{"id":23425,"date":"2023-08-15T09:00:08","date_gmt":"2023-08-15T14:00:08","guid":{"rendered":"https:\/\/blogs.edf.org\/climate411\/?p=23425"},"modified":"2023-11-07T11:38:35","modified_gmt":"2023-11-07T16:38:35","slug":"to-make-nature-financing-more-equitable-we-must-understand-how-ncs-credits-are-used","status":"publish","type":"post","link":"https:\/\/blogs.edf.org\/climate411\/2023\/08\/15\/to-make-nature-financing-more-equitable-we-must-understand-how-ncs-credits-are-used\/","title":{"rendered":"To make nature financing more equitable, we must understand how NCS credits are used"},"content":{"rendered":"<p><em>This blog was authored by Julia Ilhardt, former High Meadows Fellow, Global Climate Cooperation.\u00a0<\/em><\/p>\n<p><a href=\"https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/\/sun-over-forest-nature.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone wp-image-23625 size-full\" src=\"https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/\/sun-over-forest-nature.jpg\" alt=\"sunset over a forest\" width=\"900\" height=\"506\" srcset=\"https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/sun-over-forest-nature.jpg 900w, https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/sun-over-forest-nature-300x169.jpg 300w, https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/sun-over-forest-nature-768x432.jpg 768w\" sizes=\"auto, (max-width: 900px) 100vw, 900px\" \/><\/a><\/p>\n<p><span data-contrast=\"none\">At the end of last year, 196 nations agreed to the historic Global Biodiversity Framework, which includes the goal to protect 30% of land and sea area by 2030. Still, nature is woefully underfinanced, with investments in nature-based solutions needing to double to USD 384 billion per year by 2025, according to <\/span><a href=\"https:\/\/www.unep.org\/resources\/state-finance-nature-2022\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">UNEP<\/span><\/a><span data-contrast=\"none\">.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><!--more--><\/p>\n<p><span data-contrast=\"none\">Using crediting to incorporate natural climate solutions (NCS) into carbon markets is one way to <\/span><a href=\"https:\/\/www.edf.org\/sites\/default\/files\/documents\/Power_of_markets_to_increase_ambition.pdf\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">generate significant finance for nature while cutting emissions<\/span><\/a><span data-contrast=\"none\">, and it\u2019s gaining public and private sector attention. However, both producing and using credits raises important equity considerations. <a href=\"https:\/\/www.edf.org\/economics-discussion-paper-series\" target=\"_blank\" rel=\"noopener\">A new paper<\/a> from EDF focuses on the issues around use, including how credits may impact the communities surrounding polluting facilities. This blog lays out the framing, key issues, and potential solutions, with more detailed analysis available in the paper.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><b><span data-contrast=\"none\">To understand equity, ask the right questions<\/span><\/b><span data-contrast=\"none\">\u202f<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Achieving environmental <\/span><a href=\"https:\/\/www.edf.org\/about\/equity-and-environmental-justice-edf\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">equity<\/span><\/a><span data-contrast=\"none\"> means ensuring that both the processes and outcomes associated with policy decisions are fair and just. Environmental benefits and burdens must be balanced. Everyone is entitled to a healthy ecosystem.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Across academic and civil society literature, environmental equity is often framed along three dimensions: recognitional, procedural, and distributional equity. The graphic below defines these dimensions of equity and provides examples of questions that carbon market stakeholders should ask when designing and implementing crediting programs.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><a href=\"https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/\/large-trees-from-below.jpg\"><img loading=\"lazy\" decoding=\"async\" class=\"alignnone size-full wp-image-23627\" src=\"https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/\/large-trees-from-below.jpg\" alt=\"large trees from below, looking up\" width=\"900\" height=\"600\" srcset=\"https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/large-trees-from-below.jpg 900w, https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/large-trees-from-below-300x200.jpg 300w, https:\/\/blogs.edf.org\/climate411\/wp-content\/blogs.dir\/7\/files\/large-trees-from-below-768x512.jpg 768w\" sizes=\"auto, (max-width: 900px) 100vw, 900px\" \/><\/a><\/p>\n<p><span data-contrast=\"none\">In the context of NCS crediting, equity questions arise on both the demand and supply side. On supply, issues include the rights and priorities of communities generating credits, benefit sharing arrangements, and stakeholder consultation processes. On demand, these include the impacts of credit use on local co-pollutants, disparities in environmental burdens, and the distribution of benefits.\u00a0<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<div class=\"simplePullQuote right\"><p><span data-contrast=\"none\">Ultimately, carbon pricing and crediting is valuable only insofar as it can effectively drive climate-friendly outcomes in an equitable manner.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<\/div>\n<p><span data-contrast=\"none\">In some cases, supply and demand considerations may come into tension, for instance when credit usage could exacerbate a community\u2019s air pollution on the demand side but support local livelihoods on the supply side.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Though equity should ultimately be considered holistically, this paper focuses specifically on demand, digging into the details and evidence around the use of NCS credits. EDF\u2019s forthcoming <a href=\"https:\/\/www.edf.org\/natural-climate-solutions-and-carbon-crediting\">NCS Crediting Handbook<\/a> will include a chapter on supply side issues, including a section on safeguards for people and the environment.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">It is important to note that some environmental justice and civil rights groups fundamentally oppose carbon pricing as it <\/span><a href=\"https:\/\/www.weact.org\/2016\/09\/a-climate-game-changer\/\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">favors economic efficiency over distributional equity<\/span><\/a><span data-contrast=\"none\"> and allows pollution to be paid for. Although these critiques cannot be corrected through modifications to policy design, they should be recognized and understood.