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Carbon credits discredited: Handprint’s response to The Guardian’s recent investigation on carbon offsets.

mangrove reforestation

Hugely disruptive news made waves across the sustainability industry this past week when a recent investigation concluded sharply that “more than 90% of rainforest carbon offsets by biggest provider are worthless.”

Conducted by various scientists in collaboration with The Guardian, the investigation seriously threatens the credibility of the rainforest Redd+ credits certified by Verra and bought by some of the world’s largest corporations. If it proves correct, the carbon neutrality efforts claimed by the likes of Disney, Shell, Gucci, and Delta may be almost entirely futile.

Verra, through its portfolio of Verified Carbon Standards (VCS), certifies a whopping ~75% of the world’s voluntary carbon credits, ~40% of which comes from its rainforest protection programme, which is now under attack.

Does this mean the entire system is a scam?

Here is why we believe that, no; companies must keep supporting nature-based solutions. However, a very different strategy is required for real change to finally take place. Best of all? It already exists.

How do carbon credits work? 

A carbon credit is a claim that one ton of CO2 has either been (a) removed from the atmosphere, or (b) been avoided.

Carbon dioxide removals can happen through nature-based solutions, such as reforestation and the capture of coastal carbon into olivine, as done by Project Vesta – or through complex technological processes, such as direct air capture or carbon capture and storage. By removing CO2, the carbon concentration in the atmosphere goes down, reducing the greenhouse effect.

Carbon dioxide avoidance results from actions which ensure that the CO2 that would normally be emitted is not emitted. Typical examples include financing clean cooking stoves that replace burning oil or wood in developing nations, renewable energy that replaces (planned) dirty energy sources, or empowering forest conservation and reducing the deforestation rate in a specific area.

There are many challenges in terms of how we measure removal and quantify avoidance – a complex topic for another time. Here, the key challenge that the article from The Guardian highlights is focused on CO2 avoidance.

What’s the issue with carbon avoidance?

Firstly, to actually quantify the positive impact of carbon avoidance,  we need to estimate what would happen if a specific carbon-credit generating project does not occur.

This is not an easy task. The main factors that influence the quantity of carbon credits based on avoided emissions in the reforestation space are the following: project area, reference area, historical deforestation rate, and additionality.

Let’s explore these four factors in detail:

The project area is the geographical area in which conservation and afforestation takes place. It is the area in which a project manager (often an NGO) intervenes in order to improve conservation and reduce the risk of deforestation.

The reference area is the area used to compare what happens in the project area versus what happens elsewhere. A good reference area needs to be similar to the project area to make the comparison fair. If the reference area is exposed to different social or economic challenges (for instance, there being many more roads in the reference area, making it easier for (illegal) loggers to cut down trees), then the differences between the project area and the reference area may not necessarily be caused by the intervention of the project manager. It can simply be a consequence of the fact that it is easier to cut trees in the reference area than in the project area.

The historical deforestation rate measures the rate of deforestation in the area’s recent history (5-10-20 years). This matters because, remember – carbon credits are awarded based on avoided emissions. If, historically, the deforestation rate was high, and the conservation project manages to eliminate all deforestation in the project area, then the carbon credits awarded on an annual basis are roughly equal to the historical deforestation rate multiplied by the carbon stock (the total carbon sequestered in the project area) in the project area. So if the historical deforestation rate is 5% per year and the carbon stock is 1,000 tons per hectare then a 1,000 hectare conservation project will seek to avoid the carbon emissions of 1,000,000 tons. If it is very successful (deforestation = 0%), then it can receive 50,000 tons of carbon credits per year.

Additionality means that the conservation effort done by the project manager would not be able to occur without the issuance (and thus selling) of carbon credits. Put simply, a project that could happen without carbon credit financing is not additional. This is, for instance, why many of the renewable energy carbon credits are being severely devalued at the moment. As the price of renewable energy has reached price parity with fossil fuels in many countries, there is no real need anymore to reward additional carbon credits. If the conservation of a forest was going to happen anyway, or if there is no threat to deforestation (e.g., because the forest is virtually inaccessible to loggers and is not at risk), then there is no additionality; ergo, the carbon credit financing was not actually necessary.

To a certain extent, these 4 factors are more art than science – and this is exactly where the problem lies, according to the recent report published by The Guardian.

The analysis suggests that 94% of the rainforest carbon credits should not have been approved. In some of the investigated projects, deforestation was not halted (or even reduced), and in cases where deforestation was reduced, the reduction was not actually more impressive compared to reference areas.

In other projects, the historical baseline deforestation rate was overstated by up to 400%. While that sounds bad enough already, the study found that three fantastic projects in Madagascar actually skewed this number downward. Removing those three projects led to an overestimation of the reforestation rate by 950%. Put simply, that means that 9.5 times more carbon credits can be issued than should have been. 

Does that mean carbon credits from avoided emissions are useless?

It’s not that simple.

Support for forest conservation (which can lead to carbon credits for avoided emissions in the current paradigm) is extremely important and, together with industrial decarbonization and further investment in solutions that remove carbon from the atmosphere efficiently, is probably the best thing we can do for the planet.

We need to halt deforestation globally; therefore, financing mechanisms that support conservation at mass scales need to be developed. Without such support, we risk creating perverse incentives. An existing forest that is not under threat may not currently receive funding from the carbon market. This creates an incentive to announce a major urbanization project or a large agricultural development that would see the forest reduced to ash. Only if that threat is considered to be real, which typically means a few years into the logging activities, can the remaining forest be considered for financing through the carbon market. By this time it is almost too late. This is a critical problem. The last thing we want is to misalign incentives for conservation.

