Compensate’s open letter to the Taskforce Phase II Report

Wednesday, June 23, 2021

If you’ve followed the voluntary carbon market, you’ve already heard of the Taskforce drafting new quality standards for the whole industry. The high-profile group’s goal is to improve the credibility of carbon offsets (learn more about their work here or learn about its origins here ). We wrote about our thoughts on their initial recommendation paper here

Now, the Taskforce is soliciting public comments to its Phase II report. Our open letter to the Taskforce is outlined in brief below, and can be read in full here .

Compensate’s take on the Taskforce Phase II Report

Overall, the report is still lacking the robust foundation needed to ensure that all projects meet minimum quality criteria. We fear that the proposed process will set the bar for quality too low, allowing credits with no climate impact to be sold and claimed for net-zero targets. 

Legitimizing such credits is not only unethical, but also exacerbates climate change: With no actions to counterbalance the emissions of companies who are offsetting, the result is net positive emissions into the atmosphere.

Flawed by design: areas that need to be addressed

Conflicts of interest

The Taskforce’s aim is to deliver “procedural fairness” in terms of independence and freedom from bias and conflicts of interest. The current proposal conflicts with this aim in two ways. One, it would allow Founding Sponsors, who have commercial interests in the market, to be part of the Board of Directors, the main decision-making body. Second, it considers allowing certification bodies, registries and verifiers who also have commercial interests in the voluntary carbon market to self-certify projects.

Baseline setting needs to be addressed

The Taskforce fails to learn from the market’s past mistakes with regard to carbon accounting. Scaling something that is not robust will not be of benefit to the people or the climate. Selling businesses false claims risks their reputation and hinders overall climate mitigation efforts.

Currently, nature-based forest conservation projects, making up the majority of credits on the market in terms of value, calculate avoided emissions based on a number of assumptions about a similar unprotected area, known as the reference area. Projects often select a “favorable” reference area that is exposed to more deforestation than the project area. Once the deforestation in the reference area is projected for the next 30 years, projects start issuing credits based on this model and never compare this baseline estimate with real-life deforestation.

The Taskforce’s "one size fits all" solution when it comes to baseline setting oversimplifies forest science for the sake of expanding the market. This will only lead to inaccurate and/or highly inflated estimates. Today, the science and technology exist to compare the baseline scenario with recent deforestation data. Not only will taking such a robust approach validate the carbon model and whether the project has selected an appropriate reference area, it will also measure carbon leakage attributed to the project.

Financial additionality must not be compromised

Financial additionality is a must if carbon projects are to achieve any impact beyond business as usual. If the need for financial additionality is removed, the carbon removal market becomes a profit-generating business, where the price level can be set higher to cover not only project implementation, but also to bring a large return on investment. This creates a conflict of interest between the urgent need to keep global temperatures below 1.5 degrees at the lowest cost possible and the opportunity to profit from the climate crisis. 

Not requiring financial additionality will put profit before climate and people’s best interest, opening the door to carbon colonialism. Nature-based carbon avoidance and removal projects could become the cause for human rights violations, land grabbing, food insecurity and other negative socio-economic impacts. These would be felt hardest by the most vulnerable local communities in developing countries. 

The report also considers simplified tests for proving financial additionality, including demonstrating low availability of a project activity in a given area. However, this will only encourage project developers to select the “best” area to ensure the highest return on investment. Choosing the project location based on commercial interests will have negative impacts on equality, leaving certain regions and their residents at a disadvantage.

Other proposals include deeming a project financially additional if it can prove negative profitability or sufficiently low return on capital without credit revenue. However these are not good indicators. Negative profitability could just be the result of a bad business model, and assessing “sufficiently low” return on capital raises questions about how profitable climate action should be.

Claimed only once: Offset projects should go beyond countries’ NDCs

The report deems that regulatory additionality tests are not appropriate for jurisdictional programs, since governments put in place laws and regulations to achieve outcomes e.g. NDCs under the Paris Agreement. Thus, proving additional reductions below the average deforestation rates are considered sufficient for jurisdictional programs. This means that countries can, in practice, implement carbon projects to reach their national goals and at the same time sell carbon credits, resulting in double counting. If the voluntary market wants to drive climate action, it should focus on directing financing towards new reductions, rather than reductions countries have already committed to achieving.

The way to integrity: what we hope to see in the final report

We strongly support the following suggestions in the report:

Reliable baselines

Developers should be required to use baselines drawn up by third parties with no commercial interests in the voluntary carbon market, for instance members of the scientific community. This should apply to both project-based and jurisdictional projects. Having all baseline data publicly available and requiring public consultation processes for baseline approval will be a major step forward in achieving transparency and climate integrity. 

Regulatory additionality

Both project-based and jurisdictional programs should be in addition to regulatory requirements, such as NDCs. Baselines should be calculated against a reference scenario aligned with the 1.5°C goal and a greening of international finance flows.

Permanence

Permanence is the weak spot in nature-based projects. Most forest projects have a crediting period of 30 years, after which no one can guarantee that the trees will not be logged. Having measures in place to protect trees for 100 years would increase trust in nature-based projects. Another good suggestion is creating financial incentives to extend the permanence of projects beyond the crediting period.

Leakage

Realistic leakage areas should be selected by independent third parties, and leakage should be monitored across all project types using technology reflecting real-life data. For forest projects, technologies exist to monitor leakage cost-efficiently, hence this is feasible at least every 6 months. If a project acknowledges leakage but cannot stop it, it means that it does not have real climate impact and should not sell carbon credits.


Read our full open letter to the Taskforce here

Want to go deeper into our sustainability work? Download our white paper here .

We fear that the Taskforce's proposed process will set the bar for quality too low, allowing credits with no climate impact to be sold and claimed for net-zero targets.

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