Compensate's Niklas Kaskeala sets out how firms purchasing credits to fund conservation and meeting climate goals can mitigate their exposure to carbon market risks
It matters how we speak about the climate crisis. This is why I have chosen to start with positive news and end with a hopeful note.
BloombergNEF has published research showing that the voluntary carbon market (VCM) could be worth $1tr by 2037 however, heavily caveated that: ‘More rigorous definitions of quality and greater emphasis on carbon removal could solidify market confidence, lift prices and drive demand'.
Two recent reports support this forecast. Surveying the attitudes to offsetting of over 100 global companies, Compensate found that 81 per cent of respondents either offset emissions already or plan to start in the future. Another report, by Conservation International and We Mean Business Coalition, has similar findings, that 89 per cent of the 500 surveyed companies consider carbon credits a valuable tool to mitigate emissions.
There definitely seems to be an appetite for carbon credits from global corporations. It suggests that companies are waking up to taking responsibility for those emissions that cannot be completely avoided yet. This is great news for the climate.
However, there's also another side to the story. The recent Guardian, Die Zeit, and SourceMaterial investigation into ‘phantom credits' draws attention to the flaws of the current VCM. According to the journalists' research, more than 90 per cent of the REDD+ forest protection offset credits certified Verra, the world's leading carbon standard, provide little to no climate impact.
Our research at Compensate chimes with these despairing findings. Having screened more than 170 certified, nature-based carbon projects within the past few years, our conclusion is that fewer than 10 per cent of them have a certain enough climate impact to be used for offsetting purposes.
The reasons why projects fail vary, but are all equally alarming. Some projects cannot be considered additional, others have serious permanence risks. Some have unreliable baselines, because assumed deforestation is largely inflated. Worryingly, many projects also cause serious human rights violations. It is evident from our experience that the VCM has much work to do.
The shocking headlines, concentrating on the severe issues in the VCM, may have hidden the fact that experts interviewed for these articles have highlighted the importance of funding forest conservation. These investments are needed, as if they work as they should, they will support emission reductions and conserve biodiversity.
But we also need to consider the end use of carbon credits created from such projects. If and when they are used for offset claims, the credits need to be extremely robust.
A simple solution to this dilemma could simply be to adjust the claim that can be made with REDD+ and other forest protection credits. Instead of making a 1:1 claim that emissions have been fully offset, why not call supporting REDD+ projects ‘climate action', ‘beyond value chain mitigation' or ‘climate financing'?
Obviously this doesn't mean that the market doesn't need to work on improving integrity. But by adjusting the claim, we can avoid getting stuck in endless debates about methodological details and continue funding valuable forest protection projects.
As Occam's Razor, put simply, states: "the simplest solution is almost always the best."
Despite the bleak picture that recent media reports and Compensate's findings paint about the quality of projects, there is hope on the horizon, as several initiatives are working on reforming the market, most importantly the Core Carbon Principles proposed by the Integrity Council for the Voluntary Carbon Market (ICVCM). The core carbon principles would be a huge leap ahead, if and when they receive support from enough market actors.
The core carbon principles should be accepted and advocated for by all, including by the market heavyweights that have expressed doubts about them so far. We desperately need to build trust in the VCM if it is to become an effective tool in mitigating the climate crisis. This requires acknowledging that current market standards are insufficient.
Beyond supporting the core carbon principles, immediate solutions which market participants should also look to implement include overcompensation models, which mitigate risks related to carbon projects and uncertainties in carbon footprint calculations, providing a more robust compensation claim.
They should also look to manage their risks in a way not too dissimilar to investment managers managing a fund to deliver the best value. VCM participants should create and manage diverse carbon project portfolios to deliver the best possible climate impact
Meanwhile, market participants should develop their portfolios according to the Oxford Principles on Net Zero Aligned Offsetting and transitioning from emission reductions to carbon removals towards (as Compensate has done for some time).
I truly believe that the growing voluntary carbon market will be a crucial tool in tackling the climate crisis. If properly regulated and managed, the VCM will blossom into a mature and functioning market that will deliver real climate benefits.
For all of us who believe in carbon markets as a solution, it's crucial that we now focus on integrity and show that we can make this market work. To borrow from Christiana Figueres, who led the process that secured the landmark Paris Agreement, I am a 'stubborn optimist'.
We're at the now or never point; and we will make the market work, once and for all.
Niklas Kaskeala is co-founder and chief impact officer of Compensate
* This article was originally published here