Designing a challenge to address corruption in carbon markets

By: Shanna Tova O’Reilly, Director at Resonance Global and Senior Advisor on the Countering Transnational Corruption Grand Challenge for Development (CTC Grand Challenge).

This is a guest blog by a Practitioners Forum member. The contribution is intended to bring diverse perspectives and insights, enriching the discussions and content for other members and the public. If you are interested in contributing a blog, please contact the forum's coordinators.

By 2030, the cost to tackle climate impacts and needs is projected to be $3–5 trillion per year. Carbon markets can play an important role in helping to address the climate crisis, but we must safeguard these mechanisms and address their corruption risks to ensure they achieve their intended benefit and impacts.

The Safeguarding Carbon Markets Challenge will award multiple grants of between $50,000 and $500,000 to organizations with the best innovative concepts that counter corruption and strengthen transparency and accountability in carbon markets to preserve the benefits of critical climate finance.

Call for innovative solutions to address corruption in carbon markets

During the last six months, we had the opportunity to support the U.S. Agency for International Development (USAID), BHP Foundation, and Global Partnership for Social Accountability (GPSA) in the design and launch of a call for innovative solutions to address corruption in carbon markets. The Safeguarding Carbon Markets Challenge focuses on the nexus of emergent and best practice in both anti-corruption and carbon markets and seeks concepts that counter corruption and enhance transparency and accountability in carbon markets.

Working on the design of this cutting edge effort provided the opportunity to understand the promise that high-integrity carbon markets represent as a channel to unlock capital and demand for real, additional, lasting, and independently-verified emissions reductions and removals. These markets can provide a myriad of co-benefits by supporting economic development, sustaining livelihoods of local communities, and conserving land and water resources and biodiversity.

Despite this transformative potential, there are numerous corruption risks that can undermine the trust in and effectiveness of carbon markets. Where carbon markets are less established they still lack strong governance, accountability, community involvement, reporting, monitoring, and auditing systems. The large scale of deals for carbon offsets increases the risk of elite capture as a significant portion of carbon deals are occurring in contexts with high levels of corruption.

Climate finance findings

As part of this process, we completed desk research and co-design sessions with more than one-hundred stakeholders. They included project developers, carbon purchasers, certification organizations, insurance agents, lawyers, land use specialists, data analysts, academics, researchers, civil society organizations, community activities, and whistleblowers from around the globe, with a particular emphasis on impacted areas in Africa, Latin America, and South and Southeast Asia. Initially, we focused broadly on climate finance where we found that:

There is significant pressure to disburse funds quickly to address climate change. Climate funds are likely supporting corrupt and illegal mining, logging, or other land use practices, particularly in remote locations where it is difficult to monitor and diverting critical resources from climate goals.
Funds are moving across a growing suite of both highly diverse and technical industries (including mining, energy, forestry, infrastructure, and construction) that involve traditional and nontraditional financiers from the private and public sectors, bilateral and multilateral donors.
Climate finance often entails unclear or evolving laws and regulations for governments with limited capacity to monitor, audit, and certify the process.
Land use and access that supports local communities’ livelihoods are an integral part of the work in climate finance, particularly related to carbon markets.

Carbon markets findings

As we honed in more on carbon markets, we saw that:

There is a lack of regulation of carbon credit registries; measurement, reporting, and verification systems; and overall commodity supply chain certifications.
Investors want reliable information on carbon markets. Greater data transparency presents one potential solution to corruption challenges; however, success is dependent on the ability of local leaders, communities, and civil society to utilize the data.
Carbon markets are at varying stages of development globally. Some countries have more advanced markets, regulatory systems, and the capacity to trade in carbon credits, while others do not.
Many carbon projects do not benefit local communities and, in fact, negatively impact their livelihoods.
While the literature on concrete cases of high-level corruption in carbon markets is still limited, most focus on opportunities for embezzlement, rent-seeking, fraud, and land grabbing.

Call details

Safeguarding Carbon Markets Challenge seeks to respond to these issues by calling on solver organizations with innovative ideas to apply by August 15, 2024. The accessible application process is open to registered organizations working in countries where USAID operates around the globe. It involves a four-page concept note and simplified budget at one of the following stages of maturity:

Tier #1 - Ideas ($50,000 - 100,000)
Tier #2 - Prototypes ($100,000 - 300,000)
Tier #3 - Validation and Scaling ($300,000 - 500,000)

Successful applicants that move onto the next stage will be invited to submit a full application and potential pre-award assessment later this year. Winning solvers will become part of a cohort engaged on pushing the needle on corruption in this burgeoning market, and will have access to both technical and financial assistance, as well as unique networking opportunities.

Please join us in this important effort by applying to the Challenge, helping to spread the word, or contacting us for more information at CTCGrandChallenge@tetratech.com.

Disclaimer: The views and opinions expressed are solely those of the guest contributors and do not necessarily reflect the position of other members or organisations in the Countering Environmental Corruption Practitioners Forum.