Carbon credits, which promise an impact measured to a specific quantity of CO2, may not be the most efficient instrument in constantly climate-changing world. But a new approach can make carbon markets fit-for-purpose moving forward. Here are some key premises for business to finance forests and broader climate action in a new era.
Recent headlines about forest fires from Turkey to Canada to California have drawn attention to the complexities associated with carbon offsetting through forests.
Carbon offsetting has been an effective tool to enable the private sector to help close the ambition gap left by policymakers. It has helped the renewable energy market reach a tipping point to financial viability in middle-income countries. It has enabled the distribution of clean cooking solutions to some of the nearly three bilion people who cook with dirty, inefficient fuels across the developing world. And it has been an innovative laboratory for financing conservation and restoration of forests — which has important outcomes not only for climate, but often also for local communities and biodiversity.
Yet it’s underappreciated that carbon offsetting relies on a very strict set of rules that must be upheld to claim confidently that a tonne of CO2 has offset or compensated for an emission elsewhere. A number of those rules are particularly challenging in forestry but could be solved by innovations in how we incentivize forest conservation and restoration.
The first is permanence. Greenhouse gas emissions remain in the atmosphere for hundreds of years. To claim to have offset that climate impact, the forest carbon must be stored at least that long. Forests can store CO2 in organic matter; but like all living ecosystems, they are by definition ‘impermanent’ — that is, they face multiple threats to their survival, both natural and man-made, and thus to the carbon they store.
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To safeguard against this risk, all the major carbon standards including Gold Standard have ‘permanence buffers’ that require a percentage of all carbon credit issuances to go into a kind of insurance policy in case a forest burns down — as in the case of the Bootleg fire in Oregon — or if it’s affected by disease.
Even with standards’ provisions of 50-100 years of permanence, will anyone be around to keep that promise? And though permanence buffers address the risk today, aren’t they likely to be put under greater pressure with climate change increasing risks of fire and disease?
This doesn’t mean that the efforts do not deliver positive impact for climate, nature and society. It only means that specific claims to have offset, compensate or neutralize GHG emissions — the most common claims used today in the voluntary carbon market — may not be tenable over time.
The second rule is real and accurate baselines. This is particularly challenging to the vast majority of forest carbon credits, which come from avoided deforestation efforts or REDD+ projects. While some other carbon offsetting project types rely on a counterfactual scenario to quantify the impact of the project, in the energy sector this is straightforward to measure. When setting a REDD+ project baseline, the counterfactual assumption is an expected amount of deforestation that would happen in absence of the project’s protection. Again, carbon standards have guidance to estimate conservatively. But this is virtually impossible to predict, meaning it’s virtually impossible to quantify a precise number of tonnes of CO2 mitigated.
This doesn’t mean that it isn’t really important to finance conservation, particularly given the lack of other incentives to do so. It only means that carbon credits, which promise an impact measured to a very specific quantity of CO2, may not be the most efficient instrument.
The final rule is to ensure a unique claim. This is relevant for any project type, not only forests. While discussions on this topic quickly become technocratic, the short story is that due to the nature of the Paris Agreement, it will become more difficult over time to ensure that the climate impact of a carbon credit is uniquely claimed by a single user — the end buyer.
This doesn’t mean that we don’t urgently need the private sector to fund verified emission reductions to help close a massive emissions gap. It simply means that we need to accommodate the reality of the new, blurry lines between national commitments and corporate action.
A new approach is possible. We can leverage all the strengths of carbon markets —additionality, robust quantification of impact and independent verification — while making the system fit-for-purpose moving forward.
Here are some key premises for business to finance forests and broader climate action in a new era:
Innovate on how to value the impact of avoided deforestation. Storing carbon is important, but the beyond-carbon benefits of conserving standing forests arguably dwarf any carbon ledger. Companies should incorporate nature and/or deforestation targets that are taken as seriously as their emissions targets.
Better acknowledge impermanence. Climate action is needed now. Even a couple decades of carbon sequestration and protection of standing forests buys us crucial time to mitigate the climate emergency.
Reimagine claims. This can solve many of the issues discussed here. Instead of a binary ‘carbon offset’ claim, companies can describe in more detail what efforts they have funded and what impact it has delivered.
WWF’s Blueprint for Corporate Action on Climate and Nature, summarized in the graphic, points in this direction. More practical detail is still needed on how to price emissions appropriately, how to best allocate that finance across various efforts, and indeed which efforts and mechanisms, including carbon credits, are most effective.
Companies are also looking for clarity on the claims they can make in various cases — to avoid greenwashing and to be recognized for ambitious voluntary climate action.
Image credit: WWF
For our part, Gold Standard works with partners to provide this clarity in an integrated framework that provides guidance for making this blueprint actionable and a clear set of claims that make this higher level of ambition not just the right thing to do, but a way to build real value for organizations committed to sustainability. Watch this space …