It will be very hard to remove those perverse incentives as long as companies and governments remain committed to measuring carbon neutrality merely as a combination of positive impact creation and negative impact avoidance.

Now here is the solution we propose instead – a real solution that takes care of all the concerns above.

What’s different about Handprint’s sustainability approach?

Pretty much everything.

We believe that positive and negative impact accounting should be two entirely separate processes, and that the popular idea of achieving “balance” through carbon offsetting is actually very scientifically dubious.

This is especially relevant to carbon credits for avoided emissions. If a company emits 1,000 tons of CO2 and then buys avoided emissions carbon credits, the net impact of the company is still 1,000 tons of CO2 added into the atmosphere. If the avoided emission carbon credit is of high quality (i.e. the four factors are accurately determined), then the purchase does prevent another 1,000 tons of CO2 from entering the atmosphere – which is great – but it does not actually lead to a balanced carbon book. 

At Handprint, we provide three solutions to these problems:

Additionality for ecosystem regeneration.
We empower the NGOs in our ecosystem that are doing direct conservation and regeneration work by providing them with high quality reporting tools. These tools enable them to report accurate, auditable, and transparent information on what is going on in the project. We focus on degraded forests and can verify that the money we send our impact partners is used transparently to create the impact that they committed to. We make all this information easily accessible through our enterprise dashboard. This shows us undoubtedly that our reforestation partners could not do their amazing work without the tree purchases routed through our platform. Therefore, we are confident that our work meets the additionality criteria.

Better Science.
The focus of our work is on enabling credible claims to tangible, positive impacts on nature. Our measurements are concerned with the successful improvements upon nature in our project area, irrespective of historical deforestation rates. We simply do not consider these rates, and thus in practical terms for us, historical deforestation is equated to zero. We only consider increases in the carbon stock and work closely with our reforestation partners to avoid negative spillovers into other areas – a real risk with many other reforestation projects. This can happen when a specific project area becomes well protected, yet this simply leads to the displacement of the logging work to other areas. I.e loggers realize they cannot log as easily in the protected area anymore, and thus move their operations to another place in the vicinity. Soon, we will use satellite images to track the evolution of areas that are larger than the project area, to ensure that relevant reference areas are explicitly considered. There is a very important distinction to be made here: For a carbon crediting project, it is, in a perverse way, good news for them if the reference area further degrades. This is because that warrants the issuance of the carbon credits, and “improves” the value of the work being done to the project area. In contrast, the claims we sell at Handprint only focus on the real, additional work that is done by the reforestation partner in the project area. We therefore strongly encourage our clients to refrain from making claims around carbon neutrality due to the dubiousness of the real impact this has.

Carbon credits for the 21st century.
Given the current state of the sustainability market and public consciousness, carbon credits are still highly sought after. We therefore ensure that the growing number of companies that are looking for the best quality carbon credits can buy them from a source that is trustworthy and uses the latest technology to maximize effectiveness. We achieve this through our partnership with the Global Mangrove Trust (GMT) and join projects in the development stage that allow us to provide reporting tools to the project partners on the ground. This clearly improves financial transparency and impact accounting. The carbon crediting standard championed by GMT, in collaboration with Kumi Analytics and financially backed by commodity broker Marex, has been adopted as the first approach approved by OxCarbon (Oxford-based carbon crediting agency that focuses on super high quality carbon credits that are validated and verified through space-based intelligence and machine learning). The OxCarbon standard infuses internationally recognized data on historical deforestation (e.g. provided by FAO) with locally relevant information and historical high resolution satellite mapping to make a conservative estimate of the historical deforestation rate. OxCarbon also exercises great caution with its issuances and deliberately issues a more conservative volume of carbon credits than the estimation methodology suggests. Moreover, because the methodology is rooted in machine learning, we know it will become better over time. Every time more ground data is collected, the model can train on a larger dataset, further increasing the accuracy of its estimates. It is a testament to the success of this approach that, after the Indonesian government halted all carbon credit issuance for Indonesian projects as part of its attempt to nationalize the carbon credit market for tax purposes (an initiative we support), the project by Global Mangrove Trust and its partners is now being favorably reviewed by the Indonesian government to be registered in its newly developed National Registry System.

Final thoughts

At Handprint, we believe that data-backed, science-based regeneration is the way forward for a better planet, and we are confident that important projects like the Global Mangrove Trust will receive the increased attention and support that it deserves.

The carbon credit market is deeply flawed, and it is riddled with opportunism and nascent science – as well as a lot of good intentions. We always follow the science closely, and continue to rely on conservative forecasts as well as in-depth knowledge about how forests evolve.

The importance of the nature-based solutions requires Nature Tech ventures like ours to work together and establish the credibility of the space. Otherwise, companies and governments will rightfully question the credibility of us all. It’s on us to make sure that our commitments and claims are credible. That’s why at Handprint, we will always place high value on Auditability, Reporting, and Transparency

 

Oh wow, we have a lot to say about the topic! Below our main takeaways:

  • Despite the concerning findings, carbon credits remain a valuable tool to fight climate change, protect biodiversity, and support livelihoods.
  • New carbon crediting approaches and methodologies that are rooted in advanced machine learning, such as the new OxCarbon standard, offer alternatives to buyers who loose faith in incumbents.
  • Handprint offers companies access to direct regeneration by establishing peer-to-peer connections between companies and projects on the ground.
  • Handprint enables its clients to capture business value from doing good by integrating direct regeneration into their employee-and customer-facing business processes, thereby improving key stakeholder loyalty and brand value.