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><b><span data-contrast=\"none\">Using NCS credits in compliance and voluntary markets<\/span><\/b><span data-contrast=\"none\">\u202f<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Understanding the equity questions around NCS crediting, and taking actions to address them, is necessary to avoid negative outcomes for communities.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">In some countries and jurisdictions, emitters are regulated under pricing mechanisms like cap-and-trade or carbon taxation. Companies can often use carbon credits, including NCS credits, to meet a portion of these obligations. And in many cases, the equity considerations surrounding the use of NCS credits are the same as those for the use of emissions allowances.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">In these systems, companies may choose to pay for emissions allowances or credits when these are less expensive than direct emissions reductions. Since greenhouse gas emissions are strongly correlated with harmful co-pollutants, this could potentially maintain or exacerbate inequities in pollution exposure. Polluting facilities are disproportionately located in low-income communities and communities of color, meaning these groups could be particularly harmed.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">While well-designed emissions trading has been shown to reduce overall emissions in regulated areas, the evidence on local environmental impacts is mixed. Several studies using different methodologies have examined the California cap-and-trade program, finding either the exacerbation or reduction of pollution burden in predominantly minority or low-income communities. A detailed analysis of this literature is available in the full paper. Outside of the US, little research assesses the impacts of emissions trading on community air quality.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">The use of credits and allowances raises the risk of extending the lifespan of fossil fuel infrastructure, with associated public health effects. For NCS credits in particular, mitigation potential is limited by the overall availability of ecosystems, meaning this is not an indefinite solution for fossil fuels.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">As for the voluntary carbon market, NCS credits offer one option for companies to voluntarily contribute to emissions reductions. To the extent that carbon credits are used to mask unsustainable practices, this could be considered a form of \u2018greenwashing.\u2019<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">These issues can and must be addressed for effective, impactful use of NCS crediting.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><b><span data-contrast=\"none\">Promoting equitable outcomes<\/span><\/b><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">NCS credits are an important tool for financing conservation, and several policy options help to promote the equitable use of these credits. For example, compliance markets often limit the percentage of an entities\u2019 obligation that can be met with credits. Under Washington State\u2019s <\/span><a href=\"https:\/\/app.leg.wa.gov\/RCW\/default.aspx?cite=70A.65.170&amp;pdf=true\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">cap-and-trade<\/span><\/a><span data-contrast=\"none\">, an entity\u2019s credit allowance may be further reduced if they \u201ccontribute substantively to cumulative air pollution burden in an overburdened community.\u201d In voluntary markets, credits could be used only for contribution beyond a company\u2019s value chain.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><span data-contrast=\"none\">Revenues from emissions trading can also be recycled, including through tax rebates for low-income households, income or corporate tax reductions, or funding for renewable energy and infrastructure projects. <\/span><a href=\"https:\/\/oehha.ca.gov\/calenviroscreen\/sb535\" target=\"_blank\" rel=\"noopener\"><span data-contrast=\"none\">California Senate Bill 535<\/span><\/a><span data-contrast=\"none\"> mandates that at least a quarter of the proceeds from the state\u2019s cap-and-trade program go to projects benefiting disadvantaged communities, with at least 10 percent of funds for projects directly located in disadvantaged communities.<\/span><\/p>\n<p><span data-contrast=\"none\">Ultimately, carbon pricing and crediting is valuable only insofar as it can effectively drive climate-friendly outcomes in an equitable manner.<\/span><span data-ccp-props=\"{&quot;134233117&quot;:false,&quot;134233118&quot;:false,&quot;201341983&quot;:0,&quot;335559738&quot;:0,&quot;335559739&quot;:0,&quot;335559740&quot;:240}\">\u00a0<\/span><\/p>\n<p><em>The NCS Crediting Handbook will explore other components of equity and integrity, including questions around the generation and transaction of credits. Visit our <a href=\"https:\/\/edf.org\/natural-climate-solutions-and-carbon-crediting\" target=\"_blank\" rel=\"noopener\">NCS Crediting Handbook and Briefing Series<\/a> page for upcoming briefs, and to get the latest on our work in the NCS crediting space. This and other research are also part of EDF&#8217;s <a href=\"https:\/\/www.edf.org\/economics-discussion-paper-series\">Economics Discussion Paper Series<\/a>.<\/em><\/p>\n<p>&nbsp;<\/p>\n","protected":false},"excerpt":{"rendered":"<p>This blog was authored by Julia Ilhardt, former High Meadows Fellow, Global Climate Cooperation.\u00a0 At the end of last year, 196 nations agreed to the historic Global Biodiversity Framework, which includes the goal to protect 30% of land and sea area by 2030. Still, nature is woefully underfinanced, with investments in nature-based solutions needing to &#8230;<\/p>\n","protected":false},"author":40200,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[71676,43,107916,20,828],"tags":[],"coauthors":[],"class_list":["post-23425","post","type-post","status-publish","format-standard","hentry","category-carbon-markets","category-economics","category-forest-protection","category-news","category-redd"],"acf":[],"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v27.3 - https:\/\/yoast.com\/product\/yoast-seo-wordpress\/ -->\n<title>To make nature financing more equitable, we must understand how NCS credits are used - Climate 411<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/blogs.edf.org\/climate411\/2023\/08\/15\/to-make-nature-financing-more-equitable-we-must-understand-how-ncs-credits-are-used\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"To make nature financing more equitable, we must understand how NCS credits are used - Climate 411\" \/>\n<meta property=\"og:description\" content=\"This blog was authored by Julia Ilhardt, former High Meadows Fellow, Global Climate Cooperation.\u00a0 At the end of last year, 196 nations agreed to the historic Global Biodiversity Framework, which includes the goal to protect 30% of land and sea area by 2030. 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