Carbon credits and “green land grabbing”: guarding against the pitfalls

There is growing momentum around carbon markets—both voluntary and compliance-based—as a means to support global decarbonization and channel climate finance to developing countries. Many of these credits are derived from forests, through regrowth or avoided deforestation. However, the integrity of project-based forest carbon credits, especially those focused on avoiding deforestation, has come under scrutiny. The environmental and social effectiveness of these credits depends crucially on the property rights regime and governance systems in place.
 

Unintended Consequences: Green Land Grabbing and Carbon Leakage

When carbon credits are introduced in places where land ownership is unclear, the increased value of land can incentivize “green land grabbing.” Private interests may seize public or indigenous land, threatening the rights of local and indigenous people, undermining the rule of law, and weakening governance systems for natural resources. This not only leads to more land disputes but also undermines the validity and effectiveness of forest carbon credits. Protecting one area of forest may simply shift deforestation elsewhere, a phenomenon known as the displacement of deforestation or carbon leakage, reducing the net climate benefit. This means that one credit does not avoid 1 tonne of CO2e, but less.
 

How much less? Displacement of deforestation and emissions in Brazil

We estimated the displacement of deforestation and emissions using OMEGA Brazil - a multi-sector macroeconomic model, which we recently used in the Green Public Finance Review for Brazil. We considered a scenario based on estimates that project the annual supply of Brazilian forest carbon credits to gradually increase from 30 mtCO2 in 2021 to around 220 mtCO2 by 2030.

In response to this demand shock, the price of forest carbon credits is projected to reach US$70 (constant 2015 USD) after 10 years. This price is higher than demand-side projections but lower than estimates from supply-side analyses of the Brazilian reforestation potential.

Figure 1 shows the projections for reforestation and deforestation. To accommodate the global demand for carbon credits, reforestation increases and, after 10 years, reaches an annual rate of 1.6 million hectares, as intended.

On the flipside, however, the increased demand for land use raises the market value of frontier land by 90% above baseline over the course of 10 years because we assume that reforestation of that magnitude happens in land with a competing use such as agriculture.

When property rights are weak, incentives for land-grabbing become stronger. As shown in Figure 1, we project deforestation to increase by up to 0.3 million hectares per year relative to the baseline. This amounts to 18% of the induced reforestation and counteracts the gains from increased reforestation which, of course, is unintended. 

Assuming that only fully grown forest is subject to deforestation, the unintended consequences become even stronger: Figure 2 shows the projected CO2 sequestration by reforestation and the CO2 emissions from deforestation. Reforestation generates carbon sequestration of up to almost 200 mtCO2 above baseline after 10 years but the displaced deforestation causes emissions of 160 mtCO2 above baseline in the same time horizon — assuming a carbon storage capacity of 500 tCO2/ha. In the first 10 years, around 76% of the carbon sequestration from reforestation is eliminated by emissions from leaked deforestation. This is because carbon sequestration takes about 20 years to achieve 80% of the total storage capacity of a hectare of land, whereas the carbon emissions of a hectare deforested are immediate. 

The model shows that the more the value of the remaining land increases as low-productivity land is converted into forest, the higher is the pressure on deforestation elsewhere.
 

Strengthening the integrity of forest carbon credits

This analysis provides a quantitative estimate of the scale of the problem, showing how increased demand for carbon credits can unintentionally fuel land conflicts and undermine climate goals. Weak property rights and governance not only undermine social equity but also lead to the displacement of deforestation.

The findings are highly relevant to developing countries, especially those with large areas of unexploited tropical forests, insecure land tenure, and significant indigenous populations. The lessons from Brazil, about the importance of secure property rights, robust governance, and holistic approaches, can inform any country seeking to leverage its forests for climate action. The following four actions can help to ensure that forest carbon credits deliver lasting climate and social benefits:

1. Strengthen Property Rights and Forest Governance: Secure land tenure and transparent governance are essential to prevent green land grabbing and ensure the environmental integrity of carbon credits.
2. Target Efforts to Non-Competing Land: Generating credits on land not part of the existing land supply (e.g., afforestation of barren land) or combining reforestation with agroforestry systems can reduce pressure on agricultural land and minimize leakage.
3. Adopt Jurisdictional Approaches: Governments should play a critical role in aligning private interests with public good, accounting for leakage at a broader administrative level (rather than just at the project site) through rapidly improving economic models.
4. Strengthen Non-land Intensive Sectors: Revenue from carbon credits at the jurisdictional level could further reduce deforestation if invested in non-land intensive sectors, such as urban production.

The authors thank Joseph Pryor, Pierre Guigon, Andres Espejo, Harikumar Gadde, and Rong Qian for helpful comments