Today, the government of Colombia, in collaboration with international and domestic partners from the public and private sector, launched the TFA 2020 Colombia Alliance. The first country-specific chapter of TFA 2020 in Latin America offers an important platform to identify projects and initiatives for the implementation of commitments for zero-deforestation supply chains, focusing on the palm oil, cattle, dairy and timber industry.
“If Earth's biodiversity were a country, it could be called Colombia", National Geographic recently wrote[1]. Indeed, Colombia is the second most biodiverse country and home to 10 percent of the world's flora and fauna[2]. A total of 59 national parks covering an area of over 14 million hectares help protect and preserve this national richness.[3]
Protecting its natural assets is inherently linked to Colombia's low-carbon, inclusive growth and sustainable development plans, including the ambition to cut greenhouse gas emissions by up to 30 percent by 2030.[4] The pivotal moment of the completed peace agreement in 2016 – achieved during a time of renewed momentum on the international climate and sustainable development agenda – has further catalysed international and domestic support for realising Colombia's green growth agenda.
Without any doubt, agriculture and forestry are among the most critical sectors for meeting those goals. Agriculture, forestry and other land use are a major cause of deforestation and responsible for 58 percent of Colombia's greenhouse gas emissions.[5] Agriculture provides employment and income to 4 million people (16 percent of Colombia's total workforce[6]) and constitutes a crucial sector for realising post-conflict economic development. Within the sector, a few commodities are particularly relevant: palm oil is one of the fastest growing agricultural commodities in Colombia,[7] with most of the expected growth happening in the vulnerable Orinoquia region. Cattle ranching is another example that remains the most widespread agricultural activity, covering about 80 percent of agricultural land, and has been one of the key drivers of deforestation and land degradation. Arguably, transforming the way those commodities are being produced is central to meeting Colombia's climate and development objectives.
The business case for doing so has become increasingly clear. Recent analysis by the Business Commission for Sustainable Development has shown the business opportunity related to sustainable land use and agriculture. Globally, it is estimated to be a trillion-dollar opportunity.[8] Increasing productivity through sustainable intensification and technology innovation constitute some of the biggest opportunities in the agriculture sector, together with valuing forest ecosystem services and restoring degraded lands.[9] The latter two point to the potential of carbon finance to mobilise additional investment for realising zero-deforestation supply chains. In the case of Colombia, three private sector carbon finance opportunities stand out. They relate to the domestic carbon market, international regulation and supply chain incentives.
Domestic Carbon Market Regulation
In December 2016, the government of Colombia introduced a carbon tax on the use of fossil fuels. Currently, roughly 50 million tons of CO2 emissions are subject to the tax, which is set at 15.000 Pesos. Regulated entities are entitled to offset 100% of their tax liability through carbon credits. As of 1 January 2018, only emission reductions generated domestically in Colombia will be eligible for the scheme, including those emanating from forest protection and reforestation activities in the Orinoquia region, which constitutes a key region for TFA 2020.
At South Pole, we estimate that by the year 2020 the land use sector will supply 60-70 percent of the credits under the Colombian carbon scheme. This would be equivalent to around 150 -175 million USD per year that would flow into land use carbon credits. While not all of these credits will have a direct link to commodity supply chains, we can assume that a significant share of it will be linked to the landscapes of interest to TFA 2020.[10] Despite being early estimates, those numbers point to the potential of the domestic carbon market to provide finance for the development of forest protection and restoration programs for zero-deforestation commodity production. By continuing to commit to a strong and stable legal framework for the domestic carbon market, the new national government of Colombia – to be elected in May 2018 – will play a key role for institutionalising those opportunities in the long-term.
International Regulation
Under Article 6 of the Paris Agreement, governments are entitled to transfer emission reductions internationally to access additional climate finance. A potential source of large-scale climate finance could be the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA), which is estimated to generate over 2 billion tonnes of carbon demand from 2021 – 2035. By participating in the scheme, Climate Advisors estimates that the Government of Colombia could access over USD 300 million of additional investment for REDD+[11].
Granted, key questions remain to be solved for this to materialise, including whether and when Colombia will sign up to CORSIA, and what the offsets' eligibility criteria under CORSIA will look like. If Colombia joins, and credible REDD+ credits will be eligible under CORSIA, additional opportunities would open up for financing large-scale forest protection and reforestation programs in the regions under pressure from commodity production. This would also help blend international climate finance with investment in zero-deforestation agriculture to increase economic benefits of forest protection for local communities.
Supply Chain Incentives
A growing number of consumer goods companies combine their zero-deforestation commitments with voluntary emission reduction objectives to be achieved within their own supply chains. For example, as part of its target to be carbon balanced by 2020, the French cosmetics giant L'Oréal is financing reforestation and restoration activities within its own supply chain, including in palm oil in Indonesia. Similarly, Nespresso is implemented agroforestry programs within its coffee supply chain in Colombia. Such carbon “insetting"[12] programs increase the amount of supply chain finance and thus help accelerate the implementation of zero-deforestation programs. They also contribute to ecosystem resilience, improved supplier-buyer relationships and increased farmers income, and can be applied at a landscape level by leveraging aligned commitments from multiple buyers and producers. At South Pole, we work with companies to design, structure and implement such programs, both on the supply chain and landscape level. Lessons learnt from the work done can inform the work of TFA 2020 in Colombia to inform how the approach can support the realisation of the zero-deforestation objectives in palm oil, cattle, timber and dairy.
The stakeholders of TFA 2020 in Colombia have a unique opportunity to tap into these additional sources of finance, and blend carbon finance with investment in agricultural productivity and sustainable intensification. A coordinated ecosystem of public policy incentives, supply chain commitments and emerging sources of carbon finance opens up lucrative possibilities for innovative zero-deforestation & carbon finance compacts. The TFA 2020 Colombia Alliance provides a viable platform to experiment with such approaches and replicate working models across supply chains.
This piece was originally published on TFA2020's blog
[1] National Geographic (2017), “This Country is a Haven for Biodiversity", Chris Coast, 27 September 2017.
[2] Idem.
[3]http://www.parquesnacionales.gov.co/portal/en/?mid=socm
[4] In addition to Colombia's Nationally Determined Contribution (NDC) to the UNFCCC, other key policy plans and agreements that the government has signed include the Amazon Vision, the Joint Declaration of Intent on REDD+ and Sustainable Development between Colombia, Norway, the UK and Germany, the New York Declaration on Forest, among others.
[5] Numbers based on 2010 GHG Emissions, as included in Colombia's INDC submitted to the UNFCCC in 2015, accessible here.
[6] World Bank 2017 Employment in Agriculture Data. https://data.worldbank.org/indicator/SL.AGR.EMPL.ZS?locations=CO
[7] Over the past ten years, palm oil production has doubled in Colombia. Today, the country is by far the largest producer in Latin America and the fifth largest in the world.
[8] Business and Sustainable Development Commission (2016) “Valuing the SDG Prize in Food and Agriculture: Unlocking Business Opportunities to Accelerate Sustainable and Inclusive Growth", a paper from AlphaBeta commissioned by the Business and Sustainable Development Commission
[9] Idem
[10] One element to back-up this assumption is the fact that only REDD+ activities outside of the Amazon will be eligible under the tax, as the Amazon biome is covered under the Amazon Vision.
[11] Climate Advisers (2017), Linking the ICAO Global Market-Based Mechanism to REDD+ in Colombia, Policy Analysis, August 2017.
[12]< a href="https://www.southpole.com/sustainability-solutions/insetting-1">More on insetting https://www.southpole.com/en/sustainability-solutions/land-use-and-water
