Experts increase alarm over carbon credit score dangers | USAEMALL.com

Welcome back. It has been a rough couple of years for the voluntary carbon market. The promise of this industry is that it can channel huge sums from deep-pocketed companies towards environmental projects that deliver real impact — for example, by preventing deforestation.

But many of those companies have been turning away from this market, largely due to concerns about exaggerated claims by project developers. The value of traded credits slumped to $723mn last year, from $2.1bn in 2021, according to Ecosystem Marketplace.

Today, we look at the latest twist in the effort to breathe new momentum into this market with a new framework of rules. The type of disagreement highlighted below might seem inevitable when dealing with such a complex subject. But it is unlikely to reassure potential investors.

CARBON CREDITS

ICVCM quality argument goes public

The Integrity Council for the Voluntary Carbon Market is an organisation with a seriously intimidating mission: to restore confidence in the struggling carbon credit market by imposing rigorous, widely respected new standards.

Yesterday, we got another indication of just how hard that task is proving. Four experts advising on ICVCM’s Core Carbon Principles, which set out what high-quality projects in this field should look like, publicly attacked the group’s latest move to deliver on its mission. One quit in protest.

The rift stems from work the ICVCM started this year when it began announcing whether specific “methodologies” used by carbon credit project developers would get its seal of approval.

Yesterday the four dissenting experts published a piece arguing that the ICVCM had made a serious error by approving on November 15 three methodologies covering schemes that sell carbon credits linked with avoided deforestation.

The idea of such projects is that developers protect forest that would have been destroyed without their intervention — and sell credits corresponding to the amount of carbon dioxide emissions that weren’t released, because the forest didn’t get burnt. To some critics of the approach, the whole concept is a fool’s errand — how can anyone possibly know how much of the forest would have burnt down, in this hypothetical alternative scenario?

That’s not the angle of attack pursued by the experts in their new criticism. “These projects are really important if done in the right way,” said co-author Jürg Füssler, who was a member of the ICVCM’s 12-member expert advisory panel before announcing his decision to step down yesterday. The problem, according to Füssler, is that the projects covered by these methodologies will not be done in the right way.

Yesterday’s piece was also signed by Lambert Schneider, who left the expert panel in September due to unhappiness with the ICVCM’s approach, and two members of the separate 14-member subject matter expert group. It gives insight into some of the key risks that threaten the credibility of this market.

One is around the baseline figures that are used to calculate the impact of a project: if deforestation in the project area is below the baseline level, then the project gets to issue credits.

Under the three methodologies newly approved — two created by Verra, the world’s largest carbon registry, and another by the ART programme — baselines are calculated using deforestation levels over a period of several years before the project begins.

The potential trouble is that, if deforestation levels then improve across a whole country thanks to more assertive government policy, then project developers could end up selling a huge number of credits for avoided emissions that would have been avoided anyway, without their projects.

A further problem, according to the dissenting experts, is that the methodologies give project developers too much flexibility on how they calculate carbon benefits, creating a risk that they could pick favourable data in order to overestimate their emission reductions.

“Given the large size of these activities, we fear that the current methodologies could lead to large volumes of credits not backed by any actual emission reductions,” they wrote.

Verra said its new methodology had “passed the most rigorous benchmarks in the industry” and was backed by science that was “credible, rigorous, and continually evolving”. ART said it appreciated “the ICVCM’s recognition of the rigour” of its approach.

I discussed the criticism with Amy Merrill, the ICVCM’s chief operating officer, and Pedro Martins Barata, co-chair of the expert panel. Both stressed that the body was set up to accommodate a wide range of experts with differing views. “The system isn’t built to force people into consensus,” Merrill said. “The expert panel members are there to be independent — that’s the point.”

Martins Barata said that any potential over-crediting would be mitigated by the periodic revision of baselines that project developers are required to undertake (typically every five to 10 years).

He added that some of the potential risks identified by the experts were real, and had been mentioned in a discussion document accompanying last month’s decision announcement. But the risks were not serious enough for the methodologies to be deemed non-compliant with the ICVCM’s standards, he said.

“Is this risk unmanageable? Or is it within a tolerable level? And we say yes [to the latter question],” Martins Barata said.

The question now is whether the risk will look tolerable to the corporate buyers that this industry is hoping to win over.

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