often contentious.

Despite their diversity, all agreed on one point: “This thing shouldn’t exist in ten or 20 years, because governments will have gotten their acts together,” says Marc Stuart, an environmental economist who co-founded EcoSecurities in 1997 and helped Costa Rica develop the first forest carbon protocol that same year.

“We weren’t dealing with an ideal scenario,” he says. “We were trying to succeed where governments had failed.”

When Kenber floated the idea of a VCS, he set out three objectives.

“First, we wanted to create something that had at least as much rigor as the CDM, but with a lot less bureaucracy,” he says. “Second, we wanted to catalyze action in the voluntary market; and third, we wanted to create a threshold standard that says, ‘A diverse array of stakeholders agrees this is a genuinely additional, real tonne of carbon reduction.’”

Stuart emphasizes the diverse array of stakeholders.

“We knew we’d never find unanimity, but we needed to find points of alignment among all these experts and also among oil companies and NGOs,” he says. “We were basically creating something nobody would love, but everyone could live with – a life raft to cling to until governments got their acts together.”

Initially, the objective was the same as that of today’s Integrity Council for the Voluntary Carbon Market (ICVCM).

“The idea was to provide a standard of standards, which could be the basis for other standards – basically, guarantee the ice cream was ice cream, and then let other people bring different flavors of ice cream to it,” says Kenber. “So, the Gold Standard could build its criteria on it; Social Carbon could build theirs; and the Climate, Community & Biodiversity Standards could build theirs on it.”

Stuart highlights a fourth objective.

“We also wanted to foster innovation,” he says. “The idea was to let a thousand flowers bloom, and our job was to ensure the soil was good and the flowers were flowers.”

The inclusive approach worked, and many governments would eventually embrace the voluntary carbon market as a complement to regulation while incorporating the tools developed through its bottom-up processes into their compliance markets.

But that was still years away.

As the initiative gained steam, Kenber took pains to prevent any one school of thought from dominating the VCS.

“The business folks didn’t want this to be NGO-dominated, and I didn’t want it to be dominated by businesses looking to feather their own nests,” he says. “From the start, we had diverse representation on the steering committee. No single sector could have more than 25 percent representation, and votes required a two-thirds majority. That has since carried over to the board.”

Consultation documents soon began flooding the climate community, and that’s when Janson-Smith of CCBS got involved.

“When I heard about the VCS, I was like, ‘This is great! This is exactly what we need!’” he says.

But then, in early 2006, he read a consultation draft that stopped him in his tracks.

“I read they were thinking of following the CDM’s precedent and leaving out forests – at least at first,” he says. “If they repeated the failure of Kyoto, it would be game over – or at least delayed – for tropical forests.”

He found Kenber’s phone number and set up a call.

Janson-Smith caught the forest finance bug in the 1990s after reading the works of British biologist Norman Myers (external), best known for developing the concept of “biodiversity hotspots” (external) – small areas where large numbers of rare and endangered plants and animals are threatened by human activity.

“Myers made it clear we’ll need millions of years to recover the biodiversity our generation is liquidating,” he says. “We’re making decisions on behalf of future generations representing 10,000 times as many people as have ever lived on this planet, and we’re making those decisions blindly because we’re not valuing that stuff.”

Some academics were taking stabs at valuing that stuff (external), and a handful of countries, such as Costa Rica, were experimenting with environmental markets (external), but these were exceptions that proved the rule. Costa Rica’s embrace of market mechanisms helped make it a “living Eden,” (external) yet most environmentalists remained skeptical.

“There was a gulf between the do-gooders in most NGOs and the larger market economy,” says Janson-Smith, who was finishing his MBA in market development at the time. “I thought, ‘This is where I can add value.’”

So he pivoted from a career in technology to one in trees and, eventually, one in standards for climate, community, and biodiversity.

“CCBS were the first global standard for biodiversity benefits, but we were more of a qualitative standard in terms of climate benefits and not market grade,” he says. “When I heard about VCS and who was backing it, I knew there was a chance to generate high-quality carbon credits.”

