Adapted from Emeralds on the Equator: an Avoided Deforestation Carbon Markets Strategy Manual
27 January 2009 | We call them the "emeralds on the equator", or "Zamrud Khatulistiwa" of the Indonesian islands. They are the legacy of tropical forests that once ringed the Earth like a necklace – and are disappearing at the rate of 13 million hectares per year, contributing roughly 20% of the world's greenhouse gasses every year.
The business strategy for mitigating climactic disruption due to this deforestation involves creating carbon markets at the source of the problem, thereby turning an environmental liability into a financial asset, locally and globally.
As I conducted the research that eventually became Emeralds on the Equator: an Avoided Deforestation Carbon Markets Strategy Manual (see downloads, right), I came to believe that many projects suffer from a failure to understand key differences in the needs and views of four key parties to any project: scientists, civil society, government, and business.
Each party is assumed to maximize their rent seeking, and the successful developer will need to focus on the overlap between their needs. This overlap is where the project can most easily actualize itself, and Rational Convergence is a tool for focusing on developing effective communication between the four parties.
The manual describes four phases of project development: first, a project developer has to recognize that an intact ecosystem is the raw material of an offset project; second, he has to recognize his own core competencies; third, he has to manufacture the "product"; and fourth, he has to market the product.
It is in the development phase that communication among the four parties is most crucial, and that the four premises of rational convergence are at the forefront. These are:
Land dictates the rules. Ecosystems range in size from a few hectares to multi-million hectare landscapes, and the relationships involve climatology and hydrology as well as human society and the natural biological systems surrounding it. A successful project depends on an accurate understanding of these forces, but scientists need unknowns to push intellectual thought forward. This is done by using the scientific method to test a hypothesis based on observational data and theoretical understanding. Yet, this uncertainty can be interpreted as a lack of confidence by the other three actors. Government, civil society, and business need to understand that science will always be uncertain.
Local communities are the project's gatekeepers. Civil society thrives on fighting for the underdog. Because of this, it often struggles with engaging the other three actors on terms that are not aggressive or acrimonious. Knowing that civil society may always fight for the underdog, the developer needs to work hard to gain approval of the project by the local community.
Governments organize rights. Government organizes and dispenses rights. If a developer wants to gain governmental support for a project, the developer cannot be understood as removing rights sovereign to a nation.
Businesses structure risk. Business structures risk. To maintain its profitability, it must manage the project in a manner that decreases the riskiness of the business concept while maintaining profitability. In summary, business needs risk to survive. This risk is codified by the use of rights dispensed by government. Civil society is concerned that government is eliminating rights that engage locals. Science debates the viability of a hypothesis. It is within this framework that the developer needs to focus efforts on maximizing the interests of each of the four actors while developing the project.
By using language that is mutually intelligible to each of the groups and focusing attention on actionable projects that can be achieved now, the developer can get beyond rhetoric and into developing a sustainable project.
This allows a developer to focus on its core competency, which is managing delivery risk. Specifically, a developer who delivers on promised carbon credits should be rewarded by being able to sell products at a higher margin than a developer that does not meet its carbon credit sales obligations.
Scientists demonstrate uncertainty when they say, as in this hypothetical example, "We are 98% sure but still don't know for certain." Civil society assumes, "No one understands communities and conservation like we do." Government doesn't "want to lose our rights to our land" if the project develops.
Effective Communication with Scientists
Because the land dictates the rules, the developer needs to first understand the project's ecological landscape. This can be done by working with local scientists to understand the ecological framework within and surrounding the project site.
Inherently, the developer needs to take this ecological knowledge and frame what the carbon credit opportunities would be locally. Once a developer has a strong understanding of the ecological stage, the developer can then begin to communicate with civil society.
Effective Communication with Civil Society
A successful developer understands that that the local communities are the gatekeepers because these communities live and work on the land near the project site. Therefore, local communities can make or break a project.
They must be involved in a manner that is iterative requiring adaptive management. This means encouraging sustainable community development at the local level — improving water quality, nutrition, and small-business development opportunities and developing local renewable energy opportunities.
In fact, the discussion of carbon credits at the local level may not be relevant in the beginning. Therefore, effective protection and sustainable community development depends on developing trust between all rural stakeholders. This can be done by creating incentive mechanisms such as a community-based forest monitoring program, a sustainable business development program with links to the market for non-timber forest products, along with micro-financing facilities as part of the project design.
