Is Bolivia’s $1.2 Billion Deal to Protect Its Forests a Climate Boon—or a False Solution?

The South American nation has partnered with an American company to sell “carbon securities” under Paris Agreement rules. Experts say the approach could prompt a global wave of corporate greenwashing.

Credit: Rodrigo Urzagasti/AFP via Getty Images

Sometime next month, the Bolivian government and a company you probably haven’t heard of are poised to offer what could be the largest single sale of carbon credits in history. The deal will be unusual not only for its size—$1.2 billion, organizers said—but also because it will be backed by a national government and packaged under new rules developed as part of the Paris Agreement.

Depending on who you ask, the sale could mark a new frontier in global climate finance, the latest offering in a long and dubious line of carbon credits or, potentially, a giant escalation in corporate greenwashing.

Danny Cullenward, an economist and lawyer focused on the scientific integrity of climate policy, said the sale could presage a “profound shift” in global carbon markets, which aim to finance emissions-cutting projects. To date these markets have been run largely by private companies and nonprofits. Soon, Cullenward said, national governments could take their place, bringing a new scale and raising new questions about integrity and oversight. 

Bolivia plans to effectively put the preservation of its forest sector on the market, representing tens of millions of tons of carbon dioxide and entire sections of forest populated by farmers, Indigenous people and diverse ecosystems.

“I don’t think a lot of people even in the climate world quite appreciate how much volume and activity may be emerging quickly from this new area,” said Cullenward, who holds academic positions and sits on a Paris Agreement carbon market expert panel.

The shift could also revamp how sellers verify that credits are delivering real emissions reductions, giving enormous power to individual governments to essentially write their own rules.

The plan is to sell “sovereign carbon securities”—carbon credits, effectively, except they are structured like corporate stock.

“Think of it as now being able to buy carbon like you’re buying a share of Google,” said Andrew Gilmour, chief executive of Laconic, a company founded in 2021 that packages “environmental information into financial securities,” with Bolivia as the first attempt.

This securitization opens a world of possibilities, Gilmour said.

“There’s been widespread interest from both party-to-party buyers, so governments, other governments, corporates, financial intermediaries and financial institutions,” Gilmour said. Insurance companies have expressed interest, he said, “because the price of carbon claims has positive correlations to the prevalence of extreme weather events, and so they can use it as a hedge. So there’s a lot of opportunities to utilize the price movement of the sovereign carbon security as a financial asset and not just as an offset.”

Gilmour said Laconic is working on similar deals with seven national governments, amounting to 11 billion tons of carbon dioxide equivalent over several years—for context, total global greenhouse gas emissions in 2023 were 57.1 billion tons of carbon dioxide equivalent. James C. Row, managing partner at Entoro Capital, the investment bank serving as the placement agent in the sale, said even more governments have expressed interest.

“There’s approximately $30 billion worth of paper that’s going to be issued in the next year and a half that we know of,” Row said.

The idea is to provide the climate finance that has yet to materialize, the trillions of dollars needed to transition developing nations to a low-carbon economy.

“Generally speaking, money has to flow from the Global North to the Global South,” Gilmour said. His answer? “We create an ecosystem where intermediaries can profit from their participation in the ecosystem. We harness enlightened self-interest in order to drive a public policy goal.”

The problem, according to several carbon market experts consulted by Inside Climate News, is that this ecosystem is based on a carbon credit model that has largely failed to deliver its promised benefits.

“If that works out, that is a good and successful thing,” Cullenward said. “There are many reasons to be worried that it won’t work out, given that every time it’s been tried in the past for some three-plus decades, it has failed miserably for reasons that rhyme with everything that’s going on here.”

First you need to understand what Bolivia and Laconic plan to do. Hold on tight.

The credits would not be tied to specific projects, but instead to emissions cuts achieved across Bolivia’s entire forest sector. Bolivia has experienced a sharp increase in deforestation in recent years—in 2023 it had the third-highest amount of mature forest loss of any tropical country, according to the World Resources Institute. The sale of the securities would fund government programs such as forest rangers and fire suppression to reverse this trend, though Laconic said Bolivia retains flexibility to direct funds as needed.