He first spoke to Kenber in April 2006.

“I basically outlined all of the arguments for including forests – the decades of science, their critical role in tackling climate change, the biodiversity benefits, and the community benefits,” Janson-Smith recalls. “Mark outlined the reasons for excluding them – fervent ideological opposition, the challenge of explaining uncertainty, and the issue of permanence.”

Kenber says the critical issue was fungibility. To drive finance from industry to agriculture, they needed to make sure credits from forestry were as close to those from industry as possible.

“We wanted to create units that represented a 100-year reduction, and we didn’t know how you could ensure forests would last that long,” says Kenber. “Plus, I think many people didn’t really understand how a credible baseline could be created.”

After 45 minutes, Kenber told Janson-Smith that if the permanence issue could be solved, they’d have a chance of getting forestry into the new rules.

The solutions that Janson-Smith proposed in 2006 began germinating in 1992, when countries negotiated the United Nations Framework Convention on Climate Change (UNFCCC). While industrial emissions caught most of the attention, the Convention also called for (PDF) the “conservation and enhancement, as appropriate, of sinks and reservoirs of all greenhouse gases…including biomass, forests and oceans as well as other terrestrial, coastal and marine ecosystems.”

Hundreds of foresters, economists, and sociologists spent the ensuing decade experimenting with new forms of geospatial land change modeling (LCM) (PDF) – a fancy term for mapping the impacts of past and present human activities in a specific landscape and projecting those activities into the future.

In 1998, the UNFCCC asked the IPCC to synthesize findings from all these pilots, and the IPCC responded by recruiting a diverse panel of experts to carry out the work.

In 2000, the IPCC published its findings in a special report (external) that summarized different approaches to estimating deforestation risk – from scenario analyses based on logic to more data-driven approaches based on pure modeling, as well as hybrid approaches that blended them both. In the end, they concluded that all approaches worked under the right circumstances, but it would be difficult to find a standardized way of estimating deforestation risk in all circumstances.

Many of those same scientists revisited regional projections from three models six years later. They concluded that no existing models could be blindly or universally applied, but some were good enough for developing baselines – if blended with scenario analysis and common sense. They proposed the creation (external) of “a methodology comprised of three main steps and six tasks [that] can be used to begin developing credible baselines.”

A methodology is a stepwise set of instructions for selecting project areas, identifying appropriate models, and developing baselines based on a blend of subjective and objective criteria.

They proposed mapping current and past deforestation in a region, layering in the drivers of that deforestation – such as charcoaling, slash-and-burn farming, or illegal logging – and then using appropriate geospatial models to estimate future deforestation risk in nearby areas with the same topography facing the same threats. A project proponent would then identify interventions that alleviate baseline drivers – such as helping charcoalers and slash-and-burn farmers shift to sustainable livelihoods like beekeeping or sustainable grazing.

“For reporting of estimated GHG benefits, the project could submit its baseline driver assumptions to a GHG registry or marketing programs for review for reasonableness, and some form of certification of these assumptions, the baseline they produce, and hence the estimated project GHG benefits,” the researchers concluded, adding that all baseline assumptions should be re-assessed every ten years and adjusted accordingly.

That paper wouldn’t be published until 2007, but the ideas were in the air, so Janson-Smith reached out to lead author Sandra Brown (external) and other researchers for guidance. A towering figure in the field of LCM, Brown had overseen several IPCC reports, including the year 2000 special report on baselines, and she would go on to support the VCS.

He also reached out to Bernhard Schlamadinger (external), who had led the creation of several influential reports for the UNFCCC, the Food and Agriculture Organization (FAO), and the United Nations Environment Programme (UNEP), among others. Schlamadinger had also developed the first baseline and monitoring methodology for reforestation projects approved under the CDM, and he’d done extensive modeling on the risk of a reversal in land-based systems – activities that would prove crucial in addressing the permanence challenge.

Beyond researchers, Janson-Smith brought in practitioners like Pedro Mouro Costa, who had co-founded EcoSecurities with Marc Stuart in 1997 and had a reputation for turning ideas into action.

