Posted: August 7, 2023

Benefit Sharing in the Voluntary Carbon Market

When it comes to local stakeholders, it’s simply not enough for a carbon project to ‘do no harm.’ The highest-quality, and ultimately most successful projects are those that involve local communities at every step — and ensure they benefit in real, meaningful ways.

Local communities, Indigenous Peoples, landowners, and other stakeholders involved in carbon projects may receive benefits directly from the sale of carbon credits, or by way of benefit sharing arrangements.

The idea behind these arrangements is to fairly allocate benefits that flow from commercializing carbon credits to any local stakeholders involved with a carbon project. The arrangements lay out who’ll bear what costs, who’ll receive what benefits, and how they’ll be distributed.

Why Benefit Sharing is So Important

Benefit sharing arrangements accomplish many things that help the VCM function smoothly and effectively:

  • Rewarding those who've contributed to emissions reductions or removals
  • Incentivizing future contributions to GHG mitigation
  • Avoiding future emissions by rewarding conservation and good stewardship of ecosystems.
  • Increasing the VCM’s legitimacy by providing tangible benefits to local communities involved in or affected by carbon projects.

Benefit sharing is primarily used in nature-based solutions (NbS) projects, where it’s designed to reward or incentivize the people whose actual livelihoods intersect with reforestation, forest conservation, or sustainable land management activities.

Benefit Sharing Best Practices for Project Developers

Benefit sharing arrangements can be a crucial mechanism to ensure adequate engagement — through consultation, cooperation, and compensation — of local stakeholders.

When agreements are established inclusively, transparently, and equitably, those stakeholders are far more likely to participate in a project, giving it a much better chance of success.

Here are some benefit sharing best practices that project developers and proponents should seriously bear in mind:

1. Project developers should first identify all relevant beneficiaries

They need to ask themselves some questions: Who’s historically managed this land? Who’s contributed to avoided emissions in the area? Who requires incentives to contribute?

Indigenous Peoples and local communities (IPLCs) will usually top the list for NbS projects, which often take place on land they own, steward, or inhabit. In such cases, benefit sharing arrangements should be rooted in IPLCs’ right to Free, Prior and Informed Consent (FPIC).

Beneficiaries can also include government entities or private landowners, and more generally, anyone whose behavior should be rewarded (think land conservation) or who should be incentivized to change their behavior (as with a reforestation project).

2. Transparency is key to an effective benefit sharing arrangement

The arrangement should clearly lay out expected risks, challenges, successes, and rewards associated with the project. Also crucial: it must transparently describe how benefits will be allocated between stakeholders.

A project’s success often depends on the developer’s ability to maintain trust and legitimacy in the eyes of stakeholders. Hopefully, they’ll be pretty good at these things:

  • Managing stakeholder expectations;
  • Openly and proactively discussing potential conflicting interests;
  • Helping stakeholders understand and make informed decisions about their role in any mitigation activity.

3. Stakeholder consultations should be effective and frequent

Regular consultations are another important way developers build trust — and make sure arrangements continue to meet the needs of beneficiaries over time. They help clarify how beneficiaries participate, and ensure benefits align with their needs and priorities.

Naturally, consultations should start before any project gets underway. But conditions can change, and so can outcomes — it’s important to continue the conversation at every stage of the project so arrangements can be revised as needed.

4. Benefits should truly reflect stakeholder contributions

Benefits are all about compensating stakeholders fairly for their role in making GHG mitigation a reality — whether for costs of implementing the project, including their time and effort, or for opportunity costs from any potential benefit they miss out on because of the project.

These benefits can be based on output (as in, a reward for achieving certain climate outcomes), or on input (as in, a reward for doing what’s needed to maintain ecosystems).

And they can be non-monetary (think training, capacity-building, infrastructure, social services, technology, or strengthened land rights) or monetary (think, well, money).

5. Benefit sharing can combat inequality

Including all impacted local stakeholders in a project’s development is critical, even when they’re not directly involved with mitigation activities or if land rights are unclear.

When historically marginalized groups — like Indigenous Peoples, women, smallholders (basically people with small farms), or forest communities — are engaged, benefit sharing sure has its benefits:

  • Greater social or economic equality
  • Formal recognition of land or carbon rights
  • More sustained climate change mitigation

Benefits can even include capacity-building that empowers stakeholders to achieve or receive further benefits to which they’re entitled.

The nasty flipside? When benefit sharing fails to address these inequalities, it can make some bad things — socioeconomic divisions, land tenure insecurity, gender discrimination, or elite capture of resources — even worse.

6. Resources needed for benefit sharing must be budgeted

Like most anything, benefit sharing arrangements take time, effort, and money. Developers should be ready to provide the necessary financial, administrative, and technical resources upfront in order to fully design and implement arrangements.

That means in part getting stakeholders the information they need, in a format they understand — using local languages to deliver information in public meetings, for instance, and paying special attention to provide information to vulnerable or marginalized people. This type of sincere engagement is critical for obtaining the Free, Prior, and Informed Consent of Indigenous Peoples and other groups with collective rights to lands and resources.

One last note: there’s no “one size fits all” approach to benefit sharing. Among other things, each arrangement will depend on local actors and circumstances, the realities of land use and tenure, as well as historical and political conditions.

But here’s what’s clear in all cases: a quality carbon project — our stock and trade — will fairly recognize and reward all stakeholders, including Indigenous Peoples and local communities, for their role in mitigating greenhouse gasses.

It turns out giving people their fair share means big wins for the planet.

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