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December 1, 2023
6 minute read
As the world meets in Dubai for COP28, the following is the first in series of articles developed to encourage discussion and debate
Voluntary carbon markets were rocked this fall by serious issues related to the Kariba Project, a large REDD+ (reducing emissions from deforestation and forest degradation in developing countries) project in Zimbabwe that was developed by South Pole, the world’s largest GHG projects developer. Kariba was predicated on avoiding deforestation that was projected to occur if the land hadn’t been set aside. Unfortunately, those projections were overstated and, as a result, the project was issued credits that did not represent real GHG reduction.
Before its demise, the Kariba project was one of the largest offset projects in the world, having been issued over 23 million tonnes of credits. However, in-depth exposes by Bloomberg and The New Yorker have cast serious doubt on the legitimacy of many of the credits issued for the project. This has resulted in Verra, the offset registry for the project, suspending further crediting for Kariba. It could also require the cancellation of related credits that have been purchased and retired by a number of corporate buyers in which case the registry would have to to make up for the cancelled credits from its buffer fund. This could, in turn, deplete Verra’s buffer fund by up to 50%, according to some reports.
Most worryingly to carbon market participants, the scandal has greatly damaged the overall credibility of and confidence in the market.Buyers may well be asking legitimate questions: Are the credits we are buying real and how can we be sure?
The critical role of carbon markets and offset projects
CarbonAi has watched these developments with great concern. Carbon offset projects are an irreplaceable tool on the pathway to decarbonization, as they have proven to be the most effective means of mobilizing capital to deliver GHG emission reductions. They provide important flexibility for industries with difficult to abate emissions to bend the arc of emissions downwards in the near-term while developing sector-specific solutions in the longer term. Offset markets also support the commercialization of the technologies that are required for a low-carbon economy, often bringing important socio-economic benefits to developing economies in the process.
However, for carbon markets and offset projects to serve their intended function, they need to have impeccable credibility in the eyes of investors, buyers, regulators and the public at large. Data quality, integrity and traceability are of the utmost importance, as is the ability to irrefutably demonstrate that emissions represented by a credit have actually taken place.
These elements were clearly lacking in the Kariba project. The reason for this stems from a fundamental problem with forestry and nature-based projects: how do you accurately measure reductions from large, complex, biological systems?
The challenges of measuring trees
To date, nature-based solutions such as forestry conservation projects have been one of the largest sources of voluntary carbon credits. There are good reasons for this. First, forestry projects have a feel-good aspect—who doesn’t love forests, after all—along with many positive co-benefits. In the parlance of the industry, they are charismatic. Second, they offer scale. A large forestry project can yield millions of tonnes of reductions.
While forestry and other nature-based project types will continue to be important for the foreseeable future, they are notoriously difficult to measure. Much of the GHG reduction quantification is based on “counterfactual” scenarios, a speculative view of what would have happened in the absence of the project. As was illustrated in the Kariba project, the conditions on which these projections may change, resulting in overestimation of emission reductions.
Compounding the problem is that quantification of GHG emissions avoided through the project are usually calculated indirectly, through techniques such as modelling and manual sampling that have an inherent degree of uncertainty. Finally, nature-based credits are subject to reversal, as we have seen through increased wildfire activities, and leakage, both of which pose significant risk.
Benefits of metered GHG-reduction projects
These concerns do not generally exist in projects that are monitored and measured through metering and instrumentation. These projects are able measure a precise quantity of emission reductions and to clearly demonstrate that quantification. Further, they remove the speculative aspect of counterfactual scenarios by measuring only emissions reductions that have occurred.
Metering also significantly reduces methodological uncertainty, as approved quantification protocols for industrial emission reduction projects lay out the data monitoring and measurement requirements very clearly and adherence of the project to these requirements is certified in pre-project validation. Recent advances in telemetry and digital technologies are helping extend the reach metering and monitoring, closing the so-called “first mile data gap.”
It is this data accuracy and certainty advantage that drives CarbonAi’s focus on large-scale methane reduction projects. These projects are monitored and measured through metering equipment that is clearly prescribed by the quantification protocol and validated for adherence to that protocol prior to project kickoff.
How to meter a forest?
This should not be construed as an attack on nature-based solutions. We at CarbonAi are big fans of forests, wetlands, grasslands and coastal areas (so-called blue carbon) and we believe that they are a critical part of the climate solution toolkit. However, to be credible, the standards of measurement and monitoring supporting these projects must get better. Specifically, they have to include the tools and approaches that are embedded in industrial, metered projects. The good news is companies like CarbonAi and others are developing the digital tools that will allow us to do just that (more on that later in this series).
The importance of steak over sizzle
Finally, it should be noted that focusing on the supply side of nature-based projects is not enough. There also needs to be a more intentional effort by offset buyers to place more closely scrutinize the core product they are buying. Does the credit that they are purchasing represent steak in the form of a real reduction in emissions or are they just paying for the sizzle of charismatic feel-good projects?
This is a challenge given that the allure of more charismatic nature-based solutions is more easily communicated to stakeholders, and they are put on a pedestal by many ENGO groups. But the reality is, we need to reduce emissions where they occur and that often means decarbonizing industrial processes that lack the warm and fuzzy connotations of forestry projects.
We need to reframe what we think of as a charismatic project, with more emphasis on the data quality supporting the project, and a greater focus on generating real reductions in the immediate term. We need to focus on what CarbonAi refers to as “Immediacy of Impact.” This will be the focus on the next article in this COP28 thought leadership series, What’s Your Immediacy of Climate Impact?