Ecological Economics 77 (2012) 16

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Ecological Economics
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Commentary

Carbon and livelihoods in Post-Kyoto: Assessing voluntary carbon markets

Karina Benessaiah
School of Geographical Sciences and Urban Planning, Arizona State University, P.O. Box 875302, Tempe, AZ 85287-5302, USA

A R T IC L E

IN F O

Article history: Received 10 March 2010 Received in revised form 28 January 2012 Accepted 18 February 2012 Available online 17 March 2012 Keywords: Carbon markets Livelihoods Poverty alleviation Environmental conservation Climate change Adaptation Mitigation Blue carbon Soil carbon Ecosystem service

developments in carbon governance facilitating for instance the advent of reduced emissions for deforestation and degradation (REDD+) mechanisms. While carbon markets have the potential to foster pro-poor growth and environmental conservation; in practice linking carbon markets to livelihoods is greatly constrained by the complexity of socio-economic, political and environmental conditions on the ground as well as difculty in building trust and linkages across scales.

2. Voluntary carbon market within the wider regulatory context of carbon nance The Kyoto protocol (1997) was instrumental to the development of global carbon nance mechanisms including regulatory frameworks such as the CDM and parallel voluntary markets. These markets support the trade of carbon offsets to reduce, sequester or avoid the emission of greenhouse gases globally. Despite their rapid growth during the past 7 years, carbon markets have slowed down due to their vulnerability to global economic crises as well as a broader uncertainty relating to the fate of the Kyoto agreement post-2012 (Linacre et al., 2011; Peters-Stanley et al., 2011). While the total value of global carbon stabilized around $142 billion, the primary CDM decreased by 50% since 2009 for a total value of 1.5 billion, less than 2005 when the Kyoto protocol was rst implemented (Linacre et al., 2011: 9). Given these uncertainties, lessons learned from the voluntary carbon will be extremely valuable to assess how carbon markets may evolve. VCMs are considerably smaller than regulatory frameworks with 0.1% of the value and 0.02% of the volume of the global carbon market (Peters-Stanley et al., 2011:11). Yet their impact on the trajectory of carbon markets is not negligible. In opposition to a declining CDM, 131.2 MtCO2e were traded in 2010 for an overall value of 424 million USD34% more than 2009 and even exceeding historic trends. 45% of these credits were land-based, and 29% were related to the burgeoning REDD carbon market (Peters-Stanley et al., 2011: 11). The volume of VCMs even exceeded that of the primary CDM in 2010 (Fig. 1). The CDM was developed to reach a twofold agenda: reduce GHG emissions by facilitating the trade of carbon offsets between industrialized countries that ratied the Kyoto protocol and the developing world while simultaneously contributing to sustainable development in the host countries. While in theory synergies exist between the two objectives, in practice there are trade-offs between costefcient mitigation and sustainable development goals, which result limited sustainable development outcomes (Boyd et al., 2009; Olsen, 2007; Sutter and Parreo, 2007). Sustainable development efforts

1. Introduction The rst Kyoto commitment period ends in 2012 with no clear consensus regarding post-Kyoto governance. There is nonetheless an increased recognition that efforts to adapt to climate change are as important as mitigation strategies (World Bank, 2010). Adaptation objectives build on long-term efforts to relate more fully climate change mitigationembodied by the establishment of carbon marketsto the enhancement of adaptive capacity and sustainable development (Smit and Pilifosova, 2003). Ideally, carbon markets can contribute to adaptation and mitigation objectives by reducing greenhouse gas emissions while also contributing to sustainable development outcomes; a win win agenda that is explicitly represented in the dual-goals of the Clean-Development Mechanism (CDM). Milder et al. (2010) estimate that 25 to 50 million low-income land stewards could benet from carbon markets alone by 2030 especially if carbon projects invest in livelihood enhancing practices. Despite the rapid growth of carbon offsets over the past decade, sustainable development objectives for the developing world are lagging (Boyd et al., 2009; Olsen, 2007; Sutter and Parreo, 2007). To understand the dynamics at play, I relate mitigation actions driven by land-based carbon projects to livelihood outcomes in the developing world. I focus specically on voluntary carbon markets (VCMs), situating them within the wider carbon governance system (i.e. CDM), because these markets have been at the forefront of new
E-mail address: kbenessa@asu.edu. 0921-8009/$ see front matter 2012 Elsevier B.V. All rights reserved. doi:10.1016/j.ecolecon.2012.02.022

