Fiji National Carbon Market Strategy Roadmap

Article 6 requirements, including 4. Develop and publish a list of 4. Further develop Fiji’s approach to project approval, registration, approved voluntary carbon nature-based activities with the authorisation, accounting, and standards prioritising standards that potential to produce tradable reporting. ensure environmental integrity, mitigation outcomes through the equitable community benefits and revision and enhancement of the enabling SDG achievement. necessary policies and procedures. 5. Develop and publish a list of eligible 5. Secure additional capacity building voluntary and Article 6 activities. support for forest carbon monitoring activities. 6. Build up national legal capacity to support the negotiation of carbon trading agreements and contracts. /11 Short term medium term long term Pillar 3: Safeguarding community benefits and landowner rights 1. Develop policy protocols and 1. Consider options for managing oversight mechanisms to provide pricing uncertainties, e.g., setting safeguards for community-based price benchmarks or establishing projects. guidelines for cost elements that should be funded by buyer 2. Develop and enforce national countries. benefit-sharing arrangements to guide and monitor voluntary carbon 2. Provide guidance on managing projects. reversal risks, e.g., creating insurance products and credit 3. Develop a mechanism for equitable buffers. and transparent distribution of carbon revenue, safeguarding local 3. Develop a coordination mechanism communities and asset owners. for securing land for renewable energy projects. 4. Implement national outreach and education programs through 4. Offer legal assistance to local cross-collaboration among the communities involved in carbon Ministry of iTaukei Affairs, Provincial trading, particularly for voluntary Councils, the iTaukei Land Trust carbon projects. Board, and other relevant ministries. Pillar 4: Increasing public awareness, participation, ownership and capacity 1. Design local initiatives for capacity 1. Support the growth of new and 1. Collaborate with regional building at all levels through existing local project developers, organisations to explore the collaborations with academic MRV professionals, auditors, and establishment of a shared platform institutions, relevant ministry legal advisors. for project databases, training agencies and key development materials, and expert contacts. partners. 2. Support the growth of new and emerging carbon market 2. Develop targeted stakeholder methodologies, primarily focusing knowledge tools and resources, on ones that align with national training programs and education priorities. courses. 3. Identify or develop a suitable data dissemination channel (e.g., through the proposed Private Sector Advisory Committee) to announce project opportunities and form public-private partnerships. Pillar 5: Developing effective partnerships and scaling finance 1. Identify financing instruments and 1. Identify capacity gaps and devise 1. Develop and market a differentiated funding sources available for and implement capacity-building ‘Fiji brand’ high-quality carbon implementing NDC targets and programs in collaboration with credit to actively target appropriate define carbon finance needs to be development partners to build up partners and financiers to advance met through carbon markets. domestic capabilities. Fiji’s ability to benefit from market-based commitments. 2. Explore and secure partnerships 2. Assist in the development of that offer financial support, insurance options and other forms technology transfer, infrastructure of financial buffers to manage development, and capacity building reversal risks associated with in line with Fiji’s national carbon market projects. circumstances and policy priorities. 3. Consider the need to re-assess and 3. Facilitate knowledge sharing, re-negotiate any existing Article information exchange and technical 6-associated bilateral cooperation capacity building between local agreements. participants and international partners. 4. Trial new accounting methods for valuing co-benefits and potentially mobilising additional co-financing. Fiji National Carbon Market Strategy Roadmap /12 2/ THE FIJIAN CONTEXT 2.1. Nationally Determined Intended NDC (2015) Contribution (NDC) Focusing on the energy sector, the Intended Fiji’s Intended NDC to the Paris Agreement was NDC (INDC) set the following mitigation submitted in 2015, outlining Fiji’s mitigation targets targets for 2030: alongside critical adaptation objectives. Despite Fiji’s emissions accounting for only 0.004% of total global © Target 1: To reduce 30% of BAU emissions from the energy sector by emissions, the country set an ambitious mitigation 2030. target for 2030 to reduce the projected business as usual emissions from the energy sector by 30%. © Target 2: As a contribution to Target 1, This target comprises a commitment, conditional to reduce 20% BAU energy emissions through 100% renewable energy power on the availability of external financing, to reduce generation by 2030 (conditional). energy sector emissions by 20% and an unconditional commitment to reduce energy © Target 3: As a contribution to Target 1, sector emissions by 10%. to reduce 10% of BAU energy emissions through economy-wide energy In 2020, Fiji’s NDC was revised and enhanced to efficiency improvements provide more comprehensive detail on Fiji’s (unconditional). mitigation and adaptation commitments. The updated NDC includes additional intent to utilise nature-based solutions such as afforestation, smart agriculture, and sustainable livestock Updated NDC (2020) management to enhance climate resilience, The revised NDC includes: biodiversity, and food and health systems. • A reaffirmation of the 2030 targets. Furthermore, the 2020 NDC includes an ambitious target to reduce domestic maritime shipping • A commitment to achieve net zero emissions by 40% by 2030, providing further clarity emissions by 2050. on specific sectoral contributions towards the 2030 emissions reductions target. The NDC also • As a contribution to the 30% reduction recognises the importance of the marine target, to reduce domestic maritime shipping emissions by 40%. environment as a natural carbon sink, and Fiji is committed to protecting and restoring its marine • To plant 30 million trees by 2035. and coastal ecosystems, including mangroves, seagrasses, and coral reefs. To this end, Fiji’s revised • To adopt Climate Smart Agriculture NDC includes the commitment to designate 30% of practices, promoting sustainable crop its ocean area (Exclusive Economic Zone (EEZ)) as management, livestock, sugarcane marine protected areas by 2030 alongside an overall farming and fisheries. objective to actively manage 100% of Fiji’s EEZ in the interest of enhancing overall sustainability and • To prioritise nature-based solutions to mitigate the impact of flooding and protection of Fiji’s biodiversity and natural assets. cyclones. • To conserve natural environment and 2.2. Financing Options for Fiji’s NDC biodiversity for long-term provision of Fiji’s NDC puts forth a comprehensive list of ecosystem services and carbon mitigation and adaptation targets covering multiple sequestration potential. sectors, including energy, nature-based solutions and ocean. These targets – such as reaching nearly /13 100% renewable energy in power generation and of mitigation and adaptation projects, including the prioritising nature-based solutions – are aligned expansion of renewable energy capacity and the with the country’s socio-economic development relocation of vulnerable communities. However, priorities to secure electricity and clean water the current climate finance flows are insufficient access for its communities.4 to meet the identified needs, with an estimated annual gap of FJD1.34 billion (or USD550 million) – Figure 2: Fiji’s climate finance requirement, approximately 31% of Fiji’s national budget spending allocation, and funding gap5 for 2023/2024.9 While Fiji has developed a raft of strategies and plans outlining its climate finance needs and Annual Funding Gap 1.34 potential investment projects,10 the impacts of the COVID-19 pandemic have put severe strain on both FJD’billion international and domestic fiscal budgets available for climate initiatives.11 Furthermore, the complex 3.28 1.94 requirements and processes of multilateral climate funds have made it challenging for small island developing states (SIDS) such as Fiji to access international finance.12 Fiji’s upper middle-income Estimated Annual Climate Finance Allocated country status has also reportedly posed difficulties needs Annually between 2016-2019 in accessing concessional loans, limiting its capacity to borrow for climate projects without risking debt According to Fiji’s NDC Implementation Roadmap, sustainability.13 the estimated costs for decarbonising the energy sector, which is the primary source of carbon Under a constrained public fiscal space, Fiji’s NDC emissions, amount to USD2.97 billion for the period Implementation Roadmap has underscored the between 2017 and 2030.6 This includes USD1.3 importance of establishing partnerships with billion for mitigation activities under the development organisations and the private sector unconditional target and USD1.6 billion for to implement the NDC targets and build climate mitigation activities under the conditional target. resilience. New or innovative market-based mechanisms and financial instruments, including Meanwhile, the overall climate finance needed, green bonds, risk mitigation instruments, and including funding for adaptation purposes, is blended finance, have been increasingly explored around FJD3.28 billion (or USD1.4 billion) annually.7 to broaden the financial resources available for climate interventions. To this end, Fiji’s updated NDC Between 2016 and 2019, Fiji received an annual comprehensively recognises international carbon allocation of about FJD1.94 billion (or USD848 markets as a means to expedite technology transfer, million) from domestic and international public capacity building and access to climate finance.14 finance sources. 8 This funding supported a range 4 See Fiji’s development priorities in Ministry of Economy (2017), 5-Year & 20-Year National Development Plan. 5 Please note that the illustration is based on data extracted from Ministry of Economy (2020), Fiji Climate Finance Snapshot 2016-2019 and may not accurately reflect Fiji’s current climate finance gap. 6 Ministry of Economy (2017), Fiji NDC Implementation Roadmap 2017 – 2030. 7 Ministry of Economy (2020), above n 4, p.17. 8 Ibid. 9 Government of Fiji (2023), 2023-2024 National Budget Address, p. 22. 10 See, for example, Government of Fiji (2022), Fiji National Climate Finance Strategy; and Ministry of Economy (2022) NDC Investment Plan: Investment Planning in Fiji for the Transport and Energy-Efficiency Sectors. 11 World Resources Institute (2021), Financing Climate Action and the COVID-19 Pandemic: An Analysis of 17 Developing Countries. 12 International Monetary Fund (2021), Unlocking Access to Climate Finance for Pacific Island Countries 13 Ibid. 14 Government of Fiji (2020), Fiji’s Updated Nationally Determined Contribution, p. 14. Fiji National Carbon Market Strategy Roadmap /14 Voluntary carbon markets versus Principles and the Voluntary Carbon Markets Integrity Initiative (VCMI) 's Claims Code of

Article 6 markets Practice to ensure the integrity of supply and Voluntary carbon markets (VCMs) provide the demand of carbon credits. means for individuals, corporations, and governments to take voluntary climate action Article 6 of the Paris Agreement allows towards net-zero by accounting for their residual countries to cooperate voluntarily in emissions by purchasing and retiring carbon implementing NDC targets. Article 6.2 introduces credits. This action is pursued alongside critical ‘Internationally Transferred Mitigation Outcomes’ at-point decarbonisation and outside the scope (ITMOs) credits, which can be traded with proper of compliance carbon markets (CCMs). Carbon authorisation and corresponding adjustments. credits in VCMs are certified and issued by The generation and sale of ITMOs are subject to independent, voluntary carbon standards, negotiations between host and investor countries including the Verified Carbon Standard (71%), through bilateral or multilateral agreements. Gold Standard (17%), American Carbon Registry As of March 2024, 81 memorandums of (6%), Climate Action Reserve (5%), and Plan Vivo understanding (MOUs) have been signed, with Standard (1%). most of them concentrated in the Asia Pacific region. In 2023, a total of 308 million carbon credits were issued, with nature-based and renewable energy Article 6.4 establishes a UNFCCC-governed projects constituting nearly two-thirds of these crediting mechanism to replace the Clean issuances. On the demand side, 174 million Development Mechanism (CDM). This new credits were voluntarily retired by companies and mechanism is overseen by a supervisory body for individuals to net out emissions (Climate Focus, activities ranging from project registration to Voluntary Carbon Market 2023 Review, 2024). methodology development and issuance of