“There are many reasons to be worried that it won’t work out, given that every time it’s been tried in the past for some three-plus decades, it has failed miserably for reasons that rhyme with everything that’s going on here.”— Danny Cullenward, economist and lawyer

Laconic said it will use satellite imagery to track deforestation across the entire country while comparing it to a business-as-usual baseline, which it established using historical trends. The securities—up to 40 million tons-worth of them—are tied to the reductions Bolivia is expected to deliver.

To make sure Bolivia follows through, Laconic will hold the proceeds from the sale in a Cayman Islands-based “special purpose vehicle”—like an escrow account. The company will release portions annually only if forest loss is reduced. 

This will play out over a five-year period that corresponds with Bolivia’s climate pledge, or Nationally Determined Contribution, under the Paris Agreement. The securities will effectively finance Bolivia to increase the ambition of that pledge, reducing its climate pollution more than it would have otherwise.

Some academics and advocates said in a recent letter published in Science that the country’s deforestation and a spike in wildfires are partly driven by government policies that have encouraged agricultural expansion and by authorities’ permissive approach toward illegal activity. Some also argued in a separate letter in Science that carbon markets could provide the incentives and funding to change these policies.

In recent years, however, a series of scandals, journalistic exposés and academic articles have widely discredited the value of carbon credits that are sold on so-called voluntary markets. One peer-reviewed synthesis of more than a dozen studies of carbon credits, published last year in Nature Communications, found that less than 16 percent of the issued credits delivered real emissions reductions. For deforestation credits alone, the number was slightly better, at 25 percent.

Amazon, a large player in carbon markets, has estimated that less than 5 percent of credits on the voluntary markets meet its quality standards.

Laconic’s securities will fall under an entirely new system, however, which was created last year with the completion of Article 6.2 of the Paris Agreement. The article is meant to help countries collaborate on cutting climate pollution, so a wealthy country, for example, can pay for programs in a developing one that reduce emissions.

Laconic said it will deliver a high quality product by relying on these United Nations-approved standards.

But several experts say these standards are even more lax than those of the voluntary markets.

“It’s kind of the Wild West of carbon trading internationally, because it’s kind of an anything goes approach,” said Isa Mulder, an expert on global carbon markets at Carbon Market Watch, a European watchdog group. 

Article 6.2 directs a national government to approve the trading plan, post its details for review and follow a technical requirement to prevent emissions cuts being counted twice. Aside from that, “there are no requirements,” Cullenward said. “A host country can do whatever it wants.”

Up in Smoke

Forest-based carbon offsets work only if they can meet a set of standards. They must demonstrate that the protections they deliver would not have occurred otherwise, that they will last decades at a minimum and that they do not inadvertently lead to forests being cut down elsewhere. 

If a crediting program falls short on any of these measures, it can fail to deliver any real benefits. And if a company uses the credit to offset emissions in its operations, overall climate pollution has effectively increased.

“You need to do it right,” said Lambert Schneider, research coordinator for international climate policy at Oeko-Institut, an environmental research institute in Germany, who is part of the European Union’s delegation on Article 6 negotiations. “The challenge is, there are many issues you need to get right, and if you get one wrong, you can already have a very big problem.”

Gilmour said they have addressed these issues by requiring Bolivia, or any other country they work with, to rely on the methodology that nations use to report their emissions under the United Nations Framework Convention on Climate Change.

Under the $1.2 billion sale, Bolivia is supposed to avoid 100 million tons of carbon dioxide emissions from the nations’ forests over a five-year period. Only 40 million of those tons will be packaged into securities, effectively leaving a buffer to account for losses caused by wildfires or other impacts.

But Schneider and others said Laconic has failed to provide the details to back up these claims. Preventing illegal clearing in Bolivia, for example, could have the effect of increasing the practice in Peru, by raising commodity prices. If that were to happen, the buyer of an offset would not actually be reducing emissions but would merely be shifting them out of Bolivia and into Peru.

Gilmour acknowledged this as a risk and said it would need to be prevented in program design.

