A Major Showdown Is Brewing Over What Counts as a Carbon Credit

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Source: McKinsey & Co. Report, January 29, 2021

The United Nations is in the process of defining global carbon markets for decades to come, and it could make or break the fledgling carbon removal industry.

By in Bloomberg

A few sentences in a note from an obscure United Nations group has ignited a firestorm in the carbon removal world. At issue is a beguilingly simple question: What counts as a carbon offset?

The document — a draft to define a new global carbon market, released last month — elevated nature-based solutions like planting trees while downplaying the role of carbon dioxide removal (CDR) using machines or other forms of technology. Both natural and technological approaches can be effective ways to stave off the most catastrophic impacts of global warming. The demarcation might not sound like a big deal, but to the carbon removal industry, it’s existential.

Another UN-backed group, the Intergovernmental Panel on Climate Change (IPCC), has warned that the world will almost certainly need to remove billions of tons of carbon a year from the atmosphere by mid-century to limit warming to 1.5C.

The market for carbon offsets is estimated to be about $2 billion today. By mid-century, BloombergNEF projects it could grow to anywhere from $160 billion to $624 billion annually. (In a separate analysis, BloombergNEF found that relying on carbon removal alone could cause the market to reach nearly $1 trillion by 2037.)

If the UN declares nature-based solutions the one and true way to remove carbon from the atmosphere, it could effectively ice a growing industry out of the very market it’s trying to serve, potentially imperiling the climate in the process.

The litany of carbon removal’s sins, according to the UN note, include not contributing to sustainable development and being as-yet “technologically and economically unproven.”

The litany of carbon removal’s sins, according to the UN note, include not contributing to sustainable development and being as-yet “technologically and economically unproven.” Engineered removals also “are not suitable for implementation in developing countries and do not contribute to reducing the global mitigation costs,” the note said. Yet the panel declared traditional carbon market solutions like reforestation relatively benign despite a mountain of evidence showing projects often fail to deliver on their emission-cutting promises and sometimes trample on human rights.

The document and subsequent backlash that followed get at fundamental and growing tensions about what counts as a ton of carbon removed and stored. About the only thing everyone seems to be able to agree on is that there isn’t a carbon-removal technique on the market today that’s cheap and easy to do as well as durable and permanent.

Direct-air capture — using machines to grab carbon from the sky — is only able to remove a few thousand tons of carbon a year and remains expensive and energy intensive. Nature-based solutions, while cheaper and more established thanks to years of being traded on voluntary markets that companies participate in to supplement their own emissions reduction efforts, have a shaky history when it comes to reliability and durability. The natural stuff also requires quite a bit of land. The low cost of nature-based solutions reflects how voluntary carbon markets have driven a race to the bottom, with a flood of projects based on sometimes shoddy accounting.

In essence, the world currently has two choices: pay a little money for nature-based solutions, or pay a premium for more durable removal. (For context, carbon removal startup Charm Industrial charges customers starting at about $600 per ton, which is the same amount Bill Gates said he paid another removal company, Climeworks.) The UN is potentially putting its thumb on the scale in favor of the former.

“I think the short answer to this is we need the entire portfolio of solutions at the appropriate time at the appropriate application,” said Ben Kolosz, assistant professor of renewable energy and carbon removal at the Energy and Environment Institute of the University of Hull. “So I wouldn’t say one is better than the other. Each has its own strengths and weaknesses, and it’s important to take those into account.”

Rather than asking the UN to favor one method over another, many in the carbon removal industry are calling for the intergovernmental organization to adopt a “method-neutral, criteria-based approach” to evaluating projects. A group of 100 carbon removal industry advocates recently called for the UN to instead adopt the definition of carbon removal set out by one of its own science experts in the IPCC that doesn’t distinguish between nature-based and engineered solutions. Instead the panel of top climate scientists defines carbon removal broadly as “anthropogenic activities removing carbon dioxide (CO2) from the atmosphere and durably storing it in geological, terrestrial, or ocean reservoirs, or in products.”

“Virtually every CDR approach is a hybrid of nature and engineering,” said Ben Rubin, the executive director of the Carbon Business Council, a nonprofit representing carbon management companies, which gathered the letter’s signatories. He pointed to examples like biochar and enhanced rock weathering, which both use natural processes to remove carbon, in addition to human engineering.

“Virtually every CDR approach is a hybrid of nature and engineering,”

The draft document is part of ongoing discussions in the lead-up to COP28 climate talks being held in Dubai later this year. No formal framework has been adopted yet by the carbon removal standard-setting group within the UN, though the note does foreshadow where the final draft may land.

When the language is finalized, it will provide an umbrella framework for carbon removal that will have ripple effects across the industry, especially as national governments ramp up investments in the burgeoning space. The UN panel’s final decision will have huge consequences for the carbon removal industry, as well as the direction the world takes when it comes to pulling carbon from thin air to avoid catastrophic warming.

“The lines just start blurring so quickly,” said Rubin. “Which is why I think having a criteria-based approach has the most clarity rather than artificially saying that one thing is nature and one thing is technological.”

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Trees in an area of dense primary forest in Nyanga, Gabon, on Wednesday, Oct. 12, 2022. A United Nations group is weighing how carbon markets should value nature-based and engineered carbon removal solutions.Photographer: Guillem Sartorio/Bloomberg

Commentary from Anthropocene:

Burn a gallon of gas, protect some trees, and you’re net zero. If only it were that easy.