“I basically said, ‘Hey, guys, we need to get this right, and you’re the leading minds in this space,’” Janson-Smith recalls. “We’ve got about a year to figure this out and make our case. Can we do it?”

Within weeks, Schlamadinger had written a seven-page paper arguing for the inclusion of farms and forests in the VCS. The CCB Alliance endorsed it, as did Conservation International and The Nature Conservancy. Janson-Smith submitted it on April 18, 2006.

In the paper, Schlamadinger acknowledged that no one can guarantee the long-term survival of any individual forest, but he demonstrated how the risk of forest loss could be estimated based on social criteria and adjusted over time. He proposed the creation of a global buffer pool to which projects can contribute based on the risk of reversal. If a reversal occurs, a number of credits equal to the reversal is canceled from the global buffer pool. Then, to ensure permanence, any unused buffer credits would be canceled automatically after 30 years.

The system has become more sophisticated over time, with risk modeling based on the “climatic impact-driver” (CID) approach to estimating risk. Developed under the IPCC, CIDs synthesize risk analysis for dozens of distinct drivers such as extreme heat, extreme cold, and drought, in specific areas.

Within Verra, the new risk modeling was led by Daniel Ruiz-Carrascal, who served as lead author on IPCC’s Sixth Assessment Report, but that research was still years away.

The 2006 approach represented the most advanced modeling of the day.

“The buffer pool idea had been around for a while, but they previously required every participant to contribute a set amount,” says Janson-Smith. “Bernhard was able to identify the risk factors most likely to be associated with a reversal, including project risk, economic risk, social and natural disturbance risks, land tenure, and good governance.”

By July of 2006, Janson-Smith had pulled together an informal forest expert group including Brown, Schlamadinger, and more than a dozen leading scientists from universities, think tanks, and NGOs, as well as research organizations like Winrock International and the Center for International Forestry Research. They endorsed a second submission that month, reiterating support for the buffer concept and identifying projects that were already piloting REDD methodologies.

Within the VCS steering committee, Newcombe and Aalders emerged as vocal proponents of recognizing credits from farming and forestry – provided they got the science right and baked constant improvement into the mechanism.

Newcombe recalls a process of intense debate and changing minds.

“I was less enamored of REDD than a lot of people were at first, because at the World Bank, I had seen governments manipulate their baselines,” says Newcombe. “A lot of the subsequent work on REDD was just beginning, but I felt we could move quickly with afforestation/reforestation/revegetation (ARR), improved forest management (IFM), and agriculture land management (ALM), especially for the people who lived in the border areas of high biodiversity value forests.”

But research into deforestation accelerated, and the World Bank’s own expansion of pilot projects increased support for developing guidance for all land management strategies. As support for inclusion grew, the steering committee created a Land Use, Land-Use Change, and Forestry (LULUCF) working group, which Newcombe chaired, as well as expert groups for ARR, ALM, IFM, and RED (the second “D,” for “degradation,” came later).

The groups met over several months to address more than a dozen issues – from the selection of models for developing baselines to the role of independent auditors and, of course, permanence.

By March of 2007, the Voluntary Carbon Standard Association (VCSA) had become a formal entity, with a board of directors replacing the steering committee. The VCSA would eventually change its name to Verra.

Kenber, Newcombe, and Stuart served on the board from its inception and remain there to this day.

Janson-Smith today serves as Verra’s Chief Program Development and Innovation Officer.

In early 2007, Janson-Smith presented the working group’s recommendations to the board – first in print and then through an exhaustive in-person presentation.

After intense debate, the board voted by more than the requisite two-thirds to develop ground rules for including LULUCF in the VCS. It then commissioned more than three dozen researchers, practitioners, and external reviewers to form an Agriculture, Forestry, and Other Land Use (AFOLU) Advisory Group charged with developing guidance for the creation of actual methodologies.