‘Article 6.4 Emission Reductions’ (A6.4ERs) credits. VCMs should be used as a supplementary To be eligible, project developers must obtain the measure to incentivise additional mitigation approval of host countries and register their efforts and finance carbon projects in projects with the supervisory body. Of the jurisdictions where decarbonisation A6.4ERs issued, 5% will be allocated to the Global opportunities are more accessible or cost- Adaptation Fund to support adaptation efforts in effective. While the VCMs are not subject to developing countries, and 2% will be cancelled to centralised regulation, participants are contribute to the ‘Overall Mitigation of Global encouraged to comply with international best Emissions’. practices such as the Integrity Council for the Voluntary Carbon Market (ICVCM)'s Core Carbon 2.3. Potential Roles of High-Integrity Thailand has partnered with Switzerland to increase the uptake of electric vehicles for decarbonising its Carbon Markets transport sector, as well as addressing air pollution Carbon markets, including international market in the Bangkok Metropolitan Area. Under the mechanisms under Article 6, provide an additional Bangkok E-Bus Program, the Swiss and Thai climate finance source from the trading of carbon governments are collaborating with private entities credits that represent actual and verifiable carbon – Klik Foundation and Energy Absolute – to replace reductions or removals. They attract new public and around 2,000 diesel buses with electric buses and private investments into carbon projects that would build up a network of charging stations in the city.16 not have occurred without the financial returns High-integrity carbon markets, underpinned by gained from undertaking those activities. For robust monitoring, reporting and verification (MRV) example, Article 6.2 of the Paris Agreement allows processes, could offer advantages beyond climate countries to trade ITMOs from host-approved finance and technology transfer. In voluntary and projects at an agreed price. Switzerland, a pioneer compliance markets, carbon credits validated to buyer country, indicates that the cost of ITMOs provide co-benefits and contribute to sustainable stood at CHF23 (or USD25) per tonne at the end of development goals (SDGs) are commanding 2022.15 Besides facilitating financial flows between premium prices and are in growing demand by jurisdictions, carbon markets provide technology companies seeking broader impacts beyond carbon transfer opportunities between investor countries reductions.17 For example, in Australia’s voluntary and host countries. In the Asia Pacific region, carbon market, Indigenous-led savanna burning 15 Klik Foundation (2023), Annual Report 2022: Focus on Projects Abroad, p. 23. 16 South Pole (2023), Article 6 and Electric Buses in Thailand: How Carbon Markets Speed Up the Net Zero Transition, https://www.southpole.com/blog/ article-6-and-electric-buses-in-thailand-speed-up-net-zero-transition. 17 Lou et al. (2022), Integrating Sustainability into Climate Finance by Quantifying the Co-Benefits and Market Impact of Carbon Projects, Communications Earth & Environment 3(1) article id. 137. /15 Figure 3: Major types of carbon projects Technology-based projects Industry and Renewable Energy Energy Efficiency Transportation Engineered Removals • Biomass • Energy demand • Transportation • Abatement of GHGs efficiency from industrial • Hydro • Vehicle fuel processes • Fuel switching efficiency • Solar • Carbon, capture, • Household devices • Electric, hybrid, • Wind and utilisation (e.g. improved biodiesel • Geothermal cookstoves) • Waste treatment • Transport energy efficiency • Landfill gas Nature-based projects Regenerative Conservation Restoration Blue Carbon Agriculture • Agroforestry • Forest regeneration • Restoration of • Grazing mangroves management • Improved forest • Wetland restoration management • Avoided • Irrigation systems • Afforestation, degradation of • Logged-to- reforestation, and • Pasture coastal ecosystems protected forest revegetation management transition • Crop rotation • Soil carbon units have historically traded at higher prices for specific SDGs through curated projects. This will their social, cultural and environmental benefits to enable the country to maximise the potential of First Nations People.18 The intersection between carbon markets for its sustainable development. carbon credits and SDGs offers significant potential However, Fiji should evaluate how any additional to drive progress towards a sustainable future and project activities align with its long-term objectives contribute towards SDG 13 (Climate Action), SDG 7 and the potential impacts on the provision of other (Affordable and Clean Energy), SDG 15 (Life on essential goods and services. Land), SDG 8 (Decent Work and Economic Growth), and SDG 9 (Industry, Innovation, and Infrastructure). 2.4. Guiding Principles for Carbon While there are eight major types of carbon projects encompassing both technology-based and nature- Market Engagement based solutions (see Figure 3), Fiji’s current This section presents a set of principles that were engagement in voluntary markets is confined to a collaboratively developed by the participants of the limited range of project types. Predominantly, the Second National Carbon Market Strategy Roadmap registered projects revolve around improved forest stakeholder consultation workshop held in August management and improved cookstove programs 2023. Ensuring alignment with these principles is (see further detail in Section 2.6). To meet the NDC critical to safeguard that all carbon market projects targets, Fiji should evaluate the possibility of potentially carried out in Fiji adhere to international expanding the project portfolio to include more best practices, uphold the highest levels of sectors of the economy and more technology-based environmental integrity, and conform to social solutions, including renewable energy, safeguards put in place by the Fiji government. transportation and energy efficiency whilst targeting 18 Clean Energy Regulator (2022), Australian Carbon Credit Units (ACCUs), https://www.cleanenergyregulator.gov.au/Infohub/Markets/Pages/qcmr/june- quarter-2022/Australian-carbon-credit-units-(ACCUs).aspx. Fiji National Carbon Market Strategy Roadmap /16 • Alignment with Fiji’s Development Goals: should be made accessible and be provided in a Carbon market mechanisms are utilised to transparent and timely manner. Consultations support, enable, and complement Fiji’s long- should be inclusive and ensure stakeholders term environmental protection objectives and have the relevant capacity and understanding to resilient development priorities. ensure that free, prior, and informed consent can be secured where required. • Accountability: Clear governance structures and processes to facilitate decision-making and • Flexible and Responsive: Carbon market regulatory oversight are established to enable projects, methodologies, and implementation transparency and accountability while also arrangements should be responsive to the supporting coherence across Fiji’s greenhouse- needs of key stakeholders, including through gas emissions reduction efforts. pre-agreed grievance redress mechanisms, context-appropriate standards, and the design • Social Safeguards Relevant to Fiji: Safeguards of appropriate flexibility to accommodate and equitable benefit-sharing arrangements changes to the circumstances and needs of local that reflect Fiji’s unique contextual communities, businesses, and implementation (environmental, cultural, and economic) teams (i.e. disaster events). circumstances are enforced to help prevent and manage unintended or negative consequences • Respect and Awareness of Pre-Existing Rights: from carbon market engagement and protect The customary and statutory rights of local the rights of local stakeholders, businesses, stakeholders should be recognised, respected, landowning units, and resource owners. and reflected within any projects that interact with or benefit from these rights. FPIC principles • Real and Additional: Emissions reduction or should be upheld and enforced. removal outcomes traded through carbon markets should be verified as equivalent to the • Unlock Financing for High-Cost Mitigation real reductions or removals achieved as a result Measures: The ability of carbon market of the carbon market activity/investment. mechanisms to catalyse and mobilise new and Verification processes will be used to confirm additional financing should be used where that the emissions or removal outcomes that relevant to unlock mitigation potential in are subject to trade are real and additional and hard-to-abate sectors, enable non-state actors would not have occurred without the market to contribute directly to emissions reductions, intervention. and contribute to the achievement of specific sectoral targets within Fiji’s NDC. • Net-Positive Outcomes: Carbon market projects should ensure removal and reduction activities • Prioritise (or target) Co-Benefits: Stakeholders do not directly or indirectly result in an increase are encouraged to proactively advance the in emissions or a reversal of removals (leakage) development of innovative carbon-market- in another location or within another sector. compatible projects that offer additional Outcomes traded on international carbon demonstrable direct or indirect benefits for markets will be subject to required accounting local communities and Fiji’s economy in addition adjustments to prevent double-counting. to verifiable emissions reduction and/or carbon Reductions and removals verified and traded removal potential. should be permanent with appropriate measures in place to prevent the risk of reversal and ensure any reversal that may occur is 2.5. Alignment with National reported. Development Priorities and Climate • Local Ownership and Inclusiveness: Relevant communities and stakeholders Change Policies have opportunities to participate equitably Fiji’s intention to use market mechanisms aligns and meaningfully in project design and with its NDC Implementation Roadmap, which implementation to ensure carbon markets recognises the potential benefit of pursuing support the fair distribution of benefits, voluntary cooperation agreements with other including employment and livelihood parties to produce mitigation outcomes through diversification opportunities, direct Article 6 of the Paris Agreement.19 investment in local communities, creation of sustainable development co-benefits, and While a detailed national position on the degree the empowerment of women, marginalised to which market mechanisms will be leveraged groups, and indigenous communities. to support NDC implementation is yet to be • Accessible and Transparent: Information articulated, the synergy between carbon market to support the involvement of relevant activities and Fiji’s broader policy frameworks on stakeholders and key decision makers in climate change is outlined in Figure 4. carbon market projects and transactions 19 Ministry of Economy, above n 6, p. 15. /17 Figure 4: Alignment between carbon markets and Fiji’s key climate policies, plans and strategies Key policies, plans Overview and strategies National Adaptation Plan The Plan pinpoints 160 adaptation measures across five action areas (food, health, 2018 human settlements, infrastructure, and the natural environment). Given the limited progress made from 2018 to 2022, 20 there are valuable opportunities to integrate the implementation of these measures into the planning and design phases of carbon market projects. 5-Year & 20-Year National The Plan establishes national targets in line with Fiji’s objectives for ‘inclusive Development Plan 2017-2036 socio-economic development’ and ‘transformational strategic thrusts’. Its overarching vision is to foster new opportunities by nurturing emerging sectors, improving transportation infrastructure, and adopting suitable technologies. The emphasis on energy security, food and water sustainability, and employment prospects is highly pertinent to harnessing the co-benefits of carbon markets. National Climate Change The Policy outlines four objectives for climate mitigation and resilient development: Policy 2018-2030 1. To derive 100% electricity production from renewable energy by 2030 and achieve net zero emissions by 2050; 2. To decarbonise Fiji’s transport sector; 3. To prioritise mitigation initiatives that increase national resilience and help achieve SDGs; 4. To preserve and enhance Fiji’s natural carbon sinks and reservoirs. Low Emissions Development The Strategy presents four mitigation pathways for achieving net zero emissions by Strategy 2018-2050 2050. These pathways are relevant for evaluating the potential carbon reductions that Fiji can viably trade under different policy scenarios. NDC Implementation The Roadmap sets out specific mitigation actions for the energy sector, covering Roadmap 2017-2030 power generation, energy efficiency and transportation. It highlights the need for external support, notably through Article 6 markets, which will enable Fiji to trade ITMOs from outcomes exceeding its NDC targets. National Climate Finance The Strategy outlines Fiji’s main investment opportunities spanning 2022 to 2029, Strategy 2022 serving as a climate finance blueprint for the Government and development partners. This living document identifies climate finance priorities in 12 sectors and analyses the sectoral annual investment needs, allocations, and government actual expenditures. NDC Investment Plan 2022 The Plan provides detailed information on emissions reduction opportunities in the land transport, maritime, aviation, and energy efficiency sectors, including the need for capacity building, technical assistance, and investment capital. It can be used as a guiding document for defining investment priorities to help achieve Fiji’s 2030 NDC targets through carbon market activities. National Ocean Policy The Policy will guide Fiji’s efforts on sustainable ocean management, with a primary 2020-2030 aim of safeguarding marine ecosystems and the economic livelihoods of Fijians. Nature-based solutions will also be explored to enhance climate mitigation and adaptation, recognising the substantial role of oceans as a carbon sink that holds potential value within carbon markets. 20 Office of the Prime Minister’s Climate Change Division (2023), Fiji National Adaption Plan: Progress Report 2022. Fiji National Carbon Market Strategy Roadmap /18 2.6. State of Play of Carbon Markets Regional Environment Program (SPREP) Award for Excellence in Implementing Island Ecosystem in Fiji Management Principles in 2015 and the Fiji has had early involvement in carbon markets International Energy Globe Award for Fiji in 2020. since it ratified the Kyoto Protocol in 1998. In 2021, Fiji signed an agreement with the Forest To facilitate the implementation of CDM, Fiji Carbon Partnership Facility (FCPF) of the World Bank established a National Designated Authority (NDA) to implement the Fiji Forest Emission Reductions and published a CDM Policy Guideline in 2010, (ER) Program. This initiative is a Reducing Emissions followed by a CDM Investors Handbook in 2012. 