Reforming the voluntary carbon market: White paper Q&A with our sustainability experts

Monday, April 19, 2021

Compensate's white paper, Reforming the Voluntary Carbon Market, was launched on April 8. Here, we answer audience questions from the launch webinars.

Compensate’s project criteria and evaluation

1. Based on the projects Compensate has assessed, is the problem the criteria of the standards themselves or monitoring compliance with the criteria?

The answer is both. First, the requirements set by the international standards are not stringent enough. The methodologies used for projecting deforestation are too loose, often resulting in unrealistic deforestation projections. 

As it related to community conflicts, project developers are unlikely to paint themselves in a negative light in the documentation they provide to the standards. For example, forceful evictions could take place at the start of the project. It can also take years for anyone to notice that the project’s benefit sharing system is not working well for all members of the community.

While monitoring by the standards is done quite thoroughly, this is typically only done once existing inventory is sold out (e.g. every 3-5 years).

2. How does Compensate verify additionality in the projects it assesses? How is it that Compensate is able to identify such lack of additionality, but the global standard issuing the carbon credits did not find it in the first place?

First, the methodologies used by the standards set additionality requirements that are too low. They accept the projects’ claims on what would have happened without the project existing, without critically evaluating whether these statements are plausible or not. 

52% of evaluated projects failed Compensate’s criteria because of lack of additionality. Compensate looks beyond the project documents and critically analyzes whether the information provided by the project really corresponds to the actual situation. For example, if 100% unplanned deforestation is predicted, but there is no historical deforestation in the region in the past 20 years, it is unlikely the forest would be logged. Or if a reference area is used to predict deforestation, Compensate looks at whether the reference area is similar to the project area in terms of road access, population density, deforestation drivers etc. 

More details on Compensate’s project criteria, including how additionality is assessed, is also available in our white paper. 

3. Does Compensate assess the climate policy of the project countries against the potential or the actual climate policy? That is, if a country could in reality pursue a much tighter or faster climate policy?

Compensate monitors the project host countries’ Nationally Determined Contributions (NDC) under the Paris Agreement.

Compensate also supports Gold Standard’s initiative for ensuring policy level additionality. To be consistent with the final Article 6 guidance, Gold Standard is changing its requirements for new projects or projects renewing their crediting period. This sets an example for how to take into account the project’s host country policies and long-term climate measures, and thus prevent the project from taking credit for efforts that would be part of Nationally Determined Contributions (NDC) under the Paris Agreement. 

4. What are some best case examples of compensation projects?

While it is difficult to pinpoint a “perfect” carbon project, Compensate’s portfolio is a good showcase of some high quality carbon projects. The most important things in a project are climate integrity (as measured by reliable calculations and verifications, clear project ownership, a realistic baseline and minimal carbon leakage) and positive impact for local communities and biodiversity.

Different forms of carbon capture

5. Has Compensate looked at emission reduction projects (outside the land use sector) at all? Do the same problems exist in these projects, or are the problems the white paper identified issues specific to the land use sector?

Compensate has looked at other nature-based projects, including blue carbon (e.g. seaweed, kelp), mangroves and biochar. These projects have less risks than those in the land use sector, but they lack documentation and third-party verification.

Other project types, such as renewable energy and energy efficiency, fall outside of Compensate’s scope, as it is extremely difficult to prove additionality. This is due to the low price of renewable energy today and the various national and international policies already incentivizing the adoption of energy efficient technologies.

Overestimated climate benefits are mostly related to forest conservation projects, where the project establishes an often unrealistic baseline on what would have happened if the project was not implemented, and issues credits based on that difference. The more deforestation is predicted, the more credits can be sold.

6. Should Compensate put more focus on plantations?

Compensate does not support large-scale timber plantations, which have various negative impacts both on local communities and the environment. For local communities, this includes lower wages, loss of jobs, pressure to sell land for low prices, and higher food prices. From an environmental point of view, timber plantations use monocultures of non-native species that are harvested in cycles (10-20 years). In order to maximize growth and profit, plantations will plant fast-growing species like eucalyptus and use chemical fertilizers and pesticides. This contaminates bodies of water, harms biodiversity and pollutes the soil. 

Commercial plantations have questionable financial additionality. The reforestation/afforestation activity will still occur even without the revenue from carbon credits (lack of financial additionality) as the timber business is profitable.

Compensate supports community-led projects, where local people are trained in reforesting their own lands with indigenous and high-value trees producing nuts, fruits, and fodder. The added value ensures that the trees will not be harvested as the associated benefits surpass the price of timber.

7. Compensate talks about biodiversity, which is excellent. Open meadows are important for various insect species and have biodiversity benefits: no trees, lots of hay species, flowers, no round-up or other agricultural chemistry and hence also more animals. Are these projects categorically excluded from Compensate’s portfolio? Who is focusing on their preservation in Europe and elsewhere?

Compensate has not come across certified or third-party verified meadow projects, but these are not categorically excluded from the portfolio. Compensate does have two soil carbon projects utilizing climate-smart farming practices: Garrett Farm and Harborview Farms. These practices include using cover crops all year round, applying natural fertilizers and compost, and not turning the field. Biodiversity benefits are achieved by growing mixed cover crops, and especially pollinators benefit from rapeseed flowers as they bloom early in the spring. In Europe, open meadows are being preserved through e.g. the Natura 2000 initiative .  