Laconic’s structure for the securities provides a way to claw back funds if Bolivia fails to deliver the benefits. But it is unclear how the company would handle a scenario in which forest fires sweep across the nation after the securities’ multi-year period comes to a close, wiping out previous gains.

In this scenario, the offset could prove worthless because the emissions were simply delayed, not avoided.

For Bolivia, the securities could offer a valuable source of foreign investment. The nation is experiencing an economic crisis, with a dearth of international reserves, fuel shortages and rising deficits. It is also coming off its worst wildfire season in decades, with more than 39,000 square miles burned last year.

The carbon securities, Gilmour argued, can help address both of these problems.

Cristian Flores, with the Bolivian Platform Against Climate Change, a coalition that promotes human rights and climate justice, said the deal will do neither. And he argued that Bolivia’s desperate position is what has driven the government to turn to carbon securities.

For years, Bolivia was a leading voice in global climate talks against carbon markets, and in 2012 it enacted a law prohibiting them domestically. But the nation’s constitutional court overturned that ban last year, and the government quickly published a decree giving the state exclusive rights to sell carbon credits. The deal with Laconic was announced two weeks after the decree was published.

Bolivia’s problems, Flores said, are rooted in its reliance on natural resource exports and failure to develop a more diverse economy. Entering carbon markets, he said, simply continues this problem.

Flores and his colleagues have increased their focus on “false solutions,” he said in Spanish, “and a false solution is precisely for Bolivia to continue being complicit in receiving money through carbon markets from companies, industries and countries that continue to generate greenhouse gas emissions at the expense of our forests.”

Oswaldo Maillard, with the Bolivia-based Foundation for the Conservation of the Chiquitano Forest, said the claim that Bolivia could reduce deforestation to the tune of 100 million tons of carbon dioxide was “not credible.” Maillard, a co-author on the letters in Science that argued in favor of carbon markets and reforms to forest policy, said in an email that until the government issues more regulations to govern credits, “it is complex to think about selling carbon now. During the last few years a number of companies of dubious provenance have appeared that have approached indigenous territories to ‘sell them smoke’.”

At the current trajectory of deforestation, he said, Bolivia will be unable to comply with its commitments under international agreements.

Neither Bolivia’s Ministry of Economy and Public Finance, which is behind the effort, nor a spokesperson for the country’s president, Luis Alberto Arce Catacora, responded to repeated requests for comment.

“The offset is the single greatest tool we have to move money from people who have it to people who need it.”— Andrew Gilmour, Laconic chief executive

Mulder said she is sympathetic to the pressures on Bolivia and other developing nations.

“We need to pay countries to protect their forests, and that’s just not happening,” Mulder said. But the problem with carbon credits is they are likely to be used as offsets “to enable or justify ongoing emissions,” she said. “The best-case scenario is still not very good. And the worst-case scenario is pretty catastrophic, because we’re just locking in business as usual.”

Cullenward said, “I think this is transformative in the carbon markets, in the sense that, if these kinds of transactions happen, the locus of who is deciding what quality is is going to move from this small collection of registries that I have been very vocal in criticizing, to the host governments that participate in this process.” 

Cullenward said he didn’t have enough detail about the Bolivian effort to make a judgment about it, and he thinks it’s too soon to say how it will play out if more countries follow. “You can tell a story where everything gets better. You can tell a story where it gets worse, and there really isn’t a centralized governance regime that controls that outcome.”

Gilmour said carbon credits are imperfect but argued they offer the best way to mobilize financial flows.

“The offset is the single greatest tool we have to move money from people who have it to people who need it,” Gilmour said. “You can’t throw out the baby with the bathwater.”

The May sale could be a boon. It could be a bust. But it won’t immediately be clear what rules are governing it.

One of the few requirements under Article 6.2, Oeko-Institut’s Schneider said, is for a country to submit an “initial report” to the U.N., along with a cooperative approach and formal authorization. As of publication, Bolivia had yet to post any of these.

Laconic said the sale of securities will commit the government to submit its report once the credits are delivered.

“All the documentation suggests it’s only on paper,” Schneider said. “The assets they are intending to sell, they don’t exist yet.”