“We made a conscious decision not to create our own methodologies at first but instead to create the guidelines for methodologies to be written,” says Newcombe. “We would reward methodology developers with a royalty that compensated them for the extraordinary process of design and stakeholder consultations, which for the land use sector were painfully long and difficult. In this way, any entity that wanted to create a methodology could attempt to do so, and we would provide a global forum of stakeholders and experts to vet it and improve it.”

In November 2007, the Advisory Group submitted a 50-page “Guidance for Agriculture, Forestry and Other Land Use Projects,” which offered a stepwise approach to developing methodologies based on existing models, modules, and tools from the CDM, the IPCC, and other organizations.

One year and several iterations later, the governing board approved the final rules for developing AFOLU methodologies, and they hired Naomi Swickard, a land-use specialist from Conservation International, to lead the integration of land-use activities into the VCS.

The VCS has gone through multiple updates since 2007, and its name also changed from “Voluntary Carbon Standard” to “Verified Carbon Standard”, while the nonprofit entity administering the standard changed its name to Verra in 2018 as it expanded its standards programs to go beyond climate impacts.

The Verified Carbon Standard is now on version 4.5, while the requirements for what constitutes a methodology (PDF) are on version 4.4, and the underlying processes for third parties to develop methodologies (PDF) are on version 4.1.

The updates incorporate new advances in modeling, remote sensing, and accounting, but the fundamental trajectory that third parties use to develop new methodologies remains the same:

First, some entity – an environmental NGO, a for-profit company, or a government agency – will identify an unfunded climate solution and propose a way of addressing it within the restrictions of the guidance.

Then, it will present the methodology to Verra, where a team of recognized experts will review it internally before passing it to a certified verification body, such as SGS or TÜV SÜD, for independent third-party review.

After that, it goes out for public consultation, where anyone on the planet can offer comments – a process that often involves hundreds of detailed and sometimes contradictory observations from experts and stakeholders around the world.

Verra’s role is to synthesize the comments and identify the concurrent views of most experts while recognizing but not overemphasizing the outliers. Some methodologies sail through the process quickly, but others require multiple, iterative rounds of internal review and public consultation through which the methodology can change substantially (external) until it is either accepted, rejected, or put on hold.

The first REDD+ methodologies required more than three years of development and weren’t recognized until 2010.

In the spirit of letting a thousand flowers bloom, the VCS eventually recognized several REDD+ methodologies, each tailored to different threats – such as frontier deforestation, which happens along the forest edge, and mosaic deforestation, which is patchier – and emphasizing different solutions.

When Marco Cerezo turned to carbon finance, he utilized version 1.1 (PDF) of VM0015 Methodology for Avoided Unplanned Deforestation, which had been developed jointly by three Brazilian NGOs, one Brazilian state government, and the with support from the World Bank’s BioCarbon Fund. Bureau Veritas and the Rainforest Alliance provided third-party reviews and assessments.

Verra approved VM0015 in 2012, and Cerezo used it to develop the Conservation Coast REDD+ Project (PDF), which protects more than 600,000 hectares of forest by helping thousands of farmers shift to sustainable agriculture. The project works through a combination of training and direct payments to farmers. Over its lifetime, it’s expected to prevent the release of more than 20 million metric tonnes of carbon dioxide (a metric tonne is 1000 kilograms, or 2205 pounds, while a ton is 2,000 pounds).

In the intervening decade, advances in remote sensing and artificial intelligence have unlocked powerful new data sources and enabled the creation of newer, simpler methodologies that will make it possible to scale conservation activities dramatically under the Paris Agreement. In 2019, Verra began the arduous task of building a new REDD methodology using the most demonstrably effective components of the current ones. The resulting methodology for individual projects aligns with the Jurisdictional and Nested REDD approach to allocating jurisdictional data to the project level, resulting in projects that are “nested” in a jurisdictional baseline.

Beyond REDD, third parties have worked through Verra to developer newer methodologies for Improved Agricultural Land Management, mangrove restoration, and Improved Forest Management, among other activities, to ensure not only that flowers bloom, but so do forests, farms, and fields – in ways that sustain communities and provide a bulwark against climate change.