21 from Deforestation and Forest Degradation, As illustrated in Figure 5, Fiji is a host country to Forest Carbon Stock Conservation, Sustainable four registered CDM projects, focusing on Management of Forests, and the Enhancement of hydropower, methane avoidance, and improved Forest Carbon Stocks (REDD+) project. The program cookstove programs. These projects have encompasses 87% of Fiji’s land area, where 86% of collectively generated 323,053 Certified Emission the population lives, covering the islands of Viti Reductions (CERs). 22 Levu, Vanua Levu and Taveuni. Its overarching objective is to reduce emissions by 2.5 million While the Paris Agreement permits the transition tonnes over five years, potentially receiving up to of CDM projects to the Article 6.4 market USD12.5 million in result-based payments upon mechanism, three of the registered CDM projects verification of the outcomes. have reached the end of their crediting periods and are no longer active. This leaves Fiji with only one In parallel, Fiji is exploring opportunities for project – the Improved Cookstoves Program - which bilateral cooperation under the Article 6.2 market may be eligible for transition. However, this project mechanism while closely monitoring the progress is currently registered with the Verified Carbon of the Article 6.4 negotiations. To advance its Standard (VCS) in voluntary carbon markets. engagement in carbon markets and foster relationships with like-minded countries, Fiji has Additionally, Fiji has successfully hosted the Drawa entered MOUs with Australia and Singapore. Rainforest Project under the Plan Vivo Standard. In Currently, it is in the process of strengthening the recognition of its efforts in sustainability and legal framework to govern Fiji’s participation in conservation, this project won the Pacific carbon markets. Community (SPC) and the Secretariat of the Pacific 21 See Republic of Fiji (2012), Clean Development Mechanism (CDM), https://docplayer.net/34150598-Clean-development-mechanism-cdm-investors-guide- republic-of-fiji.html. 22 United Environment Program (2023), CDM Pipeline, https://unepccc.org/cdm-ji-pipeline/. /19 Figure 5: Status of CDM, VCM and REDD+ carbon projects in Fiji 23 Project Location Project Standard Start End Status Estimated Credits Name Type Date Date Annual Issued Reductions (tCO2e) 1 Vaturu and Viti Levu Energy CDM 2005 2012 Registered, 24,928 122,734 Wainikasou end of the CERs hydropower crediting project period 2 Kinoya Viti Levu Methane CDM 2012 2022 Registered, 22,471 18,663 Sewerage avoidance end of the CERs Treatment crediting Project period 3 Nadarivatu Viti Levu Energy CDM 2013 2020 Registered, 47,361 100,367 Hydropower end of the CERs Project crediting period 4 12MW Viti Levu Biomass CDM 2018 2025 Validation 29,238 - Biomass energy terminated Power Plant at Nabou 5 Improved Countrywide Energy CDM 2019 2026 Registered 277,731 81,289 Cookstove efficiency CERs Program 6 Drawa Vanua Levu Improved Plan 2012 2042 Registered 25,861 165,350 Rainforest land Vivo (years PVCs Project management 1-15) 14,841 (years 16-30) 7 Improved Countrywide Energy VCS 2020 2027 On hold 272,846 - Cookstove efficiency Program 8 Fiji Forest ER Viti Levu, REDD+ World 2021 2025 Registered 2,500,000 - Program Vanua Levu, Bank’s (5 years) Taveuni FCPF Image by Sarah Liversidge via Nakau 23 Ibid; The Goldman School Public Policy Berkeley (2023), Voluntary Registry Offsets Database, https://gspp.berkeley.edu/research-and-impact/centers/cepp/ projects/berkeley-carbon-trading-project/offsets-database; Plan Vivo, Fiji Drawa Rainforest, https://www.planvivo.org/drawa; FCPF (2023) Fiji, https://www. forestcarbonpartnership.org/country/fiji. Fiji National Carbon Market Strategy Roadmap /20 CASE STUDY: DRAWA RAINFOREST PROJECT The Drawa Rainforest Carbon Project The roles of the DBFCC include managing the funds received in a manner that benefits the community, is an improved forest management such as improving infrastructure, supporting further project that safeguards over 4,000 income-generating activities, and administering the hectares of tropical rainforests in process of distributing carbon revenues to Vanua Levu, Fiji. The project was members. Since its commencement, the project has earned 132,280 carbon credits under the initiated when eight Mataqali (Fijian Plan Vivo Climate. clans) came together to protect their forests when logging coupes had been Climate Mitigation and Adaptation mapped out, and communities were ready to clear the forest for timber. Benefits The Drawa Rainforest Project has successfully In 2012, the Mataqali joined forces to form the resulted in 165,350 tonnes of verified emissions Drawa Block Forest Communities Cooperative reductions since its inception. Beyond carbon (DBFCC) to represent the clans and launch this mitigation, the project has contributed to ensuring pioneering project. As the project owner, supported climate resilience by reducing the impacts of by Nakau, and in collaboration with a local NGO, extreme weather events. For instance, the Drawa Live & Learn Fiji, the DBFCC assumes a coordinating rainforest helped the local communities adapt in the and advisory role across all aspects of the Drawa aftermath of Cyclone Yasa, which struck the villages Rainforest Project. in December 2020. Within the forest, there were intact fishing grounds to provide nutritional support Image by Sarah Liversidge via Nakau /21 at a time when homes, infrastructure and food protected forest area has also provided the systems were heavily affected. Beato Dulunaqio, communities with a continued supply of clean a senior project officer with Live & Learn Fiji, noted water and food, including prawns, eels, fish, that the forest exhibited remarkable resilience by seeds, and fruits. recovering swiftly after the event. • Sustainable income: Apart from carbon revenue, a beekeeping business has been established to provide an alternative source of Co-Benefits income through the sale of rainforest honey • Employment: Local rangers have been products. The enterprise has supported recruited to monitor the project. Live & Learn women’s livelihoods and enhanced local Fiji has supervised and guided the ranger ownership. The honey income can be reinvested activities since the project development phase. or spent on village activities, such as church This responsibility has been gradually handed maintenance, educational expenses, and over to the DBFCC as capacity is built and women and youth projects. systems and procedures are established. • Gender balance and inclusiveness: The • Biodiversity protection: The project location is DBFCC comprises members from the eight an important habitat for 385 plant species, a Mataqali, as well as a women’s group and a wide range of fauna, including 22 bird species, youth group. Women and youth are encouraged two types of endangered skinks and the to participate in project activities, including endemic Fiji ground frog (Cornufer vitianus). village council meetings, community education and consultation. They reported to have • Water security and infrastructure: The carbon equal access to the income generated from revenue has helped fund improved water and the project. sanitation facilities in five villages across the region. Turning logging activities into a Fiji National Carbon Market Strategy Roadmap /22 3/ CARBON MARKET OPPORTUNITIES AND RISKS IN FIJI 3.1. Carbon Market Outlook and mitigation ambition and to promote sustainable development. Article 6 outlines the modalities for Drivers such collaboration, encompassing both market- Globally, carbon markets have continued to expand, and non-market-based approaches. 77% of with countries like Indonesia and Australia launching countries that have updated their NDCs express new compliance schemes, while some existing intentions to use market collaboration under emissions trading schemes are undergoing or Article 6. 28 Notably, half of these nations originate planning scope expansions. 24 New markets are from Africa or Latin America, underscoring the set to be launched in Brazil, Mexico and India, and importance of international carbon markets as one regulators have introduced supply-cutting reforms of the instruments to mobilise climate finance and in existing markets, such as the European Union technology to developing countries. Emissions Trading Scheme (EU ETS) pushing up prices. Voluntary carbon markets have seen International Trade Implications significant growth globally, with record carbon Regulatory and policy changes are increasingly credit retirements in 2023. 25 A slight reduction in considering the role of trade and trade policy in the supply and demand of carbon credits was emissions reductions. For example, the European witnessed in 2022, 26 which can be attributed to Union (EU) is introducing a Carbon Border various factors, including macroeconomic Adjustment Mechanism (CBAM) in 2026 that will conditions, bans on credit tokenisation, and impose a carbon levy on imported goods to address increased scrutiny of the integrity of certain carbon carbon leakage concerns. Foreign carbon-intensive projects. However, with the announcement of products, including cement, iron and steel, numerous enhanced integrity initiatives at COP28 aluminium, fertilisers, electricity, and hydrogen, and the uptick in retirements at the end of 2023, will be subject to an EU carbon price equivalent to the outlook for 2024 is optimistic. Meanwhile, the EU ETS allowance price. Furthermore, nations the implementation of Article 6 markets is gaining with their own carbon pricing instruments, such as momentum, with more than 80 partnerships Australia, Japan, Canada, and the United States, are announced by countries around the world. 27 also exploring similar trade protection measures. Australia, for example, is currently undertaking a While carbon market developments are resulting in Carbon Leakage Review to assess leakage risks and a proliferation of carbon trading across the globe, the development of policy options. In the future, the prevailing trend is that governments, standard exporting countries may encounter restricted bodies, and service providers are actively taking market access if they do not have a decarbonisation initiatives to enhance the transparency and strategy or a comparable carbon pricing policy. effectiveness of carbon markets. Looking ahead, Many goods and services are already seeing low, Fiji’s participation in carbon markets requires an or zero carbon requirements imposed for market understanding of the global drivers influencing access purposes. Asia and the Pacific will these markets: increasingly look to reduce trade-embedded The Paris Agreement and Article 6 emissions through market-based instruments such as CBAMs, green procurement (e.g. renewables) and The Paris Agreement acknowledges that countries production processes and leveraging free trade can engage in voluntary cooperation in agreements that prioritise climate action. implementing their NDCs to allow for higher 24 The World Bank (2023), State and Trends of Carbon Pricing 2023, p.8. 25 BloombergNEF (2024), Carbon Offset Demand Hits Record in 2023 Off Huge December, https://about.bnef.com/blog/carbon-offset-demand-hits-record-in-2023- off-huge-december/. 26 Climate Focus (2022), The Voluntary Carbon Market Dashboard, https://climatefocus.com/initiatives/voluntary-carbon-market-dashboard/. 27 UN Environment Program (2024), Article 6 Pipeline, https://unepccc.org/article-6-pipeline/. 28 Perspectives Climate Group and Climate Focus (2021), Article 6 Readiness in Updated and Second NDCs, p. 2. /23 Economic Incentives for Energy Transitions and quantified commitments to reduce climate- related risks. As of November 2023, 10,274 While carbon pricing mechanisms cover around companies had joined the United Nations’ Race to 25% of global greenhouse gas emissions, these Zero campaign in support of the Paris Agreement instruments are predominantly located in developed goals. 29 Meanwhile, more than 4,000 businesses economies. However, with more developing nations around the world are working with the Science embracing net zero targets as part of their NDCs, Based Targets initiative (SBTi), which involves policymakers are increasingly considering a wide committing to and disclosing on Paris Agreement- array of policy tools, including various forms of aligned emissions reduction targets. As more carbon pricing, to drive investment in clean energy companies work towards achieving their climate and incentivise low-carbon transitions. In Southeast targets, the majority will still require carbon credits Asia, countries such as Indonesia, Vietnam and to compensate for residual emissions after Malaysia are strengthening their regulatory undertaking direct emissions reduction action frameworks to build an enabling environment for within their value chains. This aligns with the IETA’s carbon markets, leveraging the tools to raise and PwC’s 2023 GHG Market Sentiment Survey, additional revenue streams that go beyond existing which indicates that the demand for carbon credits available climate funds. has been primarily driven by the surge in corporate net zero commitments. 30 It is recommended that Corporate Net Zero Commitments companies also support beyond value chain Like governments, businesses and corporations are mitigation (BVCM), defined in the SBTi Corporate becoming increasingly aware of their climate Net-Zero Standard as “mitigation action or impacts, with many committing to net zero targets investments that fall outside a company’s value 29 United Nations (2022), Race to Zero, accessible at https://climatechampions.unfccc.int/whos-in/. 