K. Benessaiah / Ecological Economics 77 (2012) 16

Fig. 1. Historic value and volume of CDM vs. VCM carbon markets (20052010). Sources: Compiled from 2005 to 2011 State and Trends of the Carbon Market reports (World Bank) and 2007 to 2011 State of the Voluntary Carbon Markets reports (Ecosystem Marketplace).

tend to be more prevalent in the VCMs due to early initial voluntary partnerships in the late 1980s between market-oriented environmental and social NGOs and corporate institutions (Chapple, 2008; Corbera et al., 2009). Despite this history, the share of for-prot involvement outweighs that of non-prot suppliers since 2005now occupying about 85% of the VCM market share as opposed to 30% pre-2002-raising questions about the changing nature of the VCM (Peters-Stanley et al., 2011: 14). VCMs are composed, on the seller side, of a variety of institutions from prot-oriented corporate entities to non-governmental institutions interested in promoting environmental and social concerns (Bayon et al., 2007; Bumpus and Liverman, 2008; Capoor and Ambrosi, 2007; Kollmuss et al., 2008). On the buyers side, different actors choose to engage in VCMs for a variety of reasons including marketing, investment in cleaner technologies, to prepare for an eventual change in United States policy and in response to the ideology of their client companies (Hamilton et al., 2010; Hepburn, 2007; Lovell et al., 2009). The absence of a unique set of rules and regulations for these markets reduces transaction costs, enables innovation and creates space for testing new methodologies that may be included subsequently in regulatory mechanisms, providing room for micro-projects to enter the wider carbon market (Bayon et al., 2007; Gillenwater et al., 2007; Hamilton et al., 2010). For instance, REDD + projects were spearheaded by the VCM which provided room for experimental pilot projects to be initiated and funded (Corbera et al., 2009). Lower transaction costs make the VCM more attractive, allowing for the establishment of smaller-sized projects and the inclusion of methodologies not yet approved in the regulatory carbon framework (i.e. new land-use carbon projects such as REDD for forests or Blue Carbon for wetlands). CDM projects face high transaction costs and long project validation times which often prove prohibitive for smaller-sized projects (Boyd et al., 2007). The World Bank (2010) acknowledges that despite efforts to simplify procedures, small-scale projects validation times and costs have increased at a faster rate than larger projects.