In recent years, the apparent simplicity of this transaction has been increasingly called into question. In January 2023, the debate culminated in an investigation by the Source Material organization (in collaboration with The Guardian and Die Zeit). Their story, “The Carbon Con,”ignited a media firestorm. Leaning heavily on research that analyzed over 100 million carbon credits for avoided deforestation, researchers calculated that 94 per cent of those credits are likely to be worthless. Other scientists—and a multi-billion dollar carbon credit industry—disagree.

That presents us with a dilemma. Do we double down on offsets, fix the worst mistakes, and accept that some “cons” are worth playing? Or do we put all our decarbonization efforts into the tougher battle of reducing emissions in our daily lives?

 

• • •

Planting trees is good, but protecting the rich ecosystems of existing forests is better.

A Protection Racket?

1.  Planning vs protecting. There are two ways to turn trees into carbon credits: planting new ones, and not cutting down old ones. The carbon benefits of the first are hard to quantify, and the second, called “avoided deforestation,” even harder. Avoided deforestation accounts for about 30% of forest credits sold globally, according to Source Material. But you can only take credit for protecting a forest if it would otherwise be razed for logging, agriculture, or settlement. The United Nations helped set up a framework for assessing such projects in developing countries, which organizations like Verra, who sold the credits in question here, turn into standards and then monetize. The Source Material story used research from Thales West of Vrije Universiteit Amsterdam to examine 29 projects in the Brazilian Amazon and concluded that only 5 had resulted in any carbon reductions.

2.  A profitable guessing game. Predicting how much forest will be cut down in the future is far from an exact science, as the climate and geopolitics shift. West accuses Verra, the organization that sold the carbon credits, of using models that overstated the risk of deforestation, and thus the carbon saved. “I wanted to know if we could trust their predictions,” he told Source Material. “The evidence from the [statistical research] suggests we cannot.” Nor is West the only critic: Last year, the former head of the Australian government’s Emissions Reduction Assurance Committee, said the country’s growing carbon market was “largely a sham.” Others warn of programs ignoring future wildfire and insect risks that could send their tree carbon up in smoke.

3.  The net zero mirage. The questions over Verra’s credits feed into a larger concern—is off-setting our way to carbon neutrality wishful thinking? Some climate scientists are now calling net zero “a dangerous trap” or even a “lie,” because humanity cannot remove carbon at the scale needed to prevent catastrophic climate change. “We have arrived at the painful realization that the idea of net zero has licensed a recklessly cavalier ‘burn now, pay later’ approach which has seen carbon emissions continue to soar,” writes James Dyke, Associate Professor in Earth System Science at the University of Exeter, and others. Only an immediate and drastic reduction in our reliance on fossil fuels will help, they think. As they say, good luck with that.

deforestation and carbon offset markets

 

• • •

preventing the loss of one hectare of mature forests will typically avoid emissions of about 100 tons of carbon; while tropical reforestation typically sequesters just 3 metric tons of carbon per hectare each year.

A Maturing Investment   

1.  The carbon value of forests is sky high—and surprisingly cheap. Planting trees is good, but protecting the rich ecosystems of existing forests is better. Researchers at the Cary Institute of Ecosystem Studies calculated that preventing the loss of one hectare of mature forests will typically avoid emissions of about 100 tons of carbon; while tropical reforestation typically sequesters just 3 metric tons of carbon per hectare each year. Forest protection typically has costs only around half those of reforesting a similar area, and comes with knock-on benefits for biodiversity, resilience, and community use. In the absence of local regulations controlling deforestation, carbon credits are a way to give landowners a financial incentive not to clear forests.

2.  The science is good, and getting better. Verra pushed back against some of the research cited by Source Material, claiming that West’s statistical approach did not account for the real-world conditions of the sites in question. Other recent research has found that avoided deforestation programs have, in fact, reduced deforestationand protected sites, particularly with the help of local communities. The World Economic Forum recently wrote that it “stands behind the use of demonstrably high-quality forest carbon credits as a crucial tool in the urgent fight against climate change.” And Verra and others noted that nature-based offset methodologies were continually being updated to reflect the latest science.

3.  A nudge to the bottom line. The idea of net zero is well worth keeping, thinks Nicholas Aster of South Pole, a sustainability solutions provider. He writes on LinkedInthat when corporations start thinking about carbon credits, they have to calculate their own carbon footprint, often for the first time. Buying credits then creates costs for the organization that it will naturally want to minimize, by reducing emissions. Finally, the credits themselves will fund worthwhile projects, many of which “have myriad benefits beyond just removing CO2, including economic and social justice issues around the world.” Until governments get their act together and set tough emissions laws, such voluntary projects are all we have, and nearly 90% of businesses see the value of carbon credits in helping them to decarbonize. Whether that’s the start of a virtuous cycle or just more wishful thinking remains to be seen.

 

• • •

What to Keep An Eye On

1.  The appetite for carbon credits. Trove Research, a data and analysis firm focused on corporate climate action, had previously expected the voluntary carbon market to grow by 40% in 2023. In response to the Source Material story, the company warned: “Be careful what you wish for in criticizing corporate climate action. These capital flows are important and will be needed more than ever going forward.”

2.  The net zero juggernaut. In 2022, a record number of companies, over 1,000 including Sony, DHL, and Delta made their first commitment to setting a net zero target, says Trove. But the number of companies making such commitments also seems to have peaked last summer. Are companies getting serious about the climate in other ways, or is this the beginning of a green backlash?

Growing number of companies with carbon offset commitments

Source: Trove Research

 

3.  Tracking deforestation from space. Brazil’s satellites showed that deforestation in the Brazilian Amazon has jumped 150% in outgoing president Jair Bolsonaro’s last month in office, December 2022. New satellites and systems are coming online this year—including one (get ready for it) using blockchain technologies.

 

Image: ©Anthropocene Magazine

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