Suriname’s unorthodox plan to finance the protection of its forests

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, the exchange heated up.

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

The video went viral, with many progressive commenters cheering the leader’s unabashed defence of lower-income nations exploiting hydrocarbons for economic growth. It sparked a debate over the justice of pressuring developing countries to forgo fossil fuel profits to save the planet from a crisis caused mainly by richer countries.

Guyana is forging ahead with plans for drilling off its coast, where a vast oil reservoir could make the country one of the world’s last petrostates. But Guyana is not alone. Today, I looked at an effort by neighbouring Suriname to secure payment for its own forest cover — with a potential assist from recently discovered offshore oil.

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How an oil discovery could help Suriname start trading ‘sovereign carbon’

Suriname, a nation on the northern coast of South America with just 600,000 people, has had limited impact on global markets since it gained independence from the Netherlands in 1975.

But it has provided more industrialised countries a valuable service 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 reduction its rainforests provide. Now, it has plans to attract more finance for environmental conservation — with help from, of all things, recent offshore oil discoveries.

The plan is still under development. But government advisers said they hoped the country’s new requirements for fossil fuel exporters could help preserve Suriname’s rainforest. The scheme could also help kick-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 in these instruments.

The plan relies on a system for global carbon accounting created in the UN’s 2015 Paris Agreement. Under that system, countries can trade sovereign units of emissions, called internationally transferred mitigation outcomes (ITMOs), and count these towards their carbon-cutting goals, so-called nationally determined contributions (NDCs).

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

Backers hope that, if the ITMOs market grows, countries will treat their NDCs like bank accounts, and ITMOs like money. If a country overspends its carbon budget, it can offset by purchasing ITMOs. Countries that conserve their forests or cut emissions ahead of schedule can sell ITMOs to recoup some of the value of those carbon savings.

It’s a proposal for a kind of global cap-and-trade programme, which could redistribute resources from more to less industrialised nations.

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

That’s where Suriname’s oil comes in.

Oil discoveries create fresh opportunities

Since 2019, nine deepwater fields have been discovered off the coast of Suriname, according to energy consultancy Wood Mackenzie, bringing discovered resources to more than 2.4bn barrels of oil and liquids, and more than 12.5tn cubic feet of gas. (For comparison, the figures for the US were 48.3bn barrels and 691tn cubic feet, respectively, as of the end of 2022.)

This presents an opportunity to jump-start demand for Suriname’s sovereign carbon credits, according to Kevin Conrad, director of the Coalition for Rainforest Nations, a non-profit advising the former Dutch colony.

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

Suriname’s minister of the environment, Marciano Dasai, told me in an interview that the mechanism was still under development — a version of such a plan could be brought to parliament for a vote this autumn, he confirmed — and that it would be essential for it not to deter investment.

“We don’t have a lot of companies in Suriname,” he said, and “we’re dependent on those few companies for our income . . . So we have to look at this in a very careful way, in order to still give them incentives to stay investing in Suriname.”

However, he said, if only local companies paid into such a scheme, “it would not be enough to help us . . . so we are dependent on companies from outside — international companies”.

Outlook remains unclear

Critics raise a variety of concerns. Isa Mulder, of the non-profit Carbon Market Watch, told me that the ITMOs programme “sets so few requirements for countries to participate that you get these units that can vary greatly in terms of their actual environmental integrity”.

Setting aside worries over integrity, an even more fundamental problem remains how to generate demand for such a scheme.

The current plan relies on countries’ sticking to their NDCs, and buying ITMOs to cover the pollution they cannot cut domestically. But absent enforcement, there is little reason to think they would volunteer to offset emissions at a significant scale through such a scheme.

Moreover, sceptics have asked, why would it be cheaper, or more politically palatable, for countries to buy carbon credits from a rainforest country, rather than cutting emissions at home? And if it is, does that suggest the ITMO is being priced too cheaply?

“At the end of the day, there’s no real effective way to create compliance,” acknowledged Ian Robinson, chief executive of ITMO Ltd. However, he argued, ITMOs are more likely to generate demand than other types of carbon credits, since they are verified by the UN, based on verified past emissions rather than hypothetical future ones, and sovereign-scale, rather than cobbled together from individual projects.

Dasai, for his part, did not seem convinced that the climate funds that have eluded Suriname would now materialise. But he hopes the country’s recent windfall could give it a foothold.

“We are following this mechanism in which we can receive climate finance through carbon credits. OK, we’re doing that, but it’s still not working,” Dasai said of the country’s recent experience. “Now, we have oil and gas.”

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