30 IETA and PwC (2023), GHG Market Sentiment Survey 2023. Accessible at https://k5x2e9z8.rocketcdn.me/wp-content/uploads/2023/09/IETA_ GHGSentimentSurvey_2023.pdf. Fiji National Carbon Market Strategy Roadmap /24 chain, including activities that avoid or reduce Regional level competition GHG emissions, or remove and store GHGs from At the regional level, Southeast Asia is leading in the atmosphere”, as they transition to net zero. generating credits from renewable energy, while Establishment of Sectoral Schemes Latin America and the Caribbean are the primary sources of nature-based credits, with Africa The need to address increasing emissions within contributing significantly to the majority of energy specific sectors, such as the transport sector, is also efficiency credits. While carbon markets in the a significant driver of the need for market-based Pacific are still relatively small and homogenous innovation. The Carbon Offsetting and Reduction (focusing on improved forest management and Scheme for International Aviation (CORSIA) is an cookstove programs), there is growing interest initiative designed to limit global net emissions among private and public stakeholders in investing derived from international aviation to 2020 levels in this region to scale up nature-based and to help enable carbon neutral growth. To reach this renewable energy projects. Pacific Island Countries goal, a range of direct emissions reduction measures have a unique opportunity to collaborate with should be implemented, including operational regional partners to access technical resources, improvements, enhanced engine efficiency, and the investor capital, and market demand for carbon uptake of sustainable aviation fuels. Additionally, credits that value additional verified co-benefits to the CORSIA scheme enables the use of eligible Pacific communities. There is also an opportunity to carbon credits to account for hard-to-abate create and position a ‘Pacific brand’ of carbon emissions. Meanwhile, the International Maritime credits that are fungible but differentiated in Organisation’s (IMO) 2023 Strategy on Reduction recognising its unique values. of GHG Emissions from Ships includes plans for a maritime carbon pricing mechanism to complement emissions reductions achieved through changes to 3.2. Fiji’s Priorities and Expectations marine fuel standards and operational practices. for Carbon Market Activities Fiji’s involvement in carbon markets should not Growing Demand for High Integrity be driven by the aim to produce large amounts of Carbon Credits carbon credits that could substitute or delay the necessary decarbonisation efforts of potential As policy requirements and carbon standards credit buyers. 32 Instead, its natural assets and rich continue to evolve and improve, corporations are biodiversity, and lack of access to sufficient financing progressively interested in carbon projects with and technology transfer required to reduce national robust monitoring, reporting and verification (MRV). emissions presents an opportunity for Fiji to These projects are characterised by their capacity to become a producer of high-integrity premium generate real and measurable climate impacts while carbon credits that contribute to accelerating delivering essential co-benefits such as biodiversity decarbonisation efforts and increasing natural conservation, job creation, improved water quality carbon sequestration potential while also unlocking and enhanced community livelihoods. Buyers are a range of sustainable development co-benefits for increasingly seeking high-integrity carbon credits Fiji’s economy, environment, local communities and that not only contribute to emissions mitigation the sustainability of traditional livelihoods, cultural but also align with the SDGs of host countries. norms, and traditions. Additionally, investors are actively in search of suitable partners to develop projects that adhere to the refined standards. 31 31 Trove Research (2023), Investment Trends and Outcomes in the Global Carbon Credit Market, p. 18. Accessible at https://trove-research.com/report/ global-carbon-credit-investment-report/. 32 Fiji does not have the landmass or widespread degradation of natural resources seen in Asian, African, or American countries that could generate carbon credits at scale. Conversely, our environment remains unadulterated by large-scale infrastructure and economic development, providing an opportunity to leverage the carbon sink and ecological value to reduce the trade-offs between environmental integrity and economic growth. /25 Therefore, existing and future engagement with carbon market activities in Fiji should be guided by the following considerations: Net Zero Commitment and Pathway Fiji is committed to achieving its 2030 nationally determined contribution (NDC) targets and the long-term 2050 net zero emissions goal. Engagement with carbon market mechanisms should consider these commitments and ensure that Fiji’s ability to achieve the targets is enhanced and not compromised by the trading and transfer of carbon credits generated by projects or programs in Fiji. environmental integrity and demand-side integrity Fiji’s vulnerability to climate change and heavy reliance on the natural environment requires carbon markets activities to be regulated to ensure genuine contributions to verifiable emissions reductions and greater global mitigation ambition. Prioritising demand-side integrity is also essential to promote the credible use oof carbon credits by purchasers, supplementing other decarbonisation efforts within their value chains. Social Inclusivity and Process Transparency Carbon market engagement in Fiji should be inclusive and transparent, considering our unique national circumstances, land ownership structures, and cultural traditions. This approach would enable local communities to participate meaningfully in the early stages of project development and throughout the project implementation period. Transparent stakeholder consultations and decision-making are key to obtaining social mandates for commencing and sustaining a project. Equitable Benefit Sharing and Local Capacity Building International standards and methodologies that offer sustainable development co-benefits to help build socio-economic and climate resilience, while ensuring that outcomes are shared equitably, should be preferred. Carbon market activities in Fiji should support economic diversification and job creation by utilising local expertise where possible and building domestic capabilities. Trust, Partnership, and Collaborations Fiji’s engagement with carbon markets will be dependent on the development of strong partnerships based on shared intent and trust. These efforts are required to build robust legal frameworks, systems, and safeguards for effective collaborative carbon mitigation approaches, as well as establishing our national profile and attractiveness to quality credit buyers. Fiji National Carbon Market Strategy Roadmap /26 3.3. Opportunities and Abatement Capacity Building Support Potential – the Fiji Advantage Several capacity-building Fiji’s vibrant tourism industry and the natural initiatives are helping environment offer a unique opportunity to develop developing countries like Fiji a brand that integrates the preservation of its establish carbon projects and invaluable natural resources with both tourism engage with voluntary and and carbon markets. This approach will allow Fiji Article 6 markets. For instance, Fiji can build to protect its terrestrial and marine landscapes institutional capacity within the government and the while promoting sustainable development practices private sector by leveraging training and workshop and advancing its commitment to climate mitigation opportunities under the United Nations and adaptation. Within this context, Fiji is well Development Programme’s (UNDP) Carbon Payment positioned to take the lead in pioneering innovative for Development, the Global Green Growth ‘green’ and ‘blue’ carbon projects, capitalising on its Institute’s (GGGI) Carbon Transaction Platform, the market readiness. International Blue Carbon Partnership, or the World Bank’s Partnership for Market Implementation. The country is in a strong position to be a first Assistance in designing institutional, policy and mover on Article 6 carbon markets within the Pacific, regulatory frameworks to support carbon market enabled by a raft of factors, including: development can be sourced from the same programs. Aside from the Indo-Pacific Carbon Offset Policy Intention Scheme (IPCOS) program launched by the Australian and Alignment Government, there is a lack of ongoing and coordinated initiatives addressing the specific Fiji’s NDCs, in both original and capacity-building needs in PICs, particularly in updated versions, clearly convey

Article 6 implementation. There is an opportunity to the intention to leverage market work with other countries in the region, such as mechanisms to attain the Australia and New Zealand, to develop targeted, conditional climate goal. 33 The bespoke capacity-building programs to address ambitious target of achieving near 100% renewable national gaps and requirements. energy by 2030 depends on the ability to secure funding from various available climate finance sources, including bilateral, regional, and Support for Pilot international carbon markets. This strategic Projects direction aligns with Fiji’s National Climate Change There are similar initiatives Policy (2018-2030), which envisions the creation of a helping developing countries ‘distinct economic sector’ focused on strengthening like Fiji to implement pilot climate resilience through ecosystem enhancement carbon projects, contributing and carbon sink management. 34 crucial funds. Under the Carbon Payment for Development’s payment-for- Legal Frameworks result mechanism, the UNDP shares upfront costs While most Pacific Island with private-sector project proponents looking to Countries do not have specific scale up low-carbon solutions in developing legislation for market countries. Another example is the Carbon engagement, Fiji’s CCA sets out Transaction Platform. Under the program, carbon a robust legal framework and trust funds are managed by the GGGI to procure provisions to regulate its carbon ITMOs on behalf of beneficiaries and donors. The market activities. Part 10 of the Institute simultaneously works to identify buyer Act defines Carbon Sequestration Property Rights interest among partnered countries as well as to and clarifies the registration processes. Project facilitate dialogue between buyers and sellers. developers who intend to conduct an emissions reduction project under independent carbon standards or Article 6 rules must first obtain the consent of relevant regulatory authorities. Part 10 of the Act allows Fiji to establish the regulatory frameworks for domestic VCM and Article 6 projects. 33 In its 2015 Intended Nationally Determined Contribution (INDC), Fiji emphasised that a combination of global market-based mechanisms and international direct aid transfers would be essential for achieving rapid and cost-efficient mitigation. This included the use of bilateral, regional and international market mechanisms like the Clean Development Mechanism. In the 2020 updated NDC, Fiji reiterated its commitment to exploring various forms of market-based cooperation, including Article 6 of the Paris Agreement, to support its own climate targets and those of other countries. Fiji’s INDC can be accessed at https:// fijiclimatechangeportal.gov.fj/wp-content/uploads/2022/01/FIJI_INDC.pdf, and the updated NDC is available at https://unfccc.int/NDCREG. 34 Ministry of Economy, Fiji’s National Climate Change Policy 2018-2030, p. 26. /27 Figure 6: Mitigation potential of NDC targets and the required investment and action35 NDC Target Mitigation Mitigation Investment Activities Required Action Potential Needs (Per year) (USD) 10% Demand-side 30,000 tCO2 150 million • Energy labelling and energy performance unconditional energy standards for electrical appliances (Energy efficiency • Energy efficiency in business efficiency) • Energy efficiency in the public sector • Updated codes and standards for buildings Transport 137,000 tCO2 1.149 • Replacement of old buses, taxis, private (land and billion cars, lorries and minibuses maritime) • Import and use of biodiesel • Maintenance of sea vessels • Increased utilisation of fuel-efficient outboard motors 20% 100% 427,000 tCO2 1.671 • Sustainable biomass plantations and waste conditional renewable billion to energy (Power energy (power • Hydro power generation generation) generation • Solar PV generation and transmission) • Grid improvement and storage 597,000 tCO2 2.97 billion 35 Ministry of Economy, above n 6. Fiji National Carbon Market Strategy Roadmap /28 3.4. Risks and Constraints carbon farming. The opportunity costs and trade- Carbon Price Volatility offs have restricted the scale and type of carbon Carbon credits, as financial products, can projects that can be implemented in Fiji. experience unpredictable price fluctuations. Pricing uncertainties can be driven by changes in government policies, shifts in company strategies, High Upfront Costs supply dynamics like surpluses and shortfalls, media Project development and implementation require coverage or changes in public perceptions. They can substantial outlays of transaction costs, including lead to unexpected drops in the value of carbon scoping costs, feasibility studies, legal fees, leases, credits and, consequently, the associated income insurance, salaries and MRV. The upfront capital stream. Historically, this volatility has sometimes needed has created a barrier to entry, reducing the deterred landholders and local communities from commercial viability of small-scale projects. participating in carbon markets. Meanwhile, large projects may need to prove their ability to deliver abatement at scale to apply for Shifting Buyer Demand donor funding schemes. As guidelines for the best use of carbon credits continue to develop, buyer expectations may shift Land Tenure Carbon Rights Ownership and evolve accordingly (e.g., emissions removals vs Given that 88% of Fiji’s land is held by traditional avoidance). Project proponents, often working landholders,36 obtaining consent for projects or under long-term contracts with specific land obtaining carbon sequestration property rights management obligations, face a risk that their (CSPR) might pose complex and time-consuming project may no longer meet the integrity, challenges. Sections 45 to 47 of the CCA contain transparency, or benefit-sharing standards that provisions for CSPR, and it is important that Part 10 buyers seek in the future. provisions are expedited to create certainty, clarity and avoid lengthy waiting times which, alongside Long Lead Time in Carbon Projects high upfront costs, could deter project uptake. In addition, local communities may face high The process of developing and crediting a carbon opportunity costs when using their land resources project can be lengthy. It involves a series of for carbon projects, hence requiring careful measurements, audits, and reports by different consideration of the trade-offs involved. It is specialists before any credits can be issued. Land- important