TNRC Guide Corruption Risks and Anti-Corruption Responses in Sustainable Livelihood Interventions | Module Two
Corruption risks and anti-corruption responses in sustainable livelihood interventions
This TNRC Guide shares practical knowledge for program designers and implementers to reduce corruption’s impact on conservation.
Module Two Carbon Compensation Co-Benefits: Corruption risks and responses
This guidance uses the term “carbon compensation” to more clearly include the sustainable livelihood effects of these projects. These “co-benefits” are the local socio-economic goods beyond the reduction in carbon, and can be understood as the broader “landscape needs” beyond the carbon credit transaction itself (Hacking et al. 2021). Co-benefits range from local employment, educational opportunities, and infrastructure to improved air and water quality, biodiversity preservation, and gender equality (Gold Standard Foundation 2014, Affendy and Woodside 2020).
Carbon compensation is not an obvious sustainable livelihood approach. Its primary point is reducing the global concentration of CO2 in the atmosphere. However, the founding negotiations of REDD+ recognized, and indeed debated, the importance of co-benefits beyond carbon (Angelson 2008). And within voluntary carbon markets (VCMs),
the beyond-carbon impacts of forest carbon projects are often of equal or greater importance to buyers of emissions reductions – and project developers often say they could not deliver climate results without also addressing issues such as local economic development, poverty alleviation, and land tenure reform… Co-benefits, in particular biodiversity and community impacts, are often the “major” reason why buyers engage in forest carbon markets in the first place (Goldstein 2016).
As VCMs continue to boom (Gross 2020), especially in projects on forestry and land use (Ecosystem Marketplace 2021b), VCM stakeholders are increasingly concerned that demand is exceeding the supply of “high quality” offset projects (Donofrio et al. 2020). This concern is appropriate; if “interventions are poorly designed or governed, are overly constrained…to generating carbon credits…, or fail to deliver meaningful benefits and incentives to people, they risk not only negative outcomes on the ground, but missed opportunities that we can no longer afford” (Hacking et al. 2021). In a word, what is in question is the “integrity” of these projects, defined for the purposes of this guidance as the verified assurance of:
- Additionality, permanence, non-leakage, and environmental soundness, so that new projects will actually deliver co-benefits and permanently reduce the amount of CO2 emitted or already in the atmosphere below the status quo without the project;
- Proper public financial management (PFM), such that any financial assets or flows that pass through public coffers are correctly accounted and effectively, appropriately, and accountably managed; and
- Fair, rights-based stakeholder involvement, ensuring proper consultation, consent, compensation, and co-benefit of people affected by the project, such that projects do not exacerbate other social problems.
Many of the challenges plaguing carbon compensation projects in these categories are standard administrative and capacity challenges, and not necessarily corruption. But incentives, opportunities, and rationalizations for corruption exist, on top of the vulnerabilities that already plague the forestry sector. Examples include:
- the incentive to cut regulatory concerns and lower costs,
- the opportunities created by the necessary reliance on intermediaries to navigate complexity,
- and the rationalizations arising from conflicts among and between local livelihood needs and the protection of the carbon sink.
Before proceeding, however, there are two important acknowledgments for readers to bear in mind.
First, where the tables below reference any particular standard or organization, they do so purely for representational purposes. This guidance is not evaluating actual corruption risk in any actual standard, process, or entity (although such evaluations would be valuable).
Second, there are many stakeholders who will contend that integrity or “high quality” is not achievable in carbon compensation. They point out that such projects may damage other, more efficient CO2 reduction methods (e.g., Böhm 2013). They also question the ethics of shifting burdens and responsibility from emitters to communities who have usually contributed very little to the global CO2 problem (e.g., Hyams and Fawcett 2013). This guidance acknowledges this debate, with due respect to the good-faith proponents on both sides. However, the guidance recognizes that carbon compensation initiatives are occurring, and so seeks to provide some tools to improve the integrity of such initiatives to the degree possible.
1. Additionality, permanence, non-leakage, and environmental soundness
Carbon compensation projects should permanently reduce CO2 beyond the business-as-usual scenario that would have happened without the compensation (World Bank 2016). Projects should also yield co-benefits, although requirements are still nascent. The Gold Standard piloted its SDG Impact tool in 2021, joining Verra’s Sustainable Development Verified Impact Standard (SD VISta) as the second major carbon compensation player to encourage (but not require) co-benefit measurement.
