Common Challenges in VCM Carbon Projects

Carbon projects – “a snapshot from the ground in SE Asia”. After spending the last few months in the field, the following are my key takeaways: o   For all the hype that seen on LinkedIn, relatively little money has trickled down to the ground level for project implementation. ARR is seeing some traction while REDD remains tough. Frustration is rife at the field level reading about all the high-profile conferences attended and funding “available” while seeing so little action where it really matters. o   The most depressing fact right now is the lack of interest in REDD+ projects. All science shows that we must save the existing forests as the number one priority. This is patently obvious when you spend time in the jungle. Due to bad press, a lack of understanding, and fear of greenwashing, investment for REDD remains mostly ‘just talk’. The losers from this are not the big corporates. The real losers are the forests and forest communities. To me, this is very sad.  o   New projects are finding implementation significantly more challenging than anticipated. I cannot emphasize this enough, but unless senior management have relevant forestry start-up experience, then key aspects get missed. o   There are some good ARR projects starting to come through. Where successful, the positive impact for communities is significant. It is hard work though. o   There are many new consultants entering the carbon sector. Beware of those who only have office-based experience. You cannot read a methodology and state that you understand carbon implementation. Simple mistakes are being made because people “don’t know what they don’t know”. o   Every project is unique. There are no “cookie cutter” solutions. I’ve in excess of 30 years experience and still need to study every project before starting to define baselines and how they should be managed.  o   Technical and managerial support from senior experienced consultants during start up and implementation is significantly helping projects to achieve targets and avoid costly mistakes. o   For ARR, it is essential that the first planting is successful and acts as a best practices example for subsequent work. Quality first, then quantity. o   Compromise is needed in ARR when selecting species. Financial reality means fast growing species first for sequestration then build biodiversity over time as the site allows. Each site requires a specific regime. Maximise ANR as much as possible. o   Stop looking for perfect projects. They don’t exist. This is why we have risk buffers and the more conservative approach in updated methodologies. o   I’ve met some NGO’s who can scale and manage significant projects. Please don’t shoot me for saying this, but there are even more that require significant technical / managerial support and time to scale. In most cases, they should definitely be part of carbon projects but design their roles for where they have the skills and capacity to achieve the targets to the required standards.

I hear a lot from investors that the VCM is just too "risky" right now. Bad press Turmoil Buyers not buying The truth remains that (at least) 6-10 Gy/year of CO2 removal will be needed by 2050 in order to avoid 1.5C Crediting is still the best way to value nature in its living form. Nearly every other value we derive from nature involves selling it for parts. For most forms of carbon dioxide removal. There is no "product". So to mine olivine and spread it on fields or beaches (as one example)... we need someone to pay, via credits. So the market is in turmoil, investors are afraid to invest, what's really going on here? Let's look at the data and find out what's really going on ��� Headline: Issuances and retirements of credits have dropped by 7 and 25% respectively! Oh NO! The market will cease to exist! Reality: This drop is entirely attributable to renewable projects (with dubious additionality) and REDD+ (conservation) projects, which have always suffered from lack of data-backing and transparency and have been exposed by media outlets like The Guardian and The New Yorker. Headline: Carbon credits are bunk! The quality isn't there. It's all a big scam. Reality: The quality issues are real, but are 99% associated with REDD+ and renewables, which seem to "represent" the entire market because they represent upwards of 90% of credits issued today (although that's going to change fast). Issuances of these credits has dropped nearly 20% from 2021-2023 and I'd expect this trend to continue. Headline: The market is dead! Reality: The market is facing an overdue reckoning. From the ashes we'll see the emergence of better MRV (which is the KEY to making a better credit) using new digital tools, better data-backing of credits, along with better tracking of credit lifecycle (vis-a-vis blockchains). Retirements of removal credits has held steady the past few years, while investment in forward purchases has 5x'd since 2021, but this isn't yet tracked in registries. Headline: Offsetting is worthless and a way for corporations to avoid the actual work they need. Reality: Poor quality credits + bad accounting is a bad combo. AND, it turns out that companies buying credits are typically far more advanced in their decarbonization efforts than those that don't. Policies like mandatory disclosures (coming to a State or Federal govt. near you!) are part of the solution here. So. -Market-based solutions are an integral part of limiting a very bad future, -The market is undergoing a shakeup, which is good. -VCM 2.0 (or 3.0 for us old timers) will be more digital, more verifiable, and more data backed. I have invested my blood/sweat tears into OFP for 2+ years because better MRV makes a better credit. Properly adopted, a permissionless, scalable, fully transparent protocol for data verification and asset issuance can be the catalyst for a global movement/economic revolution in nature, carbon drawdown, and human prosperity. The end.  