to note that existing institutional based projects can take years to obtain free, prior, arrangements, such as those in TLTB, provide a and informed consent (FPIC) and to sequester comparative advantage in mitigating risks and enough carbon in vegetation and soil. This process providing added certainty for investors. can lead to long lead times and hinder project uptake. Complexity in Assessing Trade-Offs Limited Institutional Capacity Due to the sensitivity of communal and traditional land-owning governance structures and decision- While Fiji has gained some experience through making structures, there is complexity when it market mechanisms such as CDM and REDD+, the comes to securing consent for project activities. government departments still need to build up their capacity for large-scale engagement in international carbon markets. Additionally, Fiji’s market readiness Information Asymmetries is constrained by a shortage of expertise across the entire value chain, including project developers Navigating carbon markets can be complex due to (existing ones are small-scale and predominantly the limited availability of public data on carbon focused on forestry and cookstove projects), legal prices, project performance, and transaction practitioners, financial institutions, auditors, history. Information asymmetries between project community groups and buyers. developers, investors, and local resource owners may introduce risks to decision-making and inequitable benefit sharing. Local communities Lack of Bankable Projects should not rush into carbon market engagement before fully understanding the potential Fiji is a small island nation with limited land space to implications. develop new carbon projects. The national REDD+ program under the World Bank FCPF has covered 87% of Fiji’s total land area, leaving the remaining space for competing land uses, including agriculture, industry, tourism, housing, infrastructure, and 36 SPC and GIZ (2013), REDD+ and Forest Carbon Rights in Fiji, p.5. /29 Fiji National Carbon Market Strategy Roadmap /30 4/ CARBON MARKET ENGAGEMENT OPTIONS When assessing its strategic approach 4.1. Strategic Considerations for to carbon markets, Fiji has several Fiji in Examining Carbon Market options for participation, as outlined in Section 4.2 below. These options Engagement Options include no market involvement, VCM 4.1.1 Policy goals and priorities of the Fiji involvement only, Article 6 involvement, Government with respect to achieving its NDC a domestic market focus, or a hybrid Any strategic consideration of how market option involving a combination of mechanisms should be leveraged to support NDC engagement with VCM and Article 6 implementation must be in the context of alignment with national development goals and priorities and mechanisms. Before delving into the existing national climate change policies (as outlined specifics of market engagement in Section 2.5). options, it is imperative to assess This requires a full, evidence-based assessment of several strategic considerations, how Fiji will achieve its NDC commitments; whether including pricing and valuation, a quantum of domestically generated credits will be implications of the VCM & Article 6 required to meet the country’s NDC and how this may change over time; what Fiji’s carbon budget is markets, interactions between Fiji’s for international trading; and to what extent Fiji’s NDC and carbon markets, and annual finance gap to achieve its NDC may be ensuring demand-side integrity. addressed through carbon market revenue. /31 Decisions should be formalised in a national carbon Article 6, an opportunity cost is applied related to market strategy to guide Fiji’s transition towards net the marginal cost of the NDC as the unit is no longer zero and its international cooperation approaches, available for the host country’s NDC compliance. including: This requirement to avoid double-counting mitigation outcomes by applying corresponding • Supporting efficient domestic decarbonisation, adjustments will create an obligation for the host nature repair and strategic SDGs; country to undertake additional mitigation activities • Outlining an approach to participating in to meet its emissions targets, which may come at international carbon markets higher costs. Consequently, the host country may • Providing policy direction and transparency to need to consider establishing carbon price investors, businesses, and communities about benchmarks for cross-border ITMO transfers. These the intended roles of carbon markets, crediting guidance prices could also serve as a reference for and trading. voluntary market projects. 4.1.2 Pricing and Valuation Approaches For SIDS like Fiji, the ‘value’ of participating in carbon markets can extend beyond carbon prices. Fiji’s From a policy perspective, fluctuations in carbon susceptibility to climate change, limited land area, prices pose a challenge for Fiji in planning its carbon close dependency between environmental services market engagement strategy. Instruments such as and human systems, and the urgent need to drive carbon pricing and current carbon market lead energy sector transitions provide a solid basis to pricing can assist in formulating valuation leverage carbon standards that recognise and price approaches for carbon trading. There are some the associated co-benefits of investing in the basic carbon asset pricing approaches such as country. For example, the Gold Standard often market pricing (following a market lead price), prices carbon credits higher than others by auctioning (for renewable energy projects whereby considering and valuing the social, environmental, there is price discovery through willingness to pay), and economic impacts of carbon projects. 37 and cost pricing (based on financial analytics – Similarly, many Article 6 pilots increasingly focus on benchmarking loans or concessional finance and activities with sustainable development benefits. 38 project costs). Factors such as activity type, location, Therefore, it is vital to consider the co-benefits or size, and co-benefits delivered alongside the carbon indirect advantages associated with these market will influence cost pricing and valuation. These activities, as well as their practical usefulness and approaches are particularly relevant for emission functionality. Importantly, Fiji should adopt a holistic reduction credits or mitigation outcomes that will approach to assessing the value of investment stay in Fiji, contributing to the host country’s NDC activities, considering both market and non-market compliance. factors. In the case of a credit that is adjusted as an ITMO and transferred out of the host country under 37 Gold Standard (2023), Carbon Pricing: What Is a Carbon Credit Worth? Accessible at https://www.goldstandard.org/blog-item/carbon-pricing-what-carbon- credit-worth. 38 Sandra Greiner et al. (2020), Article 6 Piloting: State of Play and Stakeholder Experiences. Fiji National Carbon Market Strategy Roadmap /32 4.1.3 Implications of Different Types of necessary regulations, guidance, and processes for Fiji on project eligibility and approval, registration of Carbon Markets carbon sequestration property rights, monitoring

Article 6 Markets project outcomes, registering outcome units, and authorisation of carbon credit units for international

Article 6 markets require voluntary cooperation transfer and trading as ITMOs. between countries to be premised on ‘higher ambition’ and the mutual achievement of NDC As Article 6 requires corresponding adjustments, targets. This requirement indicates that any Fiji could use these mechanisms to reduce emissions transactions made between Fiji and other nations, in sectors with quantified emissions reduction either bilaterally through Article 6.2 or under targets specified within the current NDC. As of 2023,

Article 6.4, should ensure that Fiji is able to: this restriction implies that Article 6.2 agreements • Achieve its own NDC targets partly through (as Article 6.4 is not yet operative) would only apply the help of carbon market activities. to activities related to the energy sector. The potential inclusion of the forestry sector and other • Generate sufficient ITMOs to sell and transfer sectors within Fiji’s upcoming 2025 NDC could to the buyer countries. broaden this scope. Additionally, Fiji could Ensuring that ITMOs represent measurable and differentiate its market approach to its verifiable emissions reductions depends on unconditional and conditional NDC. For example, Fiji adherence to the principles outlined in Section 2.4. might pre-determine a target list of carbon project Additionally, ITMO transfers must guarantee that activities relating to its conditional target (NDC any emissions reductions credited to the ‘buyer’ subject to international cooperation, requiring account are not claimed directly or indirectly by the external financial resources). This target list could be seller to avoid double counting. Both buyer and designated eligible for expedited pre-authorisation, seller must make ‘corresponding adjustments’ thus encouraging capital investment in the country within their respective national GHG inventories and providing assurance and confidence for project and registries to reflect the trade of the ITMOs. developers. This approach has been taken by Ghana, a country that launched the first Article 6.2 Part 10 of Fiji’s CCA provides a legal framework for bilaterally authorised project in 2022. engagement in Article 6 mechanisms. This framework forms the basis for introducing the /33 The table below outlines some (non-exhaustive) pros and cons of Article 6.2 mechanisms that need to be considered in Fiji’s context. PROS CONS • Article 6.2 approaches are generally expected to yield • Large-scale Article 6.2 agreements place significant higher carbon prices than voluntary markets. pressure on host governments and project • Bilateral collaborations under Article 6.2 involve implementers to deliver the specified emissions regulatory oversight by both the buyer and host reductions. Operationalisation requires increased governments, ensuring high transparency and visibility. capacity alongside the need to upgrade the host In a small island context, this cooperative approach countries’ MRV systems and the regulatory frameworks could be transformational and enable a scale of for carbon markets, under Part 10 of the CCA. investments not accessible otherwise. • Bilateral agreements often prioritise sectors with high • Participating in Article 6.2 cooperative approaches with mitigation potentials to allow countries to meet their close partners offers the opportunity to leverage NDCs. This may limit interest and opportunities for existing relationships, supplement development aid and smaller, community-based projects to be included within assistance packages, and incorporate additional the agreements. However, strong guiding principles for capacity-building support. market engagement, as outlined in Section 2.4 can help mitigate this risk. • For a small island country, a single Article 6.2 partnership has the potential to facilitate a range of • The requirement to make corresponding adjustments projects and investments, reducing the need for and and focus on sectors covered by existing NDC targets complexity of engaging with multiple parties and confines the scope of potential activities. managing the open market. • Fiji’s opportunities for Article 6.2 engagement may be • Within the agreed rules, Article 6.2 agreements offer restricted by the emissions reduction capabilities of countries the flexibility to negotiate and establish terms Fijian sectors and its carbon budget for trading, as and criteria that are aligned with their climate goals and outlined in its long-term NDC. Article 6.2 agreements development priorities. may require the transfer of ITMOs in quantities exceeding capacity. • Expanding Fiji’s NDC to encompass new sectors eligible for Article 6.2 collaborations may reduce the potential to participate in voluntary markets. Fiji National Carbon Market Strategy Roadmap /34 Voluntary Markets The voluntary markets encompass a wide array of standards. However, the well-established agencies The global voluntary carbon markets (VCMs) offer a regulating the carbon credit supply chain are Verra’s flexible platform for forging diverse partnerships Verified Carbon Standard (VCS), the Gold Standard aimed at financing carbon sequestration and (GS), the American Carbon Registry, the Climate emissions reductions in developing countries. They Action Reserve and Plan Vivo Climate. They define also provide an avenue for quantifying, certifying project methodologies, verify compliance and host and monetising co-benefits that target specific SDGs registries that regulate the minting and retirement supporting sustainable development investments of credits. Fiji’s CCA includes a list of ‘approved and credible emissions reductions that might not international emissions reduction standards’, have been achieved without the voluntary markets. including VCS and GS. In operationalising carbon The markets have gained momentum due to markets and granting authorisations, Fiji may increased demand largely driven by pressure on the consider expedited approval or a simplified process private sector to comply with domestic and for these standards to reduce administrative and international emissions reduction targets, driven by technical processes – on the provision that the a general shift towards corporate social projects meet Fijian carbon market strategy responsibility. They have supported innovation and principles and standards. experimentation with market mechanisms since their inception in the early 1990s. In alignment with the aforementioned principles to target projects that create direct and verifiable Despite the growth and projected outlook, the VCM environmental and community co-benefits, there has been hampered by reputational, integrity and are various international standards that specifically process concerns, and outcomes of voluntary provide guidance on co-benefit accreditation, e.g. activities have been mixed. The VCM is neither VCS+CCB certification, SD Vista, and Plan Vivo. legally mandated nor enforced, and the supporting Market information available through the Ecosystem industry ecosystem is fragmented, leading to Marketplace indicates that the demand for co- inconsistent methodologies, requirements, and benefits is growing, with transacted volumes transparency around the impacts and verifiability of increasing and credits attracting a price premium.40 projects. However, the VCM has been doing much of Fiji may consider assessing these standards for the heavy lifting, developing infrastructure and pre-approval via regulation. market maturity in a process of continual improvement. Recent initiatives such as the ICVCM, Currently, voluntary markets are generally viewed as VCMI, and major initiatives to back up the credibility more flexible than Article 6 mechanisms. However, of VCMs at COP28 seek to address these concerns they may require corresponding adjustments in the on both the demand and supply side of the market future. and organise the market generally. 