The fruits of voluntary carbon market projects are rarely shared fairly with local communities and indigenous peoples. A project in Sierra Leone has come up with a more equitable benefit sharing formula. Other countries and project developers should follow suit.
Carbon market projects should include equitable benefit sharing for indigenous peoples and local communities, yet they often fail to do so and sometimes even harm the very groups involved.
To address these problematic shortcomings, there have been some encouraging developments showing how benefit sharing can be more equitable. One notable example is the recent signing of a benefit sharing agreement for a mangrove conservation project in Sierra Leone between the Africa Conservation Initiative (ACI) and more than 200 communities located in Sittia Chiefdom.
Namati, a grassroots justice organisation, supported the communities during the negotiation process by providing legal assistance. This agreement represents one of the first practical applications of Sierra Leone’s groundbreaking 2022 Customary Land Rights Act, which is regarded as one of the world’s most progressive land laws.
The benefit sharing agreement stipulates that local communities will take a “leadership role” in stewarding the mangroves, will jointly form a company with ACI to manage and distribute the revenue in a “transparent manner” and will receive 40% of gross revenue.
The fact that the communities will jointly manage and distribute the revenue with ACI, rather than simply receiving payments from ACI, is a particularly positive element of this agreement. It ensures that communities have a genuine decision-making role and greater control over their benefits, which strengthens their rights and long-term stake in the project.
In addition, a benefit sharing agreement based on gross revenue instead of profit sharing provides a fairer, more consistent and more transparent flow of funds to the communities, since it avoids potentially questionable and ‘creative’ profit-based accounting models. This gross revenue-based benefit sharing model has also been recently embraced by a blue carbon developer in Africa who will update and publish these new agreement terms once they have been signed.
Dubious benefits
While these types of agreements represent significant progress, it remains to be seen whether they will be implemented and upheld in practice, especially given the carbon market’s shortcomings on transparency and accountability.
Carbon Market Watch and other civil society organisations have consistently raised concerns about the absence of strong rules to uphold the rights and safety of indigenous peoples and local communities involved in or impacted by carbon market projects. Among these concerns are everything from land grabs and other harm, to weak grievance mechanisms and a lack of accountability for human rights violations.
Benefit sharing agreements with local communities and indigenous peoples also have a poor track record. This is partly because a requirement to establish benefit sharing arrangements is often missing altogether in the voluntary carbon market, where there is also normally no required public disclosure of such arrangements when they exist.
These factors make it extremely difficult for third parties to assess the legal standing of such contracts as well as whether they ensure equitable outcomes. For example, some benefit sharing arrangements might involve the project developer disbursing a fixed monetary amount (potentially very low) on the ground for each credit sold, irrespective of whether the sale price for the credits increases over time.
In other cases, the monetary amount might be conditional on either “net” revenue or on profits, which means that local communities, who are not business partners, are unfairly forced to share the risk with the developer. This could also lead to creative financial accounting whereby project developers might make their profits appear lower on paper in order to disburse less money on the ground.
A call to action
For these reasons, Carbon Market Watch and other NGOs, such as Namati and the Grassroots Justice Network, have called for community benefits from carbon market projects to be based on a percentage of total annual revenue (or a mix of a percentage and a fixed monetary amount), rather than solely on a fixed monetary amount.
Following COP30 in Belém, countries must take note and actively support the implementation of equitable benefit sharing arrangements, namely by enshrining rights-based rules in their national legislation, such as Sierra Leone has done, and carbon market frameworks.
This is especially critical in light of the fact that there is a troubling absence of Article 6 rules on benefit sharing. For instance, Carbon Market Watch’s recent analysis of the Paris Agreement’s carbon market rules found that the country-country carbon market system (Article 6.2) failed to define any rules on benefit sharing – let alone on other key rights safeguards – leaving countries to set the goalposts for themselves.
In this context, inadequate rules under Articles 6.2 and 6.4 risk exacerbating existing inequities: without minimum standards for benefit sharing, such gaps could create a “race to the bottom” scenario, in which countries compete to secure a “favourable” environment for setting up carbon market projects by offering the weakest conditions and accepting inequitable deals.
Agreements like the one concluded in Sierra Leone are a rare exception, yet they should be the norm. Given that the current Article 6 rules do not guarantee a minimum level of benefits sharing and safeguards, and that the voluntary carbon market suffers from similarly serious flaws, countries have individual responsibility to go above and beyond what is currently common practice. They must define robust carbon market frameworks that place equity at the core.
