Assessing the Quality of Carbon Credits

Climate change is poised to alter the Earth forever, more and greater businesses are promising to cut the carbon footprint of their operations. However, reducing greenhouse gases does not happen over night. This is why large corporations have adopted carbon offsets as a way to help bridge the gap.

“It’s an instrument for transition,” says Sarah Leugers Chief Strategy Officer for Gold Standard, a voluntary carbon offset program that is based in Switzerland. “A company must be on a scientific decarbonization process and employ carbon offsets in order to accept responsibility for any emissions that are emitted throughout the process.”

Carbon offsets are the process by which an individual or a company that has a goal to reduce emissions compensates another person to cut emissions. Scientists consider carbon mitigation as well as the greenhouse effect as a whole for the entire planet. This means that the atmospheric damage caused by carbon dioxide emissions from factories in Chicago could be offset by the reduction of CO2 from projects that introduce electric stoves into villages in rural India. Carbon offset projects typically are carried out in countries in the developing located in the Global South because the costs for taking actions like the planting of the trees (or hiring people stop cutting trees down) or building wind farms are considerably less than those in industrialized nations.

Many of the most vocal supporters of using the carbon credit exchange are of the opinion that they’re not the panacea. However, there are those who have an even more harsh criticism. “In many instances, carbon offsets] serve as a substitute of someone who reduces their own carbon emissions, and they are able to justify or ease the burden of continuing emissions,” says Barbara Haya Director of the Berkeley Carbon Trading Project at the University of California, Berkeley.

The system is under scrutiny because it has not delivered on the emission reductions that were promised. In both cases, Haya as well as Danny Cullenward, policy director CarbonPlan, a California-based climate research firm CarbonPlan and CarbonPlan, consider the system “broken,” relying on flawed incentives and flawed methods with inadequate oversight. Both of them recommend businesses concentrate on reducing the emissions from their own operations, including cutting down on business travel, using electric vehicles for fleets, or shifting to renewable energy instead of the cost of offsets.

The market for carbon offsets has seen a dramatic increase in recent times, with major corporations such as Google and Amazon vowing to be net-zero in emissions, partially through purchasing offsets. Airlines like United and American allow consumers to purchase offsets equal to the amount of carbon they emit from their flights. By 2021 the overall market value of carbon markets that are voluntary (VCM) exceeded $2 billion as per Ecosystem Marketplace, an initiative of Forest Trends, a nonprofit environmental finance company based located in Washington, D.C. That amount is almost four times the amount of VCMs in the year before at $520 million.

The industry is becoming into the mainstream market, we’re seeing a myriad of trade carbon credits projects with big environmental claims, but only a few resources to determine the real deal from the fake. This article explains how this process works and what business needs to consider when it decides to make use of carbon offsets.

Certification is a Vital Part of the System

Carbon offset programs include a range of types of projects. However, the most popular ones are Renewable energy sources (such as solar, wind and hydroelectric) methane capture, combustion (burning methane transforms it into an environmentally friendly substance that can be used to fuel) and efficient energy use (such in electrification) as well as related to forestry (like forest reforestation) according to Carbon offset firm based in Las Vegas, 8 Billion Trees, which has large plantation and reforestation operations within the Amazon Rainforest.

A carbon offset credit is one metric tons of carbon dioxide that has been reduced in the atmosphere, be it through avoidance or the capture of CO2. Prices vary based on the type of project timeframe, location the cost of materials and labor and other aspects. The project must calculate the amount of CO2 they have avoided, and submit the information to carbon offset registry which will translate the climate impact to individual credit that may be purchased and sold through the market decentralized.

To be eligible for internationally recognized credits for financing, projects must be approved through one of four carbon offset registries that establish the standards for the industry. The top four according to experts include The American Carbon Registry (ACR), Climate Action Reserve (CAR) as well as Verra (Verified Carbon Standard)–all three are located on the U.S.– and the Swiss-based Gold Standard.

The certification is based on an audit conducted by a third-party verifier who is commissioned by the project’s developer. The project’s protocols or methods that are that are approved by Verra For instance, they must be scientifically valid, with the ability to measure emissions for a long time that are estimated conservatively, meaning the methodology isn’t overestimating the impacts on the climate of the project.

“Make sure that [a carbon credit] comes from an international standard since there are lots of new companies emerging who claim that they can issue carbon credit, however they do not possess the essential qualities,” says Leugers, of the Gold Standard. A lot of projects, for instance do not have conservative base settings to calculate emissions reductionsor could have occurred without intervention by the program. Making sure that the projects are internationally certified will help to reduce this problem.

However, Haya is skeptical of the methodology employed in carbon offset initiatives. “We’re in a bad process,” she says. “Because the amount of credits created which exaggerate the impact of projects and the costs are too low. At the current price, they’re not sufficient to reduce emissions.”

She believes that registries must establish stricter standards for what constitutes carbon offset credits within a particular project. A project that is lenient in its approach will eventually exaggerate the amount of credits earned and the benefits to the environment. However, when registry offices do crack down on rules, developers are often able to discover another registry that is willing to adhere to their more relaxed procedures.

Monitoring Reporting, Monitoring and verification

In every protocol, a project should have a plan for reporting progress and emissions are calculated and credits are distributed. When the plan is in place it is time to enter in the reporting, monitoring and verification, also known as MRV Phase.