39 39 ICVCM (2023), ICVCM and VCMI Join Forces to Operationalise a High-Integrity Market to Accelerate Global Climate Action, https://icvcm.org/icvcm-and-vcmi-join- forces-to-operationalize-a-high-integrity-market-to-accelerate-global-climate-action/; Verra (2023), Independent Crediting Programmes Announce Ground- Breaking Collaboration to Increase the Positive Impact of Carbon Markets, https://verra.org/independent-crediting-programmes-announce-ground-breaking- collaboration-to-increase-the-positive-impact-of-carbon-markets/. 40 See, for example, Ecosystem Marketplace (2023), 2023 State of the Voluntary Carbon Markets Report: Paying for Quality, https://www.ecosystemmarketplace. com/publications/state-of-the-voluntary-carbon-market-report-2023/. /35 The table below outlines some (non-exhaustive) pros and cons of VCMs to be considered in Fiji’s context: PROS CONS • Flexibility to explore a wide range of standards, • The markets face intense competition, often influenced methodologies, and buyers. More potential for by private sector interests, and lack the degree of innovation and integration of co-benefits into project regulatory oversight of compliance markets. Direct objectives. interactions between community stakeholders and • More accessible than compliance markets, less private actors increase liability risk and potential government involvement, which can lead to faster exploitation. project uptake. • Carbon pricing within voluntary markets is typically • Opportunity to develop projects that sell credits without volatile and individually negotiated, usually leading to corresponding adjustments to buyers interested in lower carbon prices compared to compliance markets. making ‘climate contributions’ rather than ‘offsetting’ • VCM standards are not centrally regulated and can be their carbon emissions. inconsistent with varying levels of transparency and • Fiji has more potential to design small-scale community- integrity between methodologies. level projects that may yield lower carbon credits than • The uncertain future of voluntary markets and their

Article 6.2 agreements. stature under the Paris Agreement mean that • Fiji’s positive experience with the Drawa Rainforest methodologies and best practices may change over time. project can serve as a model for the development of • Scaling up voluntary carbon projects in Fiji, especially in national guidelines to enable effective oversight by the non-NDC sectors, could complicate the inclusion of these Government. activities in future NDCs as the country moves toward targeting all sectors to achieve net zero emissions by 2050. 4.1.4 Interactions between Fiji’s NDC and Carbon adjustments could erode Fiji’s NDC progress. On the other hand, underselling or underutilising carbon Markets markets could prevent Fiji from accessing additional The Paris Agreement is anchored in the commitment financing sources needed to increase emissions by all Parties to submit and implement NDCs, reductions and promote sustainable development documenting the actions they take to reduce outcomes. emissions and facilitate adaptation. The Paris Agreement’s ‘ambition cycle’ requires Parties to Timing is a key consideration factor. Given the Paris submit increased NDCs every five years and report Agreement’s ambition cycle and the specific target on progress biennially. years outlined in Fiji’s NDC, it becomes crucial to strategically consider which sectors or subsectors, To meet mitigation and adaptation targets, Fiji market mechanisms, and projects are most should strategically evaluate how different market appropriate to maximise Fiji’s benefits from carbon and project types can assist in or impact NDC market transactions, while minimising the achievement. Overselling ITMOs might generate overselling risks that might affect NDC compliance. carbon revenues, but the corresponding Paris Agreement Ambition Cycle Milestones 2023-COP28 2024-COP29 2025-COP30 2026-COP31 2027-COP32 2028-COP33 First Global Deadline for Communicate Deadline for 2nd 2nd Global Stock Stock take Final Biennial 2035 NDCs Biennial take Update Reports Transparency (Non-Annex 1) Report Deadline for 3rd Biennial Deadline for 1st Transparency Biennial Report Transparency Report Fiji National Carbon Market Strategy Roadmap /36 Summary of NDC Approaches: Fiji can utilise both voluntary and compliance markets. Irrespective of the type of carbon market used, the relationship between carbon trading and NDC achievement should be understood and clarified. The general typology of relationships between NDCs and carbon credits can be summarised as follows. It is noted that all three approaches could potentially co-exist in application in Fiji: Approach Scope Approval Corresponding Issues Relevance adjustment NDC – Crediting Emissions Requires Requires a Implementation Suitable for reductions fall approval and corresponding challenges / not Article 6.2 and within the scope authorisation adjustment attractive to Article 6.4. of Fiji’s NDC voluntary markets Non-NDC Outside the Requires basic Not required Some risks of Voluntary Crediting scope of Fiji’s approval by the double counting projects only NDC Government / does not incentivise high-ambition projects Contribution Inside and Unlikely to Not required Cannot lead to Voluntary Claim outside of Fiji’s require neutrality claims carbon projects NDC Government / may not be only approval attractive to voluntary buyers 4.1.5 Demand-Side Integrity 4.2. Strategic Options for Demand-side integrity refers to the credible use Engagement in Carbon Markets of carbon credits within a high-ambition transition pathway. Managing the demand in an open market Figure 7 presents five market engagement setting is a challenging and intricate task to ensure options that Fiji could consider in contemplating that the generated credits contribute to genuine its strategic approach to carbon markets. Each climate action. There is a risk that demand may option carries implications for international export come from buyers who view carbon credits as and trading in relation to Fiji’s NDC achievement. an alternative to directly reducing their carbon These options have been informed by stakeholder emissions. Conversely, there is also demand consultations and shaped by the views provided. from actors with legitimate, ethical, and credible They are non-exhaustive, with possibilities of motivations to participate in such transactions different market configurations within each option. that are complimentary to direct emissions The Strategy Roadmap provides a starting point reduction at source. for considering these strategic options, and it is intended to support efforts to narrow these options Even with regulatory frameworks and approval (and others) into a comprehensive national strategy processes in place, assessing buyer motivations for carbon markets. and their alignment with Fiji’s policies and positions on climate change remains difficult. Fiji’s engagement with carbon markets requires careful consideration of how exported credits will be utilised, accounting for the broader context of the international climate change regime. It involves weighing the trade-offs, costs, and benefits between exporting ITMOs and counting them towards Fiji’s long-term NDC targets. The final decisions could be reflected in the individual outcomes of project approval processes by the Government. /37 Figure 7: Carbon market engagement options Limited market use Voluntary markets Article 6 markets Domestic carbon Hybrid use crediting program Option 1 Option 2 Option 3 Option 4 Option 5 • Limited use of • Policy approach • Engage • Develop a • Allow voluntary

Article 6 markets 1: Regulate exclusively in domestic carbon trading and while pursuing voluntary market Article 6 markets crediting pursue Article 6 other financing activities. for specific standard. cooperation. means. • Policy approach outcomes. • Establish • Tailor project • Minimal 2: An • Trade ITMOs regulations to types for voluntary independent from a range of facilitate the different trading and government sectors to establishment of markets. large-scale authority to support Fijian • Both markets

Article 6.2 provide investment into methodologies co-exist with the cooperation. oversight resilience and project Government functions. building, NDC types. regulating • Policy approach achievement, transactions and 3: Allow for an and other making open-market development corresponding approach priorities. adjustments. without approving projects or making corresponding adjustments. 4.2.1 Option One: Limited Market Use • Government oversight of voluntary market activities. The Government could develop Fiji could primarily focus on achieving its NDC specific regulations under the CCA to govern targets through existing means of financial support, voluntary market activities. These regulations such as bilateral partners, multilateral organisations, could introduce a registration system that and climate funds. Simultaneously, it could work on mandates government approval for all carbon establishing the necessary systems and frameworks projects, subject to the review of an advisory for engaging in Article 6.4 markets while also body. This approach could ensure protections for local communities and the private sector by participating in small-scale pilot projects under enforcing existing community engagement

Article 6.2 markets. This approach allows the protocols, increasing oversight to shield local UN-governed centralised mechanism under Article companies from potential liability, and 6.4 to be developed and operationalised over time. developing a feedback and grievance redress mechanism. 4.2.2 Option Two: Voluntary markets only • Establish an independent authority for market For participation in voluntary markets, Fiji has three oversight. Fiji could establish an independent potential policy approaches: authority responsible for overseeing voluntary market activities. This authority would take the Fiji National Carbon Market Strategy Roadmap /38 roles of project approval and monitoring, for substantial emissions reductions, it also entails regardless of whether corresponding considerable risks due to the need to introduce new adjustments are required. Additionally, it would technologies across a range of sub-sectors to be accountable for providing regular reports to achieve Fiji’s NDC targets. The feasibility of entering the Government on VCM activities. into such a partnership depends on the working • Allow for an open-market approach. Fiji could arrangements and capacity support built into the adopt an open-market approach for voluntary agreements to facilitate the achievement of its carbon projects that do not require government objectives. approval or corresponding adjustments. Recognising that projects would operate outside the scope of Fiji’s NDC, the Government could 4.2.4 Option Four: A domestic carbon crediting allow stakeholders to participate in voluntary program markets under existing legal frameworks. With the accumulation of capacity and experience Additionally, it could actively seek capacity- over time, Fiji could explore the implementation of a building support and collaborate with academic institutions and non-government organisations domestic carbon crediting mechanism. This to enhance national capacity for effective and approach provides the flexibility to design informed participation in VCM projects. methodologies and processes that meet the local circumstances and specific needs. However, it would In any of the above option scenarios for the require the establishment of new frameworks and ‘voluntary market’s only’ approach there would be a market infrastructure. Part 10 of Fiji’s CCA enables need to establish clear redress mechanisms for the drafting of regulations to facilitate the communities and businesses as well as ensure a development of ‘Fijian Emissions Reduction standard set of protocols for third-parties wishing to Methodology’ (FERM), ‘Fijian Emissions Reduction engage with communities and businesses. It is noted Project, Program or Activity’ (FERPA) and ‘Fijian that an ‘open market’ approach involves higher risk Mitigation Outcome Units’ (FMOUs). This option of exploitation as it suggests a reduced role for could be considered in the future as Fiji enhances its national authorities and minimal regulatory technical and institutional capabilities to establish oversight. and operate a robust domestic standard. 4.2.3 Option Three: Focus on Article 6 markets 4.2.5 Option Five: A hybrid approach for targeted outcomes In the short term, Fiji could create an enabling Fiji could collaborate with selected bilateral partners environment to promote the use of voluntary to develop a limited number of large-scale emissions markets for community-based projects outside Fiji’s reduction programs for sectors or subsectors where NDC, while leveraging Article 6 markets for large- NDC targets are unlikely to be achieved due to scale emissions-reduction projects within NDC prevailing market conditions, climate financing sectors and their associated sub-sectors. In constraints, or the high upfront costs associated anticipation of Fiji’s NDC scope expansion, voluntary with technology adoption. For example, this could projects and transactions would need to report on involve working with a bilateral partner to make a how carbon credits are used offshore to ascertain tailored set of investments to promote low- whether another country has claimed the credits emissions public transport or replace large Heavy and whether specific outcomes should be excluded Fuel Oil (HFO) EFL generators with photovoltaic (PV) from future NDC reporting. systems supplemented by small-scale backup generators. While this approach carries the potential /39 Fiji National Carbon Market Strategy Roadmap /40 5/ ACTIONS AND PRIORITIES TO INFORM FIJI’S STRATEGIC ENGAGEMENT WITH CARBON MARKET MECHANISMS In Fiji, carbon markets have continued 5.1. Pillar 1 – Enhancing Market to be explored as a means to secure Readiness through Strategic Actions additional financing for development

