Suriname is a tiny country in South America, with fewer than 650,000 people in an area just slightly bigger than the US state of Georgia. However, it is performing a mighty service for the planet, and it wants to get paid.
The former Dutch colony is one of the world’s most forested countries, with tropical rainforest covering about 93 percent of the total land area. As a result, it is one of the few nations that can claim to be net carbon negative — meaning it absorbs more carbon dioxide through its forests than it emits.
Unfortunately, this has not earned it any financial rewards.
Illustration: Yusha
After all, it is much easier to make money by cutting down forests for agriculture and mining than leaving trees standing. As data compiled by BloombergNEF showed, a hectare of rainforest converted to soy, palm oil or beef pasture can earn a farmer a profit of about US$500 a year. Rainforest kept as rainforest earns them nothing, even though the economic value of the services that hectare provides are worth about US$4,700 a year.
Developing nations have long argued for fair compensation in return for preserving these precious biomes, and Suriname believes it has found a way to get that by being the first to sell carbon credits under a system set up by the Paris Agreement in collaboration with BancTrust Investment Bank Ltd, an emerging market investment bank, and ITMO Ltd, an offshoot of intergovernmental organization Coalition for Rainforest Nations (CfRN).
The 2015 treaty stipulates that countries can sell emission reductions in the form of credits known as “internationally transferable mitigation outcomes” (ITMOs), to other countries or companies. Buyers would then be able to use these credits to offset their emissions.
Suriname has announced that it would be offering an initial 1.5 million carbon credits (each credit represents one metric tonnes of carbon dioxide-equivalent) for forest-related emissions reductions that happened in 2021, with the idea that more could be issued (up to a maximum of 4.8 million) if demand is strong. The credits have been three years in the making, although those involved are hoping to eventually reduce the lead time to a year.
TRANSPARENCY
Carbon credits have not had great press lately, especially ones tied to forest conservation. A study last year looking at reducing emissions from deforestation and forest degradation (REDD) projects found that 94 percent of the credits researchers reviewed do not represent real cutbacks in carbon emissions.
Therefore, using them as offsets might be making climate change worse. As a result, prices in the voluntary carbon market (VCM) have fallen.
Suriname’s ITMOs are an attempt to solve some of the issues around trust and transparency. As the credits are calculated over the entire land area — rather than on a project basis — it removes the risk of leakage. A carbon credit project, for example, could set aside a nice bit of forest to preserve and generate carbon credits from, while the trees around it are razed for timber. Sovereign credits take all forest preservation — and destruction —into account, and because the emission reductions happened in 2021, you are not paying for something that the project is promising would happen, which reduces risk for investors.
Another criticism of carbon credits is where the money goes. Although projects often rely on local labor, those communities rarely see a fair share of the revenue generated.
However, in this case at least 95 percent of the ITMOs proceeds would go to Suriname. A government statute stipulates how the money would be spent, with 10 percent of carbon credit revenue earmarked for indigenous and tribal communities, while the rest would get split between the national budget, a sovereign wealth fund and development and sector management.
ITMO chief executive officer Ian Robinson told me that this spending would be audited annually to maintain as much transparency as possible.
BancTrust chief commercial officer Dean Tyler told me that ITMOs could offer a way to create a properly tradeable carbon credit market, and the bank is in talks with a range of potential buyers including asset managers, pension funds, commodity trading desks and development finance institutions.
UN CONVENTION
There is hope that as the credits use UN Framework Convention on Climate Change (UNFCCC) frameworks and certification, buyers would consider them far more trustworthy, while the scale offered by a sovereign-level project opens the door to liquidity not seen in the VCM.
However, there have been some criticisms, mainly about how the credits are calculated. A number of companies and nonprofits — including carbon data company Sylvera Ltd, the International Emissions Trading Association (IETA) and Trove Research, now known as MSCI Carbon Markets after an acquisition — have raised concerns that units generated under the UNFCCC REDD+ framework are not rigorous enough to be used to offset emissions.
For example, there is no fixed methodology to ensure that all countries are calculating results in the same way and no robust verification standard to prove emission reductions are genuine. To generate an ITMO, a country must establish a baseline of forest emissions with which to compare results (how much deforestation and degradation were reduced). Some say that there is an incentive to inflate this reference level.
The UNFCCC does assign experts to review results, but while these assessors can suggest revisions, they cannot reject a country’s submission. In effect, as Gilles Dufrasne, lead policy analyst at nonprofit Carbon Market Watch, told Reuters, the UNFCCC system “has no teeth.”
CfRN strongly disputes these criticisms, citing two legal opinions stating that REDD+ results can be used as carbon offsets, while ITMO Ltd’s Robinson cited the virtues of having a two-step verification process by independent forest experts.
FOSSIL FUELS
There is also a brewing optics issue. As well as eyeing up rainforest revenue, Suriname is also looking to make money from its offshore oil reserves. The country is developing a canny plot to generate demand for its ITMOs by requiring companies operating there, including oil and gas producers, to offset emissions by purchasing Suriname credits.
Unfortunately, Suriname’s rainforests would not come close to offsetting the huge amount of emissions that would be released by burning its oil exports. The nation might get money for looking after its rainforests — which it no doubt needs and deserves — but the planet still loses.
If this were simply a case of paying Suriname for its ecosystem services, then this system would be a no-brainer. However, tying forest results to carbon and allowing others to use them to cancel out their own carbon emissions complicates matters. The wrong calculations would hamper our efforts to reach true net zero emissions. That is why the bar for quality has to be so high when it comes to offsetting — and arguably the only sure way we have to effectively cancel out fossil-fuel emissions is to pull carbon dioxide out of the air and store it permanently underground or in the ocean.
That is not to say Suriname and the Coalition for Rainforest Nations are wrong for pursuing REDD+-based ITMOs. They have simply found a means within our current system to generate an income that tropical countries have long deserved. The goal of preserving rainforests is also essential for the planet’s health. However, to get real emissions reductions, we need a better way.
Lara Williams is a Bloomberg Opinion columnist covering climate change. This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
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