When Guyana’s president was asked by a BBC journalist earlier this year about the South American country’s oil exploration and associated carbon emissions, conversations became heated.

“Let me interrupt you here,” Mohamed Irfaan Ali said. Guyana’s forest cover is the size of England and Scotland combined, he pointed out. “We have kept alive this forest that stores 19.5 gigatons of carbon, which you enjoy, which the world enjoys, which you don’t pay us for.”

The video went viral, with many progressive commentators applauding the leader for his brazen defense of low-income countries that exploit hydrocarbons for economic growth. It sparked a debate about the justice of pressuring developing countries to forgo fossil fuel profits in order to save the planet from a crisis caused largely by richer countries.

Guyana is pushing ahead with plans to drill offshore, where a vast oil reservoir could make it one of the world’s last petrostates. But Guyana isn’t alone. Today I looked at an effort by neighboring Suriname to secure payment for its own forest cover — with a possible helping of recently discovered offshore oil.

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carbon markets

How an oil discovery could help Suriname trade ‘sovereign carbon’

Suriname, a country on the northern coast of South America with only 600,000 inhabitants, has had only a limited impact on the world market since its independence from the Netherlands in 1975.

But it has provided a valuable service to more industrialized nations for free. Suriname is the world’s most densely forested country, and officials have argued for years that it should be paid for the carbon savings its rainforests provide. Now it has plans to attract more funding for conservation — with the help of, of all things, recent offshore oil discoveries.

The plan is still in development. But government advisers said they hoped the country’s new requirements for fossil fuel exporters could help preserve Suriname’s rainforest. The plan could also help jump-start an international carbon market created by the 2015 Paris Agreement that has struggled to gain traction.

The details

Today, Suriname announced its first offering of sovereign carbon credits, together with London-based investment bank BancTrust and ITMO Ltd, a private company that structures and trades these instruments.

The plan is based on a global carbon accounting system created under the 2015 UN Paris Climate Agreement. Under that system, countries can trade sovereign emission units, called internationally transferred mitigation outcomes (ITMOs), and count them toward their carbon reduction targets, called nationally determined contributions (NDCs).

With this first issuance, Suriname is offering 1.5 million ITMOs, each corresponding to one tonne of carbon dioxide (or equivalent emissions of other greenhouse gases) that have been reduced beyond a business-as-usual trajectory. The issuance of ITMOs is backward-looking – this “vintage” refers to emissions that have been reduced in the year 2021. The reduction was achieved primarily through improved performance in addressing deforestation and forest degradation.

Backers hope that as the ITMO market grows, countries will treat their NDCs like bank accounts, and ITMOs like money. If a country goes over its carbon budget, it can offset it by buying ITMOs. Countries that protect their forests or reduce their emissions ahead of schedule can sell ITMOs to recoup some of the value of those carbon savings.

It is a proposal for a kind of global emissions trading scheme, which would allow raw materials to be redistributed from more to less industrialised countries.

But there is no “cap” imposing carbon limits on polluting countries, and voluntary demand for such credits remains low. The ITMO trading market has gotten off to a slow start, with only about 70 bilateral deals signed through December 2023, according to data from S&P Global and the UN.

That’s where Surinamese oil comes in.

Oil discoveries create new opportunities

According to energy consultant Wood Mackenzie, nine deepwater fields have been discovered offshore Suriname since 2019. The discovered resources amount to more than 2.4 billion barrels of oil and liquids and more than 12.5 trillion cubic feet of gas. (For comparison, the U.S. figures were 48.3 billion barrels and 691 trillion cubic feet, respectively, at the end of 2022.)

According to Kevin Conrad, director of the Coalition for Rainforest Nations, a nonprofit that advises the former Dutch colony, this offers an opportunity to boost demand for Surinamese carbon credits.

The idea, Conrad said, was to require all companies operating in Suriname to purchase ITMOs to offset their domestic emissions. This would include major industries such as gold, bauxite and — crucially, given the expected boom in this sector — oil and gas.

Suriname’s Minister of Environment, Marciano Dasai, told me in an interview that the mechanism is still in development. A version of such a plan could be put to a vote in parliament this fall, he confirmed. It would be essential that it does not deter investment.

“We don’t have many companies in Suriname,” he said, and “we depend on those few companies for our income… So we have to look at this very carefully, to still give them incentives to continue investing in Suriname.”

However, he said that if only local companies contributed to such a plan, “it would not be enough to help us… so we depend on outside companies – international companies”.

Outlook remains unclear

Critics raise several concerns. Isa Mulder, of the nonprofit Carbon Market Watch, told me that the ITMO program “places so few requirements on countries to participate that you end up with units that can vary widely in terms of their actual environmental integrity.”

Leaving aside concerns about integrity for a moment, there is a more fundamental problem: how do you create demand for such a plan?

The current plan relies on countries adhering to their NDCs and buying ITMOs to cover the pollution they cannot reduce domestically. But without enforcement, there is little reason to think they would voluntarily offset emissions on a large scale through such a scheme.

Furthermore, skeptics have asked why it would be cheaper or more politically attractive for countries to buy carbon credits from a rainforest country, rather than reducing emissions at home? And if so, does that suggest that the ITMO is priced too cheaply?

“Ultimately, there is no really effective way to create compliance,” acknowledged Ian Robinson, CEO of ITMO Ltd. However, he argued that ITMOs are more likely to generate demand than other types of carbon credits because they are verified by the UN, based on verified past emissions rather than hypothetical future emissions, and on a sovereign scale, rather than made up of individual projects.

Dasai, for his part, seemed unconvinced that the climate funds that eluded Suriname would now materialize. But he hopes that the country’s recent windfall could give it a foothold.

“We are following this mechanism where we can get climate finance through carbon credits. OK, we are doing that, but it still doesn’t work,” Dasai said of the country’s recent experience. “Now we have oil and gas.”

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