Article 6 of the Paris Agreement recognises the role priorities. of voluntary cooperation through market and Market-based mechanisms involve transactions, non-market approaches in enhancing NDCs. This exchanges, and the evaluation of trade-offs. The provision aims to uplift ambition in both adaptation Strategy Roadmap action plan has been divided into and mitigation efforts while promoting sustainable ‘pillars’ to organise actions and priorities to inform development and environmental integrity. Fiji’s strategic engagement with existing and Meanwhile, Article 5 of the Agreement covers the emerging carbon market mechanisms. The five potential use of results-based payments to support pillars are: the conservation of natural carbon sinks and • Enhancing market readiness and strategic reservoirs. Voluntary carbon markets, on the other actions hand, can be broadly seen as contributing to the goals of the Paris Agreement by engaging non-state • Strengthening the legal framework and actors in the financing of emissions reductions. governance structure • Safeguarding community benefits and To ensure the alignment of market activities with landholder rights existing emissions reduction targets, ongoing reforms, policy priorities, and economic • Increasing public awareness, participation, development goals, Fiji’s carbon market engagement ownership, and capacity should be informed by the following strategic • Developing effective partnerships and scaling actions: finance /41 Short term strategies. Given the linkages between Fiji’s National Energy Policy (NEP) 2023-2030 and the potential use of carbon markets, the 1. Establish and clarify the institutional implementation of carbon projects to support arrangements and processes for registering energy sector decarbonisation needs to be CSPR for land- and nature-based projects and considered against the challenges identified in ensure that the complete procedures and the NEP and aligned with the priorities and forms for obtaining project approvals from the objectives it sets out. Similarly, Fiji’s approach relevant authorities are developed. to carbon markets must continue to be well 2. Accelerate the development of the regulations oriented and aligned with the current National required under Part 10 of the CCA to Development Plan, which sets out high level operationalise Part 10 and enable this section sectoral development priorities. to enter into force. 3. Improve the national greenhouse gas 3. Evaluate Fiji’s current NDC performance, along inventory system and align it with Biennial with existing strategies and plans to meet Fiji’s Transparency Report timeline, Enhanced 2030 and 2050 targets. Determine the most Transparency Framework and Article 6 relevant and applicable emissions reduction accounting requirements. This infrastructure is activities to progress through carbon markets essential for Fiji to monitor its NDC targets and based on the evaluation of mitigation potential implement necessary corresponding and the consideration of the volume of adjustments following the authorisation of emissions reductions and removals that will ITMO transfers. need to be retained for Fiji’s NDC achievement. 4. Establish interim measures to enable the 4. Facilitate robust consideration of carbon documentation and registration of existing markets opportunities to agree on policies to and new carbon projects undertaken in Fiji, the extent of which Fiji intends to leverage including the achieved emissions reductions or relevant mechanisms to achieve its current removals and the issuance of carbon credits and upcoming NDC targets, noting the under approved voluntary carbon standards importance of reflecting this intention within for those projects. current NDC implementation and investment 5. Facilitate pilot carbon projects by exploring plans and the process to develop Fiji’s 2025 innovative project types or expanding existing NDC. programs to enable practical learning and 5. Scale up and invest in national capacity to continual improvement of implementation monitor, report, verify, and compile sectoral capacity over time. emissions and emissions reduction data in 6. Support the mobilisation of funding and accordance with provisions outlined in Part 7 investment for the implementation of nature- of the CCA. based activities associated with voluntary and/ 6. Perform a cost-benefit analysis to assess or Article 6 markets building on existing potential trade-offs associated with long-term institutional capacities and partnerships. land-based carbon projects, balancing 7. Assess the potential to develop a framework or development needs and community benefits criteria for assessing demand-side integrity to to prevent future conflicts regarding land use. ensure Fiji’s carbon market transactions While the CCA provides a legal framework for involve appropriate partnerships and support carbon market activities, further policy work Fiji’s overarching climate change policies. will be required to support effective and equitable community-based engagement and additional efforts may be necessary to Long term establish a new national land-use category for nature-based projects. 1. Assess the feasibility of developing domestic carbon crediting programs and methodologies Medium term that align with Fiji’s policy priorities and decarbonisation needs, such as renewable energy and land and maritime transportation. 1. Develop and publish requirements applicable This future effort could be achieved by to all projects registered in Fiji that clarify harnessing the research capabilities of local minimum thresholds for complying with universities and independent institutions. applicable standards for ensuring integrity and compatibility with existing methods (e.g. 2. Participation in international carbon markets CORSIA Emissions Unit Eligibility Criteria 2019). under Article 6 will require Fiji to have access This information could serve as minimum to a registry which can track the authorisation, guidelines for ensuring the environmental and movement, and end use of ITMOs. The Fiji social integrity of carbon projects in Fiji and Government will need to consider and decide include sector-specific guidance. whether to establish a national registry or utilise the international registry planned by the 2. Increase the alignment between national UNFCCC secretariat. policies and carbon market engagement Fiji National Carbon Market Strategy Roadmap /42 3. Showcase the unique quality and integrity of 4. Develop and publish a list of approved Fijian Mitigation Outcome Units to prospective voluntary carbon standards prioritising buyers willing to offer premium carbon prices standards that ensure environmental integrity, for the associated co-benefits of carbon equitable community benefit-sharing (where projects. Reporting and valuing these co- relevant), and support Fiji’s ability to attain the benefits is vital for attracting new investments national sustainable development objectives. into community-based projects that deliver This list will guide the initiation of voluntary multiple socio-economic outcomes. carbon market activities in Fiji. 4. Stimulate domestic demand for Fijian 5. Develop and publish a list of emissions Mitigation Outcome Units through appropriate reduction and removal activities that align with incentive mechanisms and/or policy reforms. Fiji’s NDC priorities and broader sustainable For example, Fiji could leverage the growing development priorities. This list would be interest in sustainable travel and low-carbon expected to support potential investors and tourism to facilitate the sale of carbon credits project proponents in better understanding in the tourism industry. Furthermore, the priority mitigation activities that are most forthcoming 2025 NDC could explicitly likely to be approved by the Fiji Government delineate the roles and quantified targets of and registered under approved voluntary carbon markets to provide a clear policy signal standards or through agreements associated for carbon pricing. with Article 6 of the Paris Agreement. 5. Develop demand-side integrity assessment 6. Actively develop Fiji’s domestic capacity to criteria for evaluating carbon market provide legal support to local communities interactions and cooperation agreements. participating or intending to participate in carbon market activities. This will require the 5.2. Pillar 2 – Strengthening the development of resources and improved access to local expertise to help facilitate the Legal Framework and Governance negotiation and implementation of carbon Structure trading agreements and contracts. Engaging in carbon market transactions has the potential to unlock an array of benefits for Fiji. Medium term However, this involvement also entails a range of regulatory implications, institutional capacity needs, 1. Strengthen the institutional capacity and and legal clarifications to establish an enabling oversight functions of the Climate Change environment for market operations. The following Division and relevant line ministries to provide actions are required to strengthen the current legal services related to CSPR registration, project framework and governance structure for carbon approval and validation processes, and the markets: facilitation and implementation of Article 6.2 agreements. Short term 2. Implement the agreed work program for developing regulations under Part 10 of the 1. Enhance coordination and collaboration within CCA and enhancing the legal framework government agencies to enable Fiji to evaluate governing both voluntary and Article 6 external proposals and respond to market markets. opportunities effectively. Challenges 3. Plan for and establish clear processes for associated with determining responsibilities evaluating and approving Article 6 activities, between ministries and departments, given authorising ITMO transfer, and making the range of mandates relevant to carbon corresponding adjustments to the national market engagement, are expected to be GHG inventory. Having the relevant systems in addressed through the development of the place for authorising credits and the ability to regulations required under Part 10 of the CCA. execute corresponding adjustments will be 2. Develop a joint work plan led by the Climate required to support the commencement of Change Division and the relevant line Article 6 pilot projects. ministries to facilitate the alignment of existing 4. Further develop Fiji’s national approach to forest carbon initiatives with the CCA’s legal nature-based activities through the update of framework, the development of new required the required policies, procedures, benefit regulations, and the expected amendment and sharing arrangements and safeguards needed revision of the Forestry Act. to support the implementation of nature- 3. Establish a variation of existing land leases for based carbon projects and transactions. conservation purposes that incorporates 5. Secure additional technical and institutional relevant standard requirements, conditions, capacity to support forest carbon monitoring and restrictions needed for nature-based activities. projects designed to produce carbon credits. /43 Long term Landowning units influence land-use planning and overall land management through collective decision-making. As such, it is essential to create a 1. To assess the potential benefits and challenges platform to provide information to landowning units of establishing a new separate public authority on the opportunities and trade-offs associated with to assume the responsibility of administering carbon markets. When benefits flow through carbon markets in Fiji. This authority could be projects implemented by community entities, comprised of individuals and experts trained establishing a well-defined framework for equitable to design, implement, and monitor carbon distribution among individuals and stakeholders is market-related services and support. crucial. The following actions should be undertaken 2. The Climate Change Division should assess the in support of these objectives and the specific need to revise legal and governance-related contextual circumstances that define landowning frameworks for carbon markets through a units and communities in Fiji: review of Article 6 negotiation outcomes, appraisal of existing effectiveness, and Short term through an inclusive public consultation-based review process. 1. Enforce the established protocols for engaging 3&4. Enhance Fiji’s institutional capabilities and with local communities and ensure that establish operational procedures to facilitate compliance is strictly adhered to by project and oversee Article 6.4 activities when and if developers. Lessons from the case studies in relevant. This would include setting up the the Asia Pacific region and Africa emphasise necessary processes for authorisations, the need to safeguard local communities from activity approvals, and project registrations in potential risks associated with foreign line with the pending rules that would shape interests, which may misunderstand or and establish a centralised mechanism under undermine social and cultural practices,