Unfortunately, both buyers and sellers of offsets would benefit from over-representing the impacts of the projects, including additionality and co-benefits (Dobson 2015; Gillenwater 2012; Williams et al. 2015; World Bank 2016). Co-benefits may require extra effort, time, or resources, which can incentivize “SDG-washing” that overstates projects’ development impacts (Myers 2021). In addition to these potential incentives for corruption, complexity in methods and data create the opportunities for it, in the form of collusion, payoffs to overlook fraud, and the like. As a result, corruption can heighten the risks of carbon compensation projects creating “disbenefits” through exacerbating or creating unintended environmental and social problems (Lin et al. 2013, Wittman and Caron 2009).
2. Proper public financial management
With at least US$ 1 billion in the VCM (Ecosystem Marketplace 2021b), and at least US$ 3 billion approved out of more than US$ 5 billion pledged in REDD+ (Watson and Shalatek 2021), carbon compensation is a major component of the global climate finance system. As with any financial system with so many actors engaging in so many transactions, with such amounts flowing through diverse institutional arrangements, “the carbon market also suffers from the common risks of corruption and fraud” (Dobson 2015, Nest et al. 2020). Some improvements in the system, for example by tracking carbon-based asset ownership and retirement, have helped reduce the most obvious of those risks (INTERPOL 2013). And more recently, promising new multi-lateral initiatives like the Voluntary Carbon Markets Integrity Initiative have emerged. But “the governance and oversight challenge is [still] vast,” producing a “pressure to disburse” that “may create the wrong incentives for donors, undermine the effectiveness of projects and increase vulnerability to corruption” (Ardigó 2016).
3. Fair, rights-based stakeholder involvement
Especially for forestry and land use-based carbon compensation, the local people affected by the project usually contributed very little of the emissions the project offsets. As a result, the idea of making changes (or preventing change) in one location to make up for broader, global changes should activate a concern with justice and equity. But there are also practical reasons to ensure proper consultation, consent, compensation, and co-benefit. The permanence of any compensation project depends in large part on the behaviors of local stakeholders. If those stakeholders are harmed or cheated in, through, or out of the benefits of the project by powerful interests, the effectiveness of the project will be severely jeopardized (Lofts et al. 2021).
Unfortunately, significant pressures against full, just stakeholder involvement often still exist. Projects may require collaboration or approval from governmental authorities who may be corrupt (Milne 2020). Communities may not agree with the scale or design of a project, which may be difficult for project proponents to accept. Even if they do agree, good consultation and stakeholder involvement takes time, which can conflict with the desires of project proponents (Campbell 2012). Part of that time requirement is due to the complexity of carbon compensation schemes, which also creates the opportunity for intermediaries and elites to rush, misrepresent, or take advantage of consultative processes (Peskett and Brodnig 2011). If there are financial or other benefits to be disbursed, the potential payoff from capturing or coopting the process only rises (Myers Madeira et al. 2013).
As a result, despite their positive intentions, carbon compensation programs run significant risks of creating “disbenefits” through exacerbating or creating unintended environmental and social problems (Lin et al. 2013, Wittman and Caron 2009). To the benefit of some but the detriment of others, a carbon compensation program can shift or cement power dynamics, create or remove rights, and (de)legitimize modes of resource use (e.g., Sarmiento Barletti and Larson 2017).
Any major development or land use change initiative would face similar challenges. Like the more ethical initiatives in those categories, major players in the carbon compensation space have created safeguards to prevent or at least mitigate such unintended consequences. However, corruption can undermine the effectiveness of those safeguards—even when those safeguards include prohibitions against corruption. Without intentional anti-corruption efforts that account for things like “embedded pro-corruption social norms… [certain] safeguards are likely to be at best partially effective against corruption…” (Williams and Dupuy 2019).
Carbon compensation annex: Miradi model results chain
In the graphic below, the corruption risks discussed above are mapped onto the generic Linked Enterprises and Alternative Livelihood results chain from the Conservation Action & Measures Library. A more advanced results chain is available here and via Miradi Share that illustrates where each of the anti-corruption responses may be integrated into a typical carbon compensation co-benefit initiative.