March 08, 2019

Leading the way to post-2020: The Peru and Colombia experiences in harmonizing REDD+ with Paris commitments

Marisa Martin and Alexandra Carranza

At the December 2018 United Nations Climate Change Conference in Katowice, Poland, countries failed to agree on rules for international carbon markets under Article 6 of the Paris Agreement, and work will continue in 2019. In the meantime, many tropical forest countries are implementing national laws to preserve their forests and valuable ecosystem services, with a view to counting these avoided emissions toward their Paris Agreement commitments. 

Tropical countries designing climate policy often consider forest policy based on the significant greenhouse gas emissions contributed by land use and land use change activities. As tropical forest countries, such as Peru and Colombia, prepare for participation in carbon markets at a national level, they are paying particular attention to how one program––known as “Reducing emissions from deforestation and forest degradation and the role of conservation, sustainable management of forests and enhancement of forest carbon stocks in developing countries” or “REDD+”––will fit within their national goals and their nationally determined contributions, including how to encourage private investment in REDD+. REDD+ is a mechanism for creating financial value for the carbon stored in forests by offering incentives for developing countries to invest in low-carbon sustainable development pathways and reduce emissions from forests. It is recognized by Article 5 of the Paris Agreement.

Two tropical forest countries—Peru and Colombia—are using novel approaches to incentivize sustainable forest management and REDD+ within their borders in line with national priorities and as part of the countries’ commitment to the Paris Agreement. Both countries’ laws are designed to encourage private investment in the sustainable forest management and conservation sector as well as to be flexible enough to address connections to the larger carbon market under Article 6.

Peru’s nesting approach

In April 2018, the Peruvian government enacted Law N. 30754, Climate Change Framework Law. Through this law, promoting public and private investment in climate change management is declared to be of national interest. Considering that Peru has significant potential for REDD+, and that the emissions reductions derived from the implementation of such projects will be counted toward the nationally determined contribution that Peru has agreed to pursue under the Paris Agreement, the country has incentives to promote public and private investment in REDD+.

Peru leads the way on REDD+ nesting pathways for projects, opening the door for sustained and scalable financing for nationally determined contributions. Peru is beginning to align the REDD+ projects inside national protected areas, initially implemented under a voluntary standard (known as the “Verified Carbon Standard” or “VCS”), with the national forest reference emissions level communicated to the United Nations Framework Convention on Climate Change in 2016. This recognition effectively safeguards REDD+ projects against any potential double counting for purposes of Peru’s nationally determined contribution, which is a key requirement for the Article 6 market mechanism and, more broadly, for the tradability of mitigation units in other programs like the Carbon Offsetting and Reduction Scheme for International Aviation. Peru’s efforts to harmonize REDD+ projects with national accounting only addresses certain kinds of credits at this point. However, Peru has launched an additional process to determine how to harmonize nested REDD+ projects on a more long-term basis in preparation for accounting for REDD+ with its Paris Agreement commitments.

Colombia’s carbon tax

The government of Colombia has passed several laws and regulations focused on climate change. The Colombian Climate Change Law, Law N. 1931, was enacted in July 2018. As in the case of Peru, this law’s purpose is to set forth general provisions and principles for climate change management.

However, one of the most relevant differences between these two legal frameworks is that Colombia has included in this law the basis for the development of an emission trading program (or “tradable quotas of GHG emissions”). While such program development is still pending, the Colombian Ministry of Environment and Sustainable Development is expected to establish a number of quotas to be traded that are compatible with the national goals of emission trading, and also determine the applicable conditions for trading.

Also, in December 2016, the Colombian government enacted the Colombian Carbon Tax Law, Law N. 1819, which created a carbon tax. This law came into force on January 1, 2017, and applies to the sales and imports of all fossil fuels, including all petroleum derivatives, except for coal. The tax is set taking into consideration the CO2 emission factor established for each fuel (e.g., natural gas, kerosene and jet fuel, fuel oil, among others) for each energy unit (in terajoules) according to the volume or weight of the fuel.

The tax is currently at US $5 (which is the equivalent of $15.000 Colombian pesos) per ton of carbon dioxide equivalent (tCO2e), but this amount will increase annually until it reaches around US $11 per tCO2e (or the equivalent of 1 Colombia Tax Unit, which was set to $33.156 Colombian pesos in 2018).

The Colombian Carbon Tax Law was complemented by its Regulation, approved on June 1, 2017, by Decree N. 926, which establishes an offset program. Under the program, entities covered by the tax can be “carbon neutral” and exempted from the tax if they buy sufficient carbon credits equal to their emissions. Credits must be based on specified methodologies, including those utilized by the Clean Development Mechanism or certain third-party standards (e.g., VCS).

Allowable offsets are those generated after January 1, 2010, and that are the result of a greenhouse gas mitigation initiative implemented inside Colombia, such as REDD+, under the accepted methodologies. The Colombian carbon tax program has encouraged the development of REDD+ projects in the country by providing demand for the credits from such projects. In addition, Colombia is considering how to tie this domestic offset program into its national commitments under the Paris Agreement, with an emphasis on how to avoid double counting.

Test cases for other REDD+ countries

The experiences of Peru and Colombia in implementing these climate laws will be closely watched by other tropical forest countries grappling with how to promote forest conservation and ecosystem protection and encourage private investment while also achieving and increasing the ambition of their nationally determined contributions under the Paris Agreement. Countries that fail to determine how REDD+ projects can continue under national-level accounting risk encountering issues with potential double counting in their nationally determined contributions. Consequently, they may endanger private sector investment in REDD+ projects in the event the projects are not appropriately accounted for at the national level. Private sector involvement and investments will be critical in many forest-rich countries to achieve those countries’ domestic targets and eventually to help raise global ambition to meet the Paris Agreement goals.

    Marisa Martin and Alexandra Carranza

    Marisa Martin is a senior associate at Baker McKenzie in Chicago and Alexandra Carranza is an associate at Baker McKenzie in Lima, Peru.