On the other hand, the exible and innovative nature of the VCMs facilitated by lower transaction costsis shadowed by a higher risk of low-quality (unsecure) carbon, putting at risk climate change mitigation efforts, due to lack of rules and no universally adopted or veried quality standards (Bayon et al., 2007; Capoor and Ambrosi, 2007; Corbera et al., 2009). As a result, the VCM has tended to garner lower prices for its carbon, which can prove challenging for many projects on the long run (Corbera et al., 2009). To ensure increased carbon quality, the VCM has developed various standards and registries that establish methodologies and rules and that verify that carbon credits are not double-counted. In 2010, out of 16 VCM standards, only six were land-based and included co-benets, constituting 5% of all projects for an overall 3.2 MtCO2e veried (PetersStanley et al., 2011: 37). Most major voluntary carbon standards linked to a third-party registry since 2008 to increase transparency (Hamilton et al., 2010). CDM projects tend to focus on non-land-based projects (energy, biomass, landll etc.) mostly in Asia and Latin America that are less complex to implement than forestry or agriculture-based projects (Boyd et al., 2009; Thomas et al., 2010). A greater emphasis on REDD + might gradually change the focus of CDM projects but a signicant geographical and sectoral (energy vs. forestry/agriculture) imbalance remains present, leaving out a signicant portion of the developing world especially rural populations who would arguably benet the most from schemes that channel funds at the local level. Out of 1600 CDM projects only four are afforestation/reforestation projectsthe only forestry-based projects allowed under CDMdue to signicant administrative, nancial and governance issues associated with land-based community-based projects (Thomas et al., 2010). The rst forestry-based CDM project in Guangxi, China ended in 2007 with only 55% of the land reforested due to the challenges associated with the participation of a multitude of small-scale landholders under unresolved land tenure (Gong et al., 2010). These two cases highlight how land-use carbon projects involving a multitude of small-scale landholders are difcult to monitor, requiring considerable transaction costs which are difcult to manage, especially under a rigid CDM structure. In the VCM, lower transaction costs and a greater exibility regarding the types of projects adopted allow for bottom-up approaches to be implemented and explored. As a consequence, land-based carbon projects are better featured in the VCMs, occupying as much as 45% of the credits sold in 2010 (Peters-Stanley et al., 2011). Encouraged by international climate meetings in Bali and Cancun, the Voluntary Carbon Standard an important standard in the VCMapproved REDD methodologies in 2010 spurring $76 million in investments (Peters-Stanley et al., 2011: 1617). REDD projects form 29% of all VCM credits in 2010 and are projected to be included in compliance regimes post-2015 (p. 1617). Overall, compliance and voluntary markets occupy different but overlapping niches: the rst produces the bulk of carbon offsets in a highly regulated system while the second supports smaller projects involving sometimes innovative methodologies that may subsequently enter the regulatory market; this difference is especially notable in land-based carbon projects. In 2010, VCMs captured only 0.02% of the overall carbon volume traded and 0.1% of carbon value (Peters-Stanley et al., 2011: 11) but produced about 45% of its credits from land-based projects as opposed to less than 5% for the CDM (Boyd et al., 2009; Hamilton et al., 2010: 34; Kossoy and Ambrosi, 2010: 40). These land-based projects bear signicance for sustainable outcomes given their inuence, positive or negative, on populations dependent on natural resources. 3. (Voluntary) carbon markets and livelihoods The potential synergy between carbon sequestration and poverty alleviation has attracted the attention of development and conservation agencies interested in a winwinwin solution where carbon is sequestered, ecosystems are protected while poor land stewards are

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rewarded through payments for carbon sequestered (Muradian et al., 2010; Pagiola et al., 2005; Wunder, 2008). Milder et al. (2010) estimate that 25 to 50 million low-income land stewards could benet from carbon markets alone by 2030 especially if carbon projects invest in livelihood enhancing practices. In practice, these high expectations are challenged by lack of well-functioning markets, existing trade-offs between efciency and equity goals and lack of social embeddedness of many payments for ecosystem services schemes including carbon markets (Muradian et al., 2010). Given these constraints, tying carbon projects to sustainable development can lead to lower efciency in meeting either objective, raising questions as to whether it is better to focus on only one objective (Bulte et al., 2008; Kinzig et al., 2011; Wunder, 2008). The debate over the efciency of including sustainable development goals into carbon projects is reminiscent of the debate over fortress vs. community-based protected areas in the 19902000s (Hutton et al., 2005). Instead of drawing dichotomies, research and policy practice should focus on understanding the socialecological contexts that affect carbon projects' effectiveness at multiple scales, and the ways to reorient trajectories towards sustainable futures (Graff-Zivin and Lipper, 2008; Lipper and Cavatassi, 2004; Vatn, 2010). 3.1. Complex carbon landscapes, complex livelihoods Many studies have examined how payments for ecosystem services (PES) affect the poor (Chapple, 2008; Engel et al., 2008; Grieg-Gran et al., 2005; Landell-Mills, 2002; Landell-Mills and Porras, 2002; Milder et al., 2010; Pagiola et al., 2005; Wunder, 2008). PES, including carbon payments, can contribute to increased human and nancial capital linked to increased training, community organization, new sources of revenue and job creation as well as side benets such as enhancement of other ecosystem services (e.g. soil quality) and diversication to new activities such as ecotourism (Pagiola et al., 2005; Wunder, 2008). Wunder (2008) distinguishes between effects of payment schemes on poor sellers (supply side), poor users (demand side) and non-participating poor that are nonetheless affected. Carbon project assessments tend to focus on proximate impacts, rarely assessing wider social-ecological changes that may greatly affect the poor. A common nding is that benets greatly depend on pre-existing secure and transparent land tenure arrangements since those determine inclusion in the payment scheme. Thus, land tenure is probably the most critical factor that constrains or enables carbon community-based projects. Carbon commodication transforms multidimensional ecosystems such as forests and agricultural lands into carbon sinks whose ownership needs to be claried and sometimes created (Luttrell et al., 2007; Pagiola et al., 2008). Securing property rights is often very costly and may act as a barrier to the creation of new projects (Vatn, 2010; Wendland et al., 2010). While carbon projects have increased land security in some instances, they led to conictand land insecurityin others (Corbera et al., 2011; Wunder, 2006). Carbon markets create a need to clearly determine the beneciaries of carbon deals, creating tensions between users/owners at various scales (Brner et al., 2010). Resource allocations in landscapes formed by an array of formal and informal arrangements ranging from common-pool resources to private lands, and imbued by historical power dynamics, become salient to the debate (Corbera et al., 2011; Luttrell et al., 2007; Sutter and Parreo, 2007). The creation of a carbon commodity also requires considerable knowledge and costs (Bumpus and Liverman, 2008; Corbera et al., 2009; Muradian et al., 2010; Vatn, 2010). Carbon accounting is particularly complex and uncertain in community land-based carbon projects involving multilayered land tenure arrangements with a multiplicity of stakeholders, risks of leakage and issues of permanence (Grieg-Gran et al., 2005; Muradian et al., 2010; Richards and Andersson, 2001). Thus despite lower transaction costs than the CDM, VCM projects still remain costly if the carbon generated is to be certied by an