Jodi Manning Director and vice president of partnerships and marketing for the California-based Cool Effect, a nonprofit carbon offset company The reporting timeframes for their projects differ. Cookstove projects could be reviewed every year, while forest projects might be evaluated each three years. However, Cool Effect says it is required to update its database every six to twelve months, and conducts regular visits to the site, complete with photographs and interviews.

In the case of Gold Standard, most projects must report back every year at least once, Leugers says. She also points out Gold Standard’s association in the International Social and Environmental Accreditation and Labeling Alliance (ISEAL) and its grievance procedure–to file complaints about Gold Standard and projects as a means for accountability and transparency.

Cullenward CarbonPlan’s Cullenward CarbonPlan believes that strict conformity to protocols could be insufficient. “We have a way of declaring that we have adhered to the guidelines,” Cullenward says. “We don’t have a system to check whether the rules make sense.”

A lot in the confusion is due to carbon offsets in general The uncertainty is inherent to carbon offsets in general, says Haya. “We have a way of measuring emissions. When you measure offsets, you’re measuring emissions reductions, and you need to compare them against a counterfactual model of what could be the case without the program. It’s impossible to quantify, and the uncertainties are being deliberated by a group of people who all gain from the greater credits, but with poor quality.”

Analyzing the quality of the Carbon Credit

To assess a carbon offset credit’s quality, there are four major terms to know: additionality, permanence/durability, buffer pool, and leakage.

Many experts believe that the long-term benefits to climate change of carbon offsets rest on the idea of additionality. That means that credits should only be issued to projects that wouldn’t occur without funds from carbon offset programmes. “If the funds are used to fund trees that could have been planted otherwise so no offset should be created for the plants,” Haya says. “You’re not decreasing emissions, you’re paying someone else to do what they’d have done in the first place.”

Cullenward claims that the majority of carbon offset companies overstate the value of their projects. A study that looked at turbine farms located in India discovered that at the very least 52 percent of carbon offsets were for projects that could be built without aid from the UN’s Clean Development Mechanism, an international offset scheme that was created as part of the Kyoto Protocol in 1997.

“Time and time again” he claims, “when academics and financially interested parties conduct research projects in order to be careful about the validity of these claims as a baseline They find burning garbage fires.”

Permanence is the concept that the benefit of the project to the planet is indestructible and durability is the measure of how long the benefits will endure. Certain reduction initiatives can be a long-lasting solution; for instance making fewer trips and switching on an electric cook stove can stop the emission of greenhouse gases from occurring at all.

“When we release CO2 into the atmosphere as a result of combustion of fossil fuels can have long-lasting effects,” Cullenward says. “The impact on the atmosphere as well as the oceans goes on for the geologic time. Therefore, if you wish to make use of offsetting credits in order to claim”It’s okay to emit CO2 into the atmosphere (from flying or drivingfor example], the time span of the claim created must be in line with the amount from CO2 emissions.”

Others projects aren’t assured of being permanent. To benefit from the environmental advantages of forest projects, trees require a minimum of 100 years to accumulate the equivalent of a metric tons of carbon. However, fires and droughts and illnesses can occur and, when trees die, carbon dioxide releases. Therefore, developers of projects must consider these risks when designing their protocol.

To protect against natural catastrophes that may thwart an environmental advantage of a particular project and other negative impacts, carbon offset providers set up a buffer pool for insurance. In every project the tens of percent to 25% of the credits are held in a centralized pool that ensures that the project is able to meet its objectives.

Additionally “if there’s an incident of burning fire” Cullenward says, “the buyers and sellers of sold credit on the market remain intact, provided that those credits are retired from the buffer pool in order to account for the losses. If a million tons CO2 is destroyed in the forest, then a million credits could be removed from the buffer pool. As long as the system is in good health it is in good shape to achieve its longevity promise.”

But buffer pools aren’t completely safe. A recent study of the forestry offset program in California, Cullenward and fellow researchers discovered that wildfires had reduced 95% of carbon credits contained in the buffer pool in the first 10 years of the program. This means that the loss of carbon from fires is significantly more than the climate benefits of keeping trees with this offset program.

Protocols must take into account leakage as this is the concept that projects could create emissions that are higher than the areas producing offset credits. Haya states that this happens in certain projects for forest conservation. “If the landowner is committed to reduce emissions by decreasing the amount of timber they’re harvesting , but not altering the demands for timber products conserving a piece of the land will simply replace the timber harvesting elsewhere,” she says.

In evaluating the carbon offset scheme Many companies concentrate on the potential co-benefits that projects bring that promote sustainable development, for example employment for locals within the region, empowerment of communities as well as health improvement, and the preservation of biodiversity.

Dee Lawrence, founder of Cool Effect, says she always seeks out projects that have an environmental justice perspective which goes beyond carbon-free benefits. She cites recent projects of the company, which include the restoration of mangrove trees in Myanmar that improve the quality of life in poor communities by creating employment opportunities, as well as the biogas digester project in China that converts methane gas generated from trash into sustainable energy, and enhances human health by providing clean air. “If the carbon offset is executed properly, it could transformative,” Lawrence says.

For Haya she suggests using carbon offsets as just one option available in the toolbox. However, in the end, she believes that cleaning up one’s personal operations will make the most impact.