On November 13th, MFF organized a panel discussion on carbon credit integrity within the forest, land and agriculture sector in Latin America – maximizing impact, managing risk within supply in Asuncion, Paraguay.
The panel formed part of the larger two-day event “Sustainable forestry investments: Challenges and opportunities in Paraguay and Latin America”, which aimed to bring attention to Paraguay’s growing forests and sustainable land use (FSLU) sector and promote sustainable investment across the region. Chaired by Rodrigo Maluff from Rediex, the panel consisted of Marcel von Heesewijk (Quadriz), Victor Gonzalez, (Ministry of Environment and Sustainable Development (MADES)), Angelo Sartori (Verra), and Gabi Penner (FMO).
As the second-largest provider of voluntary carbon credits in the world, Latin America has an important role to play in ensuring high-quality and high-integrity carbon credit transactions. The market is growing rapidly – government incentives and the promotion of investment in low-carbon technologies are helping to expand carbon market initiatives, along with their adoption at national and sub-national levels across the region. In addition, the recent finalization of the global carbon market rules under Article 6 of the Paris Agreement at COP29 was a critical step towards unlocking broader stakeholder participation globally and will help mitigate concerns around carbon credit integrity. Within this, governments, rating agencies, project developers and investors must all ensure that carbon credit integrity frameworks, regulations, and due diligence processes are effectively implemented, which will help maximize the climate impact and financial returns potential of carbon credits to buyers.
The Paraguayan Voluntary Carbon Market Paraguay’s 16 million ha of native forests, agricultural lands, and reforestation potential make the country an attractive region for natural climate solutions and private-sector investment. Coupled with a recently developed legal framework to better enable the creation, certification, and trading of carbon credits and the country’s openness and interest in foreign investment, Paraguay has a strong ability to generate high-quality carbon credits and play a huge role in scaling natural climate solutions as a whole. Within the panel session, a key point of discussion was Paraguay’s new law on regulating the VCM, which aims to create a registry of every carbon project and credit that is generated in the country. The registry will ensure that all credits generated in Paraguay are not double counted, creating transparency for transactions and strengthening the overall validity of existing projects. Providing legal oversight will bolster the integrity of carbon credit transactions, ultimately creating higher-quality carbon credits, increasing buyer confidence, and contributing to sustainable growth and development of the VCM in Paraguay.
Paraguay’s willingness to create a carbon market that gives confidence to both buyers and investors is helping position the country as a global leader in carbon credit regulation. Whilst the law still leaves questions over whether the language and framing of the law is strong enough to protect buyers against double counting and ensure legitimate ownership of the land, it is a step in the right direction to attract investors and international players to the Paraguayan VCM. Having held participatory workshops in Q3 2024, at present the government is translating the carbon credit law into an implementable framework and is waiting to receive feedback on draft regulations.
Increasing buyer’s confidence to scale investment: a role for all stakeholders Whilst the global VCM has experienced a 61% decline in value since 2022, new government regulations for carbon markets will help to instill confidence to buyers in terms of integrity. However, this only forms one part of the solution to protect buyers from risk. Project developers, ratings agencies, investors and the buyers themselves need to make strong efforts to create transparency and security within the VCM, including complying with extra regulatory requirements and considering environmental and social risk factors of each carbon credit. The panel also discussed how preventing unintended harm and providing an income for Indigenous peoples and local communities will help protect nature loss and avoid unintended exploitation, and the importance of fostering permanence within investments through encouraging buyers to take up long-term offtake agreements. These agreements make it easier to develop well-thought-out strategies which integrate consistent community engagement, relationship building, and high-integrity carbon credits overall.
With a track record of over 50 years investing in higher-risk projects across developing nations, FMO plays an important role to support projects and initiatives that produce high-integrity carbon credits and ensure that they follow the trends and requirements of large buyers in the VCM. For example, through MFF, FMO is supporting the development of Treevive, a Forest Carbon Development Platform. Managed by industry experts, the platform provides early-stage technical assistance and financing to accelerate the development of high-quality carbon assets in forestry projects. By supporting Treevive, MFF is helping to bring new investment-ready businesses to the market to improve the pipeline for other DFIs and investors, and ultimately scaling up finance to protect and restore the world’s tropical forests.
Mobilising Finance for Forests (MFF) is a UK Government-funded blended finance investment program which aims to combat deforestation and other environmentally unsustainable land use practices that contribute to global climate change. With an initial €178 million (£150 million) commitment from the UK Government, MFF aims to catalyze €1 billion of private sector investment into forestry and sustainable land use projects.