international standard as most reputable projects do (Luttrell et al., 2007; Peters-Stanley et al., 2011). For instance, the Carbon, Community and Biodiversity Standard (CCBS) certication has an estimated cost ranging between 4000 and 8000$ (Peskett et al., 2006), which often restricts direct participation by marginalized groups. Direct participation is also challenged by lack of knowledge of international carbon markets, few carbon projects management skills and limited access to buyers networks (Luttrell et al., 2007; Richards and Andersson, 2001; Sutter and Parreo, 2007). Project developers are often well connected NGOs, private companies or governmental institutions which act as intermediaries between local communities and international buyers. Most of the time communities have little voice in determining the way projects are being developed (Corbera et al., 2009; Grieg-Gran et al., 2005). Intermediaries thus play a central role that can be positive or negative for communities depending on the project's developers modus operandi (Richards and Andersson, 2001). Transferring some decision-making power to local communities would be more equitable but few markets work well when the sellers dictates what the buyer should buy (Grieg-Gran et al., 2005). At the heart of the issue lies the fact that not only are most project developers (and their buyers) concerned primarily with carbon mitigation while pro-poor developments are often seen as an additional requirement, but also that carbon markets are operating under very unequal power dynamics (Boyd, 2009; Corbera et al., 2009). Negotiating with a multitude of actors involves high transaction costs at all stages of project development, but especially in the initial stages. To reduce transaction costs, projects have favored larger landholdings; thus in practice marginalizing small or non-landholding households, increasing risks of elite capture of carbon benets (Brown and Corbera, 2003; Corbera et al., 2007a, 2007b, 2009; Engel et al., 2008; Grieg-Gran et al., 2005; Luttrell et al., 2007; Pagiola et al., 2007b; Vatn, 2010). Carbon projects are political processes that operate under often unequal power arrangements which can pose risks to marginalized groups (i.e. women, landless, poor, indigenous peoples). Detailed analyses of livelihood strategies, incomes and assets are necessary to be able to understand and address short and long term consequences of carbon markets in local communities. Tschakert et al. (2007) found that better-off householdsable to adopt soil conservation practices and maintain longer fallow periods were better able to benet from a soil carbon sequestration project in a Panamanian indigenous community. In Latin America, some projects have experimented with collective carbon deals but have been confronted with issues of non-compliance by some members that endanger the venture as a whole (Pagiola et al., 2007a, 2007b). More research needs to be done regarding land tenure and carbon, especially regarding common-pool carbon projects. Additionally, focusing beyond direct benets (or costs) to wider socio-economic changes in the communities and their environment is essential for a more constructive understanding of carbon markets effects on local livelihoods (Grieg-Gran et al., 2005; Luttrell et al., 2007; Muradian et al., 2010; Sutter and Parreo, 2007; Vatn, 2010; Wendland et al., 2010). From the buyers perspective, the complex nature of communitybased land use carbon projects makes it difcult to secure carbon offsets and thus makes these projects more risky. Nonetheless a desire to invest in social and environmental projects (corporate social responsibility) and to better their business image leads many buyers to invest in these projects. From the point of view of local communities' carbon markets are not always the most desirable option. First, the carbon price needs to be competitive when compared to other land use alternatives (Coomes et al., 2008; Tschakert et al., 2007). Second, carbon benets need to be stable and guaranteed; a condition which is not always fullled in the context of highly volatile carbon market (Hamilton et al., 2009a). Third, carbon deals often involve the requirement that carbon emission reductions are done in perpetuity or at least over the long term (issue of permanence). The latter can seriously reduce the strategies available to local communities