8. Technological sinks are a broad concept, with various technologies at very different stages. Has Compensate categorically left them out and based on what kind of evaluation? Is the reason that credit prices for natural sink projects are, on average, very low?

Compensate does not support bioenergy with carbon capture and storage (BECCS), as trees are much more valuable as carbon sinks or as an alternative to fossil-based materials, rather than as energy. Even wood waste can be better used as a permanent carbon storage, in the form of e.g. biochar, as new technologies develop.

Direct air capture with storage (DACCS) is expensive and difficult to scale, with prices ranging from 800 to 1000 USD per tCO2 removed. While it sounds promising in the long term, when prices are expected to decrease, today DACCS is still emerging. It will take decades to scale it to the extent needed. The future potential of DACCS in the fight against climate change – if all goes well – should not be a reason to delay urgently needed climate action today. Compensate is not opposed to the use of DACCS, but at the moment it is unavailable and too expensive.

9. How does Compensate view industrial projects related to carbon recycling that do not achieve permanent carbon sequestration, in which case they do not justify reductions in ETS rights. For example, could Power-2-X projects (P2X) be covered by compensation?

P2X is a promising technology, but using it for compensation purposes is questionable. This is because the process does not remove CO2 from the atmosphere, rather it simply captures and recycles CO2 that is ultimately released back into the atmosphere.

On compensating

10. Who determines when it’s “okay” to compensate and what emissions to compensate? When is it considered that all other possible means have been used, is the offset provider liable for this?

This is the offsetting buyer’s responsibility. That said, Compensate can support and advise companies on how to reduce emissions in the first place. Compensate can also decide not to partner with an organization that does not take measures to reduce emissions.

11. Is there a difference in the mechanisms if Scope 1, 2 or 3 emissions are compensated? Does it even make sense to compensate for Scope 3 emissions?

It is crucial to compensate Scope 3 emissions as they are responsible for the bulk of carbon emissions. Scope 3 emissions are “hidden” as they originate from indirect emissions occurring in a company’s value chain. Scope 3 emissions include purchased goods and services, business travel, commuting, transportation and distribution, waste disposal, use of sold products, investments, leased assets and franchises.

Scope 3 emissions are usually higher than Scope 1 and 2 combined. Thus, a company claiming to be carbon neutral without compensating for its Scope 3 emissions is simply greenwashing.

12. Using alternate claims like “financing climate action” is a good idea, but surely this doesn’t remove the issue that someone will collect money and do or not do something with it for the climate? Isn’t credibility still questionable in this case?

All climate action with or without claims needs to be done with integrity, otherwise it is fraud. Companies looking to make alternative claims need to make sure the projects they purchase from are, at the very least, certified or third-party verified and impact is monitored, e.g. via remote sensing or drone. 

However, this doesn't remove the issue that these certifications don’t guarantee quality. International standards need to raise the bar to ensure actual climate impact, regardless of the claims being made by those purchasing credits. 

The future of the carbon market

13. Is the situation currently that, because of unsigned Article 6, every single country that has signed the Paris Agreement has a potential double counting issue? 

Not all projects and not all countries have this issue. Post-2020, many of the projects selling credits on the voluntary market will contribute automatically towards their host country goals under the Paris Agreement. This occurs if the project activity falls into the country’s Nationally Determined Contribution (NDC). Using carbon credits from these projects would result in double counting if corresponding adjustments are not implemented. A corresponding adjustment means that the amount of CO₂ removals claimed by the offsetter through the purchase of carbon credits are deducted from the project host country’s national greenhouse gas inventory. This means that these removals will not contribute to the host country’s national climate targets and could be used by a company to make offset claims.

14. What does Compensate think should be decided at COP26 Glasgow on the development of the carbon market?

Compensate hopes that the rules of Article 6 are decided at COP26, solving the issue with double counting under the Paris Agreement.

15. What could reliable verification of carbon units or emission reduction projects look like in practice in Finland and internationally?

Verifiers currently only confirm that the project documents and all calculations comply with the methodologies. However, if methodologies are set loosely, this allows many projects with no real climate impact to be accepted. 

To improve the quality of projects, either stricter methodologies or a third-party, independent verification body is needed. The verification body would take a closer look to evaluate the real climate impact of projects, similarly to the work Compensate does. Technology could also play a role here, e.g. using remote sensing or drones for validating the reliability of the baseline and monitoring for illegal logging and carbon leakage.

16. How could real forest owners count their carbon sinks, as they decide the management of forests at the end of the day?

Carbon sinks from private forest owners are automatically contributing to national climate targets if the land-use sector is accounted for in the country’s greenhouse gas inventory. Mechanisms for rewarding private forest owners for maintaining these sinks are being developed in Finland and the UK.  

17. What part does compensation play in the Carbon Neutral Finland 2035, Carbon Neutral Europe 2050 and Carbon Neutral China 2060 targets?

The voluntary carbon market is separate from the compliance targets countries have. So, to achieve national carbon neutrality targets, countries must enforce measures to reduce emissions within their borders.

That said, with the Paris Agreement, all carbon credits issued post-2020 will automatically contribute to reaching the project’s host-country targets, if the activity falls within their Nationally Determined Contribution (NDC). For example, if reforestation or forest conservation falls under a country’s NDC, projects in these countries supporting these activities would contribute to the country’s target. Buying carbon credits from these projects on the voluntary carbon market would then be double counted. This could be resolved by making a corresponding adjustment in the country targets, preserving integrity by only claiming each carbon credit once.

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