Why financing forests through carbon markets makes sense

Brazil’s hosting of the global climate conference COP30, held in the Amazonian city of Belém in November, put a welcome spotlight on tropical forests. Despite this global attention, we continue to lose them at an unacceptable rate. COP30 put a renewed focus on the forest finance gap, making clear that it’s time to use every tool available to close it, including carbon markets. The risks of using carbon markets for climate and nature finance pale in comparison to the devastating consequences of continued deforestation and forest degradation.

Loss of primary tropical forests – old-growth forests that are typically high in carbon stock and rich in biodiversity – reached a record-breaking 6.7 million hectares in 2024. This loss generated 3.1 billion metric tonnes of greenhouse gas emissions, roughly equivalent to the fossil fuel emissions from the European Union. Catastrophic wildfires almost doubled already persistent rates of deforestation due to clearing for cattle ranching, agricultural production for food, fuel and fiber, and other economic drivers. Tropical deforestation continues to chip away at the ability of forests globally to serve as a net carbon sink, annually absorbing a net 7.6 billion metric tonnes of CO2. One of our greatest tools of resilience, forests also provide many underappreciated non-carbon climate benefits: local temperature regulation, generation and distribution of rainfall over entire continents, and thus more stable and secure food, water and energy systems.

To keep the goals of the Paris Agreement within reach, we have to halt and reverse forest loss by 2030. Scientists deem conservation of carbon-rich tropical forests as one of the most cost-effective, “no regrets” options for mitigating climate emissions. And by doing so, we maintain all their other benefits as well.

To make this possible, however, the countries and communities stewarding the world’s remaining tropical forests need viable economic alternatives to deforestation. Without them, conservation and restoration efforts lose out to more profitable land-use options.

While other strategies have been helpful in addressing the economic and political incentives driving key threats to forests, they are not enough. High-integrity, jurisdictional-scale forest carbon crediting programmes provide an additional source of revenue and an incentive for governments to do what only governments can do: recognize land rights and regulate land use, enforce the law, and align fiscal incentives with forest conservation objectives.

Through voluntary and compliance carbon markets, the sale of carbon credits to countries and corporations to compensate for unabated emissions on the pathway to net-zero delivers financial rewards for conserving forests, while integrating the societal cost of emissions from other sources into financial decision-making.

Are there risks associated with carbon markets as an instrument for financing forest conservation? Of course. Common to all carbon crediting is the risk that buyers will purchase credits instead of reducing their own emissions. Multiple “demand-side” initiatives are underway to ensure compliance market rules and voluntary market norms guard against that outcome. Prospective credit buyers that are abiding by these norms should be encouraged rather than discouraged from taking additional climate action.

On the supply side, forest carbon credits generated by individual projects have come under scrutiny for inflated crediting and questions about carbon rights. These risks are real, but we know how to manage them, in large part by crediting at large geographic scales on the basis of government-led programmes with strong environmental and social safeguards. This approach – called Jurisdictional REDD+ (J-REDD+) – was negotiated under the UNFCCC and incorporated into the Paris Agreement. Accounting for emissions reductions and removals over large areas and “truing up” project-scale accounting reduces the risk of over-crediting. Government-led programmes can provide a structure in which Indigenous and local communities can negotiate the terms of their participation including their share of the benefits from carbon market revenues.

In addition, crediting over large areas reduces the risk of “leakage” – the displacement of deforestation to adjacent landscapes – and the risk of “reversals” – when stored carbon is released into the atmosphere due to fires or other adverse events. J-REDD+ programmes can target fire prevention efforts to the most vulnerable areas, and take advantage of the “positive leakage” gained by the spillover effects of protected forests providing atmospheric and soil moisture to areas downwind and downstream. Even a large fire is highly unlikely to wipe out the carbon stock across an area millions of hectares in size and is likely to be counterbalanced at least in part by forest regrowth elsewhere within the jurisdiction. Beyond this, reversals are compensated by contributions to conservative buffer pools.

Jurisdictional-scale forest carbon credits have proven that they can meet the highest standards for environmental and social integrity. For example, new J-REDD+ methodologies have been approved for use under the world’s first global compliance carbon market – International Civil Aviation Organization’s Carbon Offsetting and Reduction Scheme for International Aviation – and also received programme-level approval from the Integrity Council for the Voluntary Carbon Market to label eligible credits as aligned with its “Core Carbon Principles,” another assurance of quality. In addition, one jurisdictional-scale methodology will soon be accompanied by a new optional standard for certifying additional benefits for biodiversity, climate beyond carbon, and Indigenous and local communities.

Markets for JREDD+ credits could deliver between $3 billion and $6 billion per year to tropical forest countries – complementing prospective payments from the Tropical Forest Forever Facility (TFFF) launched by Brazil at COP30. Together, J-REDD+ and TFFF could provide meaningful incentives to stop forest loss. However, carbon markets depend on demand: If no one buys the J-REDD+ credits coming to market, tropical countries lose a key pillar in their conservation economy.

It’s time for climate advocates skeptical of nature-based solutions to update their perceptions of risk. Efforts to exclude forest-based credits from carbon markets, most often due to concerns about what are in fact manageable risks, fail to account for the risks of not including forests. We need a portfolio approach to mitigation options: Protecting forests today earns us valuable time to scale engineered solutions while protecting tropical forests’ carbon density, biodiversity and ecosystem services that would take centuries to restore.

Revenues from carbon markets can finance literal fire hoses to douse wildfires, while also incentivizing actions to prevent their ignition in the first place. It’s time to turn on the water. After all, the world is on fire – we must act accordingly.