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when confronted by natural or other shocks, thus increasing their vulnerability to future changes (Gonzlez-Estrada et al., 2008; Palmer and Silber, 2011) and thus may essentially affect their adaptive capacities. To better assess carbon project socialecological outcomes, we need to develop methodologies to measure and assess trade-offs between ecosystem services and their linkages to multiple dimensions of human well-being at different scales while also investing in institutions that manage those services comprehensively (Bennett et al., 2009; De Groot et al., 2010; Rodrguez et al., 2006); a strategy that would reect better the physical reality that carbon projects encounter rather than the abstraction of virtual carbon markets.

4. Conclusion: the need for enabling and connecting institutions Carbon markets, and particularly voluntary carbon markets, require enabling and connecting institutions to ensure equitable (or at least negotiated) denition of carbon rights, to independently share knowledge, to monitor progress and to enforce investments in both mitigation and sustainable development goals while remaining exible to rapidly changing socialecological systems. In a well-functioning political environment, these tasks would be shared and hopefully integrated among different government and civil society organizations. What happens however when carbon projects occur in highly problematic governance systems, as they often do? Should some carbon projects invest in changing the institutional environment that shapes carbon commodication? Can they legitimately do so? Compared to highly regulated compliance markets, VCM projects are better placed to bypass to some extent bureaucratic government controlwhich can in some instances facilitate the establishment of enabling institutions while in others lead to negativeand uncheckedoutcomes. Intermediaries become particularly critical in determining what type of carbon projects evolve on the ground. Intermediaries do not only mediate between local providers and international buyers, but also interpret to a great extent the rules of the game. As such, more attention should be given to the positionality of intermediaries when providing funds, a rst step towards more transparent carbon supply chains. Second, both compliance and voluntary markets need to understand and address carbon socialecological dynamics more systemically. At rst glance, focusing on multiple objectivescarbon, livelihoods and biodiversity for instanceis costly and inefcient. There is no doubt that doing so is more complex yet it also more accurately reects the dynamics that affect and are affected by carbon projects on the ground. Failing to do so can prove quite problematic. Ethically, failing to address social and environmental justice issues undermines greatly the legitimacy of carbon projects. Practically, not considering social dynamics can on the long run lead to leakage, conict and impermanence since root causes of carbon emissions remain unaddressed (i.e. deforestation due to poverty, greed or consumerism). Instead, carbon projects should be carefully designed to evolve along with dynamic socialecological systemsfocusing on understanding how best to reconcile mitigation goals with adaptation outcomeswhich requires a systemic and broader understanding of the carbon supply chain with its winner and its losers. We thus need institutions that are able to systemically assess and negotiate trade-offs among parties affected by carbon projectsincluding indirect actors. Where to draw the line however? There is no clear and denitive answer to that question, but questions of sovereignty, social and environmental justice and self-determination must be accounted for transparently. The question of carbon and land tenure clearly illustrates this fact. Carbon projects actively shape how land tenure becomes understood and managed, affecting people inhabiting these landscapes and are thus not only environmental projects but also social and political ones. Scientists can help in assessing trade-offs by illustrating how carbon projects relate synergetically (or not) to other ecosystem services, and how these bundled services affect multiple dimensions of human wellbeing. More research needs to examine how projects can not only compensate monetarily for carbon projects but also invest in other forms of non-monetary compensations (i.e. restoring degraded lands, changing productive behaviours or consumptive patterns) that enhance bundled ecosystem services and multifaceted livelihood arrangements. Acknowledgements I would like to thank the International Development Research Centre (IDRC), Ottawa, Canada for fostering and supporting policy-