The investigation into the millions of excess credits issued to the now infamous Kariba forestry project reminded me that carbon markets face two major challenges — and one gets far more attention than the other. Challenge 1 is ensuring new credits deliver genuine climate benefits. There's a lot of smart people working on this, including the raters at Calyx Global and BeZero Carbon, consultants such as Carbon Direct, the standard setters at The Integrity Council for the Voluntary Carbon Market (ICVCM) and many more. There's plenty of work to be done, but also signs that their effort is moving the market toward higher-quality credits. Challenge 2 is the millions of low-quality credits that remain on sale. The Kariba project had some special problems, including an owner who admitted to illegal behavior. But the first stage of the Verra investigation was about over-crediting due to flawed baselines, a problem that could apply to an as-yet uncounted number of credits from other projects that followed the same methodology and others with similar problems. As CarbonPlan put it recently, "a mounting body of evidence suggests the global carbon market is awash in excess credits." (Link below). Then there are the old credits from Clean Development Mechanism projects that are considered to be basically worthless — but can still be purchased. This second challenge inflates the cost of due diligence and allows less scrupulous buyers to make emissions claims based on flawed credits. Yet as far as I know, it hasn't generated a concerted effort to solve it. What's the solution?

Over the past weeks and months, I've become increasingly convinced that there is a strong linkage between the quality challenges faced by the VCM (which are very well covered by the media) and the ways in which VCM projects are financed and paid for (which is less well covered). We at the American Forest Foundation just published a blog post which examines this further (link in the comments). Key points: 1) Low carbon prices and the lack of good finance options will push developers to aggressive choices in carbon accounting to make their projects viable. (As an aside, I would love for researchers to dig into whether or not there is a correlation between these elements and overcrediting - my hypothesis is that any such analysis would find a strong correlation). Not "aggressive" does not necessarily mean "wrong." It just means that developers have to bet on a specific, perhaps unlikely version of the future - and when it doesn't turn out that way, it results in over crediting. 2) If buyers don't change the way they are procuring credits, or how much they are willing to pay for them, there is going to be a massive shortage of high-quality credits relative to buyer demand. 3) Buyers need to provide up front capital to developers as part of solving this problem. 4) There are ways to do this that don't expose buyers to excessive risk. We propose an offtake agreement with milestone based prepayments (if someone has a snappy name for this, let me know) as one example. 5) Aside from the benefits to the projects and the atmosphere, buying credits in this way offers huge benefits to buyers: a) it protects them against rapidly increasing carbon prices; b) it helps them achieve a significant discount on a per-tonne basis (because by offering cheaper capital they reduce the projects costs - costs they end up covering whether they prepay or not); c) it enables long-term planning and gets companies out of the year-to-year chaos of spot markets; d) it enables companies to tell a story of how they are leading and catalyzing new projects; e) by getting involved in a project at the very beginning, buyers can learn more about the project and its strengths and weaknesses - helping them mitigate reputational risks. I would love to hear from the community, but especially from buyers: does this make sense? What are the downsides of transacting in this way that we have to account for in further design?

The current carbon credit certification process is a major headache for project developers. Accreditation provides a crucial revenue stream that Project Developers depend on to build infrastructure or grow their operations. Whether it's for energy production or carbon removal, developers need to prove their impact through detailed and accurate reporting. However, the current accreditation process fails project developers in 3 major ways: 𝗢𝗽𝗮𝗰𝗶𝘁𝘆 𝗶𝗻 𝗖𝗲𝗿𝘁𝗶𝗳𝗶𝗰𝗮𝘁𝗶𝗼𝗻: Navigating all of the standard bodies and agencies for third-party certifications is incredibly opaque. Even worse, many of these organizations are changing their own standard independently of one another, making it tough for Project Developers to stay compliant. 𝗢𝘂𝘁𝗱𝗮𝘁𝗲𝗱 𝗧𝗼𝗼𝗹𝘀: Many developers still rely on analog methods like Excel and pen-and-paper for tracking and managing their projects. This outdated approach works for the initial stages but becomes a significant barrier as projects scale up. The cost of scaling efficiently is high when relying on such slow, manual processes. 𝗩𝗼𝗹𝘂𝗻𝘁𝗮𝗿𝘆 𝗠𝗮𝗿𝗸𝗲𝘁 𝗖𝗼𝗻𝘀𝘁𝗿𝗮𝗶𝗻𝘁𝘀: The current voluntary carbon credit market lacks stringent requirements for buyers. This means buyers have expectations that far exceed the actual standards set by governing organizations, needlessly inflating the cost of accreditation. In the current carbon accreditation system, success depends on the quality of information shared by project developers. But the level of insight and documentation necessary to achieve carbon credits requires a deep understanding of the procedural, technical, and market aspects of carbon compliance - something that many project developers simply don’t have the time or resources to manage. With such a convoluted process standing in the way of critical funding, project developers need knowledgeable partners to shoulder the burden of proper documentation - so they can get to work making a difference.