Article 6.4 of the Paris Agreement. governance arrangements, traditional norms, and capacity in Fiji. Therefore, establishing a 5.3. Pillar 3 – Safeguarding system of enforcement and regulatory oversight will be increasingly required when Community Benefits and Landowner contemplating the expansion of voluntary Rights market interactions between third parties and Fiji’s communities. Close to 90% of Fiji’s land is owned by indigenous iTaukei landowning units. As a result, there are 2. Benefit-sharing arrangements should be significant opportunities for landowners to engage organised around a standardised template or in carbon markets through activities that seek to approach and consider monetary and non- enhance and restore carbon sequestration and monetary benefits to ensure that these enable the transition of agricultural practices while agreements have a credible structure and also offering a range of enduring co-benefits for adhere to legal requirements with regard to communities (e.g., water and food security, local consultation, the process for securing alternative livelihoods, sustainable development FPIC from landowners and the equitable and investments, increased disaster resilience and transparent distribution of benefits amongst energy efficiency). eligible parties. Fiji National Carbon Market Strategy Roadmap /44 3. Develop an approved financial mechanism for and processes of carbon trading, including ensuring equitable and transparent project initiation, negotiation of agreements, distribution of carbon revenue to safeguard compliance with regulatory frameworks, and the interests of local communities and asset addressing potential legal challenges. owners. 4. Develop and implement national outreach and 5.4./ Pillar 4 – Enhancing Public education programs to support the effective scaling up of nature-based projects. This effort Awareness, Participation, Ownership, would be best coordinated through a and Capacity cooperative approach directed by the Ministry Carbon market mechanisms aim to incentivise direct of iTaukei Affairs, Ministry of Rural and action to sequester carbon or reduce emissions. The Maritime Development, Provincial Councils, success of these actions will largely be contingent on the iTaukei Land Trust Board, and any other the active engagement of Fiji’s private sector, relevant stakeholders with mechanisms for state-owned enterprises, and communities. direct community engagement. Consequently, fostering public awareness and competency to support project development and Medium term implementation will be vital for ensuring ownership and effectiveness. Targeted efforts will be required 1. Convene a stakeholder consultation process to build national capacity in an inclusive and aimed at exploring options to mitigate pricing equitable way. Specific proposed actions include the volatility through the assessment of the following: feasibility of establishing price benchmarks for community-based projects or developing Short term national guidelines for requiring specific project costs (e.g., third-party verification costs 1. Develop local awareness initiatives on carbon and capacity building) to be funded separately markets supported by academic institutions, from the agreed carbon price. relevant ministries, and key development 2. Develop guidance on managing permanence partners. Carbon market concepts are risk to help protect communities from undue complex and evolving and are not easily liability and financial burdens resulting from accessible. Increased interest in Fiji’s potential carbon market agreements in the event of a as a producer of carbon credits requires reversal. Activities that increase carbon efforts to reduce the inaccessibility of these sequestration in the natural environment are concepts. vulnerable to climate change and disaster 2. Establish and disseminate tailored knowledge risks, which can quickly cause a reversal in products and tools for training programs and carbon sequestration potential. educational courses to educate targeted 3. Develop a coordination mechanism for stakeholders. This is necessary to build up a securing the land necessary for renewable national ecosystem that will enhance the energy systems as directed within the National understanding, awareness, and complement Energy Policy 2023-2030. This mechanism the capacity and traditional knowledge of local must include a robust means for consultation communities. with communities to help identify landowning units that are in a position to lease land to host Medium term renewable energy projects. 4. Develop legal capacity in Fiji to assist local 1. Support the growth of emerging and communities in navigating the complexities established local project developers, auditors /45 and legal advisors while promoting local sustainable development objectives. ownership over specific project types, 2. Secure partnerships that offer financial activities, and methodologies. For instance, support, technology transfer, and projects focused on expanding rural electricity infrastructure development in alignment with access should involve local communities in the Fiji’s policy objectives, particularly in increasing oversight, management, and verification of renewable energy uptake. Additionally, these project interventions. partnerships are encouraged to recognise 2. Support the growth of new and emerging capacity gaps within Fiji, promote locally led ‘home-grown’ methodologies that closely align implementation arrangements, provide with Fiji’s national priorities, contextual dedicated support for capacity building, and circumstances and development objectives allow for the necessary flexibility and time for and draw on a solid understanding of localised interventions to generate tradable mitigation needs and capacity. outcomes. 3. Identify or establish a platform for distributing 3. Seek international assistance for enhancing information on project opportunities and and developing local expertise across the encouraging public-private partnerships to value chain of carbon markets. This effort deliver projects. This service can be should promote knowledge sharing and incorporated within the potential role of a technical capacity building between local ‘Private Sector Advisory Committee’ participants and international partners. introduced by the CCA. Medium term Long term 1. Collaborate with development partners to 1. Collaborate with regional organisations to identify capacity gaps and implement tailored explore the establishment of a shared capacity-building programs aimed at platform for project information, learning enhancing domestic capabilities in the carbon materials, and expert contacts. This platform market industry. will act as a regional knowledge-sharing hub 2. Consider insurance options or other financial that streamlines market information and buffers that address the risk of reversal events facilitates peer-to-peer capacity building in associated with carbon losses for credited the region. sequestration. 5.5./ Pillar 5 – Developing Effective 3. Consider the need to re-engage in project negotiations with potential partners to Partnerships and Scaling Finance communicate Fiji’s specific requirements Despite increasing external and domestic interest, rather than adopting existing carbon market distinct opportunities to progress community-based engagement modalities. This entails clearly activities, and a robust policy and institutional articulating criteria, priorities, preferred framework, Fiji’s capacity to realise significant activities, and approaches that suit Fiji’s benefits from carbon markets remains constrained specific national circumstances and needs. and will continue to require the support of effective 4. Conduct trials of new accounting methods partnerships with regional and international aimed at valuing co-benefits of carbon projects governments, foreign private sector investors, and and utilise the results to assess opportunities non-government organisations to develop to leverage additional opportunities, effectively. Such collaborations are pivotal for Fiji’s partnerships, and financial flows. ability to secure ‘carbon finance’41 for suitable activities, guided by agreements tailored to Fiji’s Long term national circumstances. The actions required to develop these effective partnerships include the 1. Develop a strong track record and reputation following: linked to Fiji-derived carbon credits and associated branding that positions Fiji-based Short term mitigation outcomes as a premium high- integrity provider of carbon credits. Present a 1. Identify financial instruments and funding unique competitive advantage for buyers sources available to support NDC through the integration of development implementation, assess financing gaps, and benefits and impactful carbon mitigation determine the role of carbon markets and the outcomes. Develop strategic outreach and extent to which market-based mechanisms engagement initiatives to create market could contribute to emissions reduction differentiation for Fiji aimed at attracting targets, increased carbon sequestration suitable partners and financiers to support the potential, and the achievement of national expansion of carbon project implementation in Fiji. 41 Carbon finance refers to revenue streams generated from the sale of carbon credits and is considered as a subset of climate finance. Fiji National Carbon Market Strategy Roadmap /46 6/ METHODOLOGY The Fiji National Carbon Market Strategy Roadmap was developed under the guidance of the Climate Change Division (CCD) of the Ministry of Environment and Climate Change with support from the Carbon Market Institute. The development process follows a sequential approach: Mapping of key domestic and international stakeholders involving representatives from 1 government agencies, private sector entities, financial and legal institutions, non-government organisations, local communities, development partners, and leading regional organisations. Establishment of an Advisory Group comprising 19 expert members from targeted government agencies, project developers, and environmental groups. The voluntary Advisory Group functions 2 as a technical body to provide guidance on various issues related to and extending beyond the scope of the Strategy Roadmap. An introductory ‘Fiji Carbon Market Design & Capacity Building’ webinar was conducted on 4 April 2023 to commence an inclusive process of stakeholder engagement. 78 participants attended the 3 session, which provided an overview of the Strategy Roadmap development process and the state of play of carbon markets in Fiji. The first stakeholder consultation workshop was held on 1 May 2023 in Suva, bringing together 68 stakeholders from relevant government departments, the private sector, regional organisations, 4 international institutions, universities, and civil society groups. The workshop explored emerging risks, opportunities, options, and strategic priorities for Fiji to leverage different market mechanisms. The second stakeholder consultation workshop was convened on 14 and 15 August 2023. This two-day workshop engaged a diverse range of 71 stakeholders, including representatives from 5 local communities. The remaining elements of the Strategy Roadmap were considered and deliberated upon, including key considerations for Fiji in engaging with carbon markets and the identification of action items necessary to enhance market readiness. Small group discussions and consultations were held with key line Ministries, project implementers, 6 and community representatives to assess particular points of consideration based on experiences, existing institutional arrangements, and case studies. The draft Strategy Roadmap was prepared, where stakeholder inputs were synthesised to form consensus views along with a comprehensive review of Fiji’s existing climate change policies and laws to ensure their alignment with the Strategy Roadmap. Throughout this process, the 7 developments in various carbon markets – compliance, voluntary, and international markets under

Article 6 of the Paris Agreement – were closely monitored to track the latest changes in the global carbon market landscape. The draft Strategy Roadmap was released on the Climate Change Division’s website and shared 8 with the Advisory Group and key stakeholders for comments and feedback. A survey form was provided to facilitate receipt of feedback A third stakeholder consultation workshop was held on 25 March 2024. The one-day workshop 9 convened 70 stakeholders to validate the Draft Roadmap, particularly focusing on the guiding principles and the Action Plan. Final revisions to the Strategy Roadmap based on written submissions, validation workshop 10 outcomes and ministerial review. Submission of the Strategy Roadmap to line ministries for review, followed by endorsement by the 11 Cabinet. Public publication of the Strategy Roadmap on the Fiji Climate Change Portal for public access. 12 /47 ACRONYMS A6.4ERs Article 6.4 Emission Reductions ITMOs Internationally Transferred Mitigation Outcomes BAU Business as Usual LEDS Low Emissions Development Strategy BVCM Beyond Value Chain Mitigation MOU Memorandums of Understanding CBAM Carbon Border Adjustment Mechanism MRV Monitoring, Reporting and Verification CCA Climate Change Act NAP National Adaptation Plan CCD Climate Change Division NCCP National Climate Change Policy CCMs Compliance Carbon Markets NDA National Designated Authority CDM Clean Development Mechanism NDC Nationally Determined Contribution CERs Certified Emission Reductions NDP National Development Plan CORSIA Carbon Offsetting and Reduction Scheme for International Aviation NEP National Energy Policy CSPR Carbon Sequestration Property Rights PICs Pacific Island Country DBFCC Drawa Block Forest Communities Cooperative PV Photovoltaic EEZ Exclusive Economic Zone REDD+ Reducing Emissions from Deforestation and Forest Degradation EFL Energy Fiji Limited SBTi Science Based Targets Initiative ER Emission Reductions SDGs Sustainable Development Goals ETS Emissions Trading Scheme SIDS Small Island Developing States EU ETS European Union Emissions Trading Scheme SPC The Pacific Community FCPF Forest Carbon Partnership Facility SPREP Secretariat of the Pacific Regional FERM Fijian Emissions Reduction Methodology Environment Program FERPA Fijian Emissions Reduction Project, Program UNDP United Nations Development Programme or Activity UNFCCC United Nations Framework Convention on FMOUs Fijian Mitigation Outcome Units Climate Change FPIC Free, Prior and Informed Consent VCS Verified Carbon Standard GGGI Global Green Growth Institute VCMs Voluntary Carbon Markets GHG Greenhouse Gas VCMI Voluntary Carbon Markets Integrity GS Gold Standard VVBs Validation/Verification Bodies Initiative HFO Heavy Fuel Oil ICVCM Integrity Council for the Voluntary Carbon Market IMO International Maritime Organisation INDC Intended Nationally Determined Contribution IPCOS Indo-Pacific Carbon Offset Scheme Fiji National Carbon Market Strategy Roadmap /48