3.2. Exploring ways to move towards new adaptive trajectories How can voluntary carbon markets invest in adaptive trajectories? The VCM has been particularly useful as an experimental eld where new ideas and methodologies can be implemented as illustrated by the emergence of Soil Carbon and Blue Carbon projects. Both of these developments explore ideas of how carbon markets can be used to restore and rehabilitate degraded or deforested landscapes. In these cases, rehabilitation or restoration itself is an important part of the compensation provided to local people. Blue carbon refers to the carbon stored by wetland systems such as salt marshes, sea grass and mangroves. Wetlands store an estimated 44.6 TgC/yr, representing the largest terrestrial carbon pool, yet most carbon projects focus on terrestrial systems due partly to the fact that most carbon stored in wetlands is soil carbon (Chmura et al., 2003; Kristensen et al., 2008; Nelleman et al., 2009; McLeod et al., 2011). In 2009, not only were there no projects storing carbon in wetlands but restoration itself was not exclusively included in the formal compliance regime (Laffoley and Grimsditch, 2009). In 2010, Danone in collaboration with RAMSAR and IUCN, created the rst blue carbon project in Senegal under the VCM (Danone Fund for Nature 2010). In 2011 a blue carbon methodology was approved under the CDM and blue carbon projects will be nanced under the Global Environment Facility. This sequence of events highlights the highly porous and complementary nature of the VCM and compliance regimes, and the important enabling role played by the VCM. Unfortunately due to the recent nature of Blue Carbon projects, no accounts of livelihood impacts have emerged as of yet. Given that most wetlands are managed under common-property or open-access regimes, the impacts of blue carbon projects will highly depend on how they deal with collective land tenure arrangements. Soil carbon discussions are older and linked to the rapid and extensive loss of organic soil carbon due to inappropriate agricultural land uses which poses great concern for food security (Parotta, 2002; Lal, 2004, 2010). Unfortunately, methodologies in the compliance regime do not yet fully include soil carbon restoration, which limits projects relating to land degradation. In 2007, 16% of projects in the VCM focused on agricultural soils while 42% were dedicated to afforestation and restoration and 28% to nascent REDD projects (Seeberg-Elverfeldt 2010). Antle and Stoorvogel (2009) look at three case-studies in Kenya, Peru and Senegal and nd that despite gains in avoided soil carbon loss over time, impacts on poverty alleviation are small especially where degradation and poverty are the highest. Yet soil carbon payments have enabled to some extent a shift towards landscapes and institutions supporting more sustainable agricultural practices. These transformations are vital because as noted astutely by Antle and Stoorvogel (2009: 145) the participation of poor farmers in carbon contracts is constrained by the same economic and institutional factors that inhibited their use of more sustainable and productive practices in the rst place. Shifting even slightlybehavior towards a more sustainable use of agricultural lands or restoration of degraded lands might be the push required for more adaptive trajectories.

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oriented research that aims to improve human well-being and ecosystemic health. In particular, I would like to thank Marco Rondon, Renaud De-Plaen, Hein Mallee, Simon Carter, and Marwan Owaygen from the Rural Poverty and Environment group for helpful comments on earlier drafts of this commentary. References
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Further Reading
Capoor, K., Ambrosi, P., 2006. State and trends of the carbon market 2006. World Bank Carbon Finance Unit. Capoor, K., Ambrosi, P., 2008. State and Trends of the Carbon Market 2008. The World Bank, Washington, DC.