Helping clients to navigate uncertain carbon markets

Pablo Fernandez, chief executive of EcoSecurities, considers the evolution of the voluntary carbon market and how it is developing high-quality solutions that help clients meet their climate goals.

Environmental Finance (EF): What are EcoSecurities current priorities?

Pablo Fernandez (PF): Our current priorities focus on developing a diverse range of high-quality and high-impact carbon reduction and removal projects across the global south, utilising our three decades of experience and dedicated teams on the ground.

We view the voluntary carbon market as an important mechanism in its own right to enable corporates to deliver on net zero – ideally with a reduce and invest approach. Beyond that, it also serves as an effective bridge towards the successful implementation of Article 6, supporting the operationalisation of regulatory frameworks that can foster robust international and national compliance markets - accelerating global carbon reductions.

Countries like Brazil, India, Chile, Colombia and Turkey are moving towards carbon pricing. Additionally, new sectors, including aviation, shipping, and waste, are beginning to price carbon, while the EU's Carbon Border Adjustment Mechanism is helping to focus attention on carbon pricing for the hard-to-abate sectors. Most importantly, EcoSecurities is very focused on this area – governments across the Global South are looking to use carbon crediting frameworks to mobilise carbon finance at scale through the voluntary and international compliance markets.

EF: What are some of the most impactful projects that you're currently working on within your portfolio?

PF: All of our projects are high impact, but some of the ones we're most proud of with the potential to be truly transformational are those where we're working closely with host countries that are moving towards more of a compliance outlook when it comes to regulating carbon emissions. These include:

Our Timor-Leste national cookstove program in partnership with the Timor-Leste Government. Developed under the Gold Standard with the potential to reduce carbon emissions by 340,000 tCO2e per annum. This program has a dual focus – to distribute cookstoves to rural communities in remote areas and an agroforestry component that involves planting native tree species to support livelihoods and provide a source of sustainable fuel and food production.
In the Philippines, with support from the national government we're working with indigenous communities to reforest 27,000 hectares of degraded land in Bukidnon Province – removing 275,000 tonnes of CO2 a year when the project is fully operational. Indigenous communities have access to technical assistance, new green jobs will be created and livelihoods improved. In addition, vital ecosystems will be restored along with the habitat of the critically endangered Philippine Eagle – the national emblem of the Philippines.
Finally, in Latin America our Carbono Rural programme is using carbon finance to help catalyse systemic change and improvements in the agriculture and cattle ranching sector across Paraguay, Argentina, Brazil, Uruguay, Peru and Colombia. This integrated approach is addressing the restoration of land, conservation of forests and supporting the transition to regenerative agriculture across the region.

EF: What are some of the main challenges when it comes to supporting companies and governments around the world to deliver on their decarbonisation and net zero goals?

PF: In two words: Uncertainty and Trust. These are the key challenges facing both companies and governments as they navigate the climate agenda and work towards net-zero goals.

For governments and many compliance schemes, there is significant uncertainty due to regulations that are still in development. While the broad framework of Article 6 has been finalised, a lot of the details regarding its operation are still being negotiated by countries, hopefully to be resolved at COP29. This regulatory uncertainty creates a vacuum, leaving companies like ours to operate without clear guidance on priority areas for project deployment and broader climate action—at precisely the time when decarbonisation efforts should be accelerating worldwide. Uncertainty also emerges when there is conflicting guidance from associations and climate regulators as to the methods, protocols and tools that companies should be using to achieve net zero. As a result, many companies choose inaction, which has impacted both the price of carbon and the volume of carbon finance available to support projects.

Then there's the issue of trust. A growing sense of distrust in carbon projects has emerged, largely due to recent scandals involving a handful of bad actors. Many media publications have also adopted pretty entrenched and negative positions when it comes to the carbon markets which has painted a very unfair picture of the sector.

Here at EcoSecurities, we've seen the market ebb and flow for close to 30 years. What I can say though, is that we're dedicated to our mission, and we're committed to working with governments and companies around the world to rapidly scale up climate investment to tackle one of the most existential threats facing mankind.

EF: How is EcoSecurities innovating in the market and positioning for growth?

PF: Innovating in a market where all the rules of engagement are not year clear is definitely a challenge. However, despite the uncertainty, we're focusing our innovation on three critical areas:

Financial – developing new approaches in order to aggregate carbon at scale and creating blended finance structures to unlock the flow of private finance to otherwise hard-to-invest projects.
Technological – utilising new and emerging technologies to drive efficiencies, increase transparency and aggregate previously unviable project types.
Project – implementing new climate technologies and new methodologies across new sectors and geographies to significantly increase climate action on the ground.

EF: How do you see the markets developing in the short, medium and long term?

PF: With over 20 years of personal experience in the carbon markets and EcoSecurities track record totalling almost 30 years, I've definitely witnessed how dynamic and unpredictable the sector can be. That said climate change is a systemic issue and carbon markets are one of the key instruments that can be used to really channel investment into climate mitigation and adaptation activities – largely through national and international carbon markets.

The Kyoto Protocol established the 'International Carbon Markets 1.0' from 2005 to 2020. However, from 2018 a new international market started to take shape driven by voluntary commitments and projects – this marketed the second phase of the market. But in 2023 the voluntary market started to flounder with conflicting guidance, and scandals linked to a few projects – creating trust and uncertain issues.

Since the Paris Agreement in 2015 (under Article 6 provisions) many more countries are developing carbon pricing and emission trading systems, with a marked uptick since 2022. It's fantastic to see that according to the World Bank, more than 90 countries have already implemented or are implementing carbon pricing schemes – albeit on a fragmented basis. The voluntary market during this period has also played a vital role in enabling companies not covered by compliance schemes to act on climate change. Phase 3 of the carbon markets is therefore characterised by a focus on compliance markets and the implementation of Article 6 as a key connector between national markets.

Looking forward, I'd like to see Phase 4 of the carbon markets emerge with integrated compliance markets, with countries and companies jointly optimising their investments and capital commitments in a coordinated way to rapidly scale up climate action all around the world – transforming societies, driving deep decarbonisation cuts and delivering sustainable economies that work for all.