The firestorm that newspapers The Guardian and Die Zeit started with coverage of “worthless” carbon credits certified by US-based standard setter Verra has yet to die down.
On Tuesday (31 January), Verra issued a lengthy rebuttal to “sensational” claims that over 90 per cent of forest management projects it screened are overstated, calling some studies used “patently unreliable” due to small sample sizes and unsuitable data, and criticising how the journalists presented the facts.
The day before, over 50 organisations penned an open letter defending “high-integrity” carbon markets.
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“The carbon credit market alone will not solve climate change. Not all credits deliver the climate benefits they claim. These two facts are not disputed. But they also do not mean that offsetting should be totally abandoned and that any engagement with carbon markets is greenwashing,” the letter said.
Central to the latest debate on the quality of forest conservation projects, the most popular source of offsets on the voluntary carbon market, is the issue of generating baseline scenarios – of what would have happened if a project did not exist.
Carbon credits are tabulated based on the difference between real-world data and calculated baselines. Organisations like Verra certify such calculations, and their endorsement serves as quality stamps in the crowded marketplace. The Guardian story questioned the veracity of project baselines Verra has reviewed, suggesting many of them have been overly pessimistic to inflate the number of carbon credits that can be sold.
Experts say baseline setting remains a tricky subject involving the interplay of science and business interests, since project developers would want to make money from the positive impacts they generate. They say key solutions include getting governments involved and improving the science, while businesses should also re-examine their relationship with carbon offsetting.
“If you are a project developer and your project has a given impact, you have every incentive to try and exaggerate it to get more finance. To some extent we can’t blame the developers because they are trying to finance the projects, and many of these are probably good projects,” said Gilles Dufrasne, global carbon markets lead at Belgium-based non-profit Carbon Market Watch.
Much of the leeway developers get stems from the flexibility they have in calculating baselines for their individual project areas, using mathematical models representing variables like deforestation risk and the socioeconomic attributes of the area they operate in, experts say.
That’s why some are encouraging the switch to “jurisdictional”-scale programmes, where forest management extends to entire counties, provinces or nations. Project developers would have less wiggle room around data for these larger locales, they say.
“The project-scale methodologies are problematic mostly because they attempt to predict the future using a variety of complex models to project deforestation, whereas the current standard practice in jurisdictional-scale crediting is based on a simple historical baseline,” said Frances Seymour, an expert at US-based non-profit World Resources Institute.
Seymour also sits on the board of standards organisation Architecture for REDD+ Transactions (ART), which certifies jurisdictional forest management programmes. Among ART’s rules are that developers look at five-year trends where they operate.
Seymour added that the main reason to move to jurisdictional-scale crediting is that “the main drivers of deforestation at scale are things that only governments can address” – pointing to illegal forest conversion, land tenure conflicts, agricultural regulation and fiscal policies.
Polly Thompson, a policy associate at UK-based carbon offsets rating firm Sylvera, said that large, jurisdictional-scale projects can also prevent deforestation “leakage”, where logging simply shifts out of carbon project areas and takes place elsewhere. Getting governments involved can improve benefit sharing with local communities. But such big projects also come with downsides.
“Projects on a smaller scale tend to be easier to implement, and they also have an established track record. We know they work and some of them have been working for a long time,” Thompson said, in a policy briefing last week. Sylvera said last year that about 30 per cent of forest management projects can be considered of high quality, and about 25 per cent are “effectively junk”.
As it stands, jurisdictional-scale forest management projects remain a rarity in carbon markets. Guyana issued carbon credits late last year, while Mozambique received payment for its conservation work from a World Bank programme in 2021.
Verra, the biggest carbon credits certifier in the industry, has been mulling a condition that requires individual project developers to use jurisdictional-level baselines, in what the industry refers to as a “nested” approach, though Verra intends to set such baselines itself. The rules, still being drafted, are expected by mid-2023, though project developers are only expected to comply in 2025. Dufrasne said Verra’s change would be a “helpful evolution” in reducing the leeway project developers have in inflating their own baselines.
Professor Koh Lian Pin, director of the Centre for Nature-based Climate Solutions at the National University of Singapore, said he recognises the benefits in moving towards jurisdictional-scale baselines and projects, but that they are no catch-all solutions. The “weak” science around forest and emissions data projection needs to improve either way, he said.
“It is really very challenging to have an idea of what will happen in the future. You can perhaps estimate based on what happened in the past…but you make an assumption that it will continue into the future. You really don’t know for sure, it is always hard to see into the future,” Koh said.
The problem means there should be more investment into improving scientific modelling. The quality of environmental and socioeconomic data needs to improve, while such drivers of forest change need to be better adapted into predictive models to improve baseline accuracy, he said.
The main risk of inflated baselines and the glut of carbon credits is that companies buying them think they are offsetting more emissions than in reality, thus slowing their pace of decarbonisation.
Given such risks, and that it is practically impossible to guarantee that each carbon credit represents exactly a tonne of carbon dioxide – the current definition used – firms should also relook how they treat the credits they buy, said Dufrasne.
That means continuing to fund conservation projects, but not being fixated on tallying the carbon savings the projects translate into in their own carbon neutrality plans.
“I think there is still a perception that offsetting and carbon neutrality are good [public relations strategies], but I think that is changing. With increased media coverage of all the shortcomings of this practice, it is increasingly a reputational risk for companies to make such advertisements,” Dufrasne said.
Seymour said that things have already been shifting in the corporate world.
“The new best practice is that companies will only use carbon credits for claims after they have done everything [possible to decarbonise] their value chains on a pathway to net-zero,” she said. Corporate sustainability programmes, such as the Science Based Targets initiative, require companies to internally decarbonise by some 90 per cent before offsetting the rest.
“In other words, the purchase of credits would represent additional climate action rather than a substitute for climate action,” Seymour added.
Koh’s fear is that the latest controversy on forest carbon programmes reduces public confidence in nature-based solutions as a whole, which he said is still sorely needed today – be it via market approaches, or when governments step in with funding or regulations.
“We should not lose sight of the fact that we need these [conservation] projects. All these controversies around how we are funding them is a separate issue,” he said.