Finding a Common Framework
A project should facilitate land conflict resolution hectare by hectare, community by community – but local communities often view increased conservation as a method in which their local communal land rights are diminished.
Taking the time to plan and implement the winning combination of a host of solutions is what experts have called best practices in natural resource management. The developer needs to work within these communities to learn how they understand their biodiversity, water, forests, and land tenure rights. With this information, the developer can begin to ask questions related to how nutrition, education, empowerment, land-use planning, water, sanitation, and energy production can be developed as it relates to sustainability.
Communities need to be involved in co-developing a land tenure system that functions for them while enabling the developer to engage the local community with forest protection. The key first step to resolving these land claim issues is to involve the community in community participatory mapping. Community participatory mapping occurs when a geographical information system (GIS) specialist works with the community asking iterative questions regarding community land claims.
Next these claims are mapped and then presented to the community to solicit community engagement. After an iterative process that seeks to resolve land claim conflicts, the community can then submit land claims for land tenure. By solidifying community rights to land, the developer seeks to develop solidarity with the local community in a manner that resolves conflict and provides for successful and effective communication going forward.
Resolving Land Claims
The developer can use the following steps to resolve land conflict claims.
First, the developer can gain commitment by various actors within the organizations and community involved in the conflict to engage in a land conflict-resolution program.
Next, the developer can establish an independent third-party evaluator to monitor community action plans and publish his findings, as well as educational material, in the local language. Communities fear further intrusion into their local culture. So a developer needs to respect local customs while seeking community engagement. Explicitly, the developer should encourage local community participation in the sustainable management of resources. Land conflict resolution strategies that do not involve local customary law and procedures will fail.
Effective Communication with Government
Governments dispense rights through developing and creating international, national, regional, and municipal legislation. Dispensing of rights refers to how governments constantly are expanding and contracting private vs. public rights over time.
The current trends are for fractionalization of communal rights into a bundle of private rights. The developer needs to have clear title to the land that is its raw material, and it must have the legal capacity to sell the carbon rights from the trees on this land.
Of concern to the developer is the process that governments engage in when redistributing property rights. This process generally has three rule developing processes: constitutional (or statutory), collective choice, and operational. These rules can be proactive or reactive and made in response to exogenous conditions such as biophysical and material changes.
In the case of the nascent carbon markets, rule making organizations such as municipalities, provinces, nations, and international bodies can be encouraged to be proactive in dispensing carbon rights for forests through developing legislation that develops carbon rights as a function of land tenure, title, and deed.
Within the context of the avoided deforestation carbon market, there are two methods that entities can use when developing their legal statutes. Entities can use the compliance market, which is being managed by the United Nations under the Kyoto Protocol, or the voluntary market, which allows for the most flexibility.
Effective Communication with Business
Business leaders need to structure climate-change risk, business risk, and sovereign / political risk so as to be successful when investing in projects. Structuring of these risks may involve diversifying these risks allowing for risk mitigation.
This process has two important functions. It can either enhance return while maintaining the same aggregate risk level or it can maintain return while decreasing the aggregate risk level for the developer. If the developer can lower its risk profile or increase its returns, it should be able to secure greater equity funding from the capital markets allowing for scalability.
With scalability, the developer may be able to expand the scope of its business by protecting more land. Hence, the focus of the avoided deforestation business leader is on risk mitigation.
Effective communication between science, business, government, and civil society and the developer are required for a successful iterative and adaptively managed project to develop. The developer may choose to facilitate the discussion between the four actors focusing on collaboration. In negotiations, the developer needs to be capable of inventing options after observing each party's emotional, intellectual, and spiritual point of view.
During a successful negotiation, a developer beforehand will need to write up the non-negotiable points with a range of negotiability attached to each, possible arguments of the other parties, the possible coalitions that could be formed, various scenarios, and possible creative and innovative solutions.
Using this framework, the developer can focus on common interests (not positions) between parties, dialogue about objective criteria, and invent options that work for all parties. By doing this, the project developer can negotiate with all actors within the rational convergence, thus furthering their capacity to develop an effective project.
Gabriel Thoumi is Director of Forestry for forest carbon project developer MGM International. The views expressed here are his own, and do not necessarily reflect those of MGM International or Ecosystem Marketplace. He can be reached at gthoumi(at)mgminter.com.