Differentiating between a purely carbon market and a high-quality market and whether a rating system could provide clarity in the realm of carbon credits. In an interview for MORFO 's white paper on The Future of Reforestation Carbon Credits, Inigo Wyburd, Policy Expert at Carbon Market Watch, shares his insights on the complexities of carbon markets, the challenges surrounding carbon credit methodologies, and the need for a transition from "compensation" to "contribution," advising companies looking to invest in reforestation-related credits to focus on project benefits beyond carbon and practice transparent communication to avoid the risk of creating misleading PR campaigns.
Can you introduce yourself?
My name is Inigo Wyburd and I'm a Policy Expert at Carbon Market Watch.
Could you give us an overview of Carbon Market Watch?
Carbon Market Watch is an independent not-for-profit watchdog and research organization with unique expertise in carbon pricing and a track record of shaping and influencing international and European climate policy.
Why did you choose to support UC Berkeley's carbon trading project?
REDD+ is an important activity type, by volume it has the most credits on the voluntary carbon market, about a quarter of all issued credits. Verra, the world's largest carbon credit standard, has certified 97 REDD+ projects, generating 445 million credits (as of May 10, 2023). Demand from corporations for forestry credits has been high in the unregulated carbon market, buying these supposedly “high-quality” carbon credits to offset and justify their own continued emissions.
What are the results?
The findings show that Verra’s methodologies for REDD+ projects fail to guarantee accuracy and conservativeness, as well as protecting local communities and indigenous peoples from harm. They fail to guarantee that credits are of high quality, and should not be used by companies to make misleading climate claims.
REDD+ project developers are overestimating their climate impact due to being granted large amounts of flexibility by methodologies when quantifying emission reductions. This flexibility allows them to select the most advantageous approaches within methodologies and maximize their carbon credit issuance. These issues need to be addressed by Verra by adopting more rigid and strict methodologies, to guarantee conservativeness.
Fundamentally, alternative financial avenues are needed for forest conservation as it is unrealistic to expect that using short-term, unstable natural sinks like forests can offset greenhouse gas emissions from the combustion of geologically stable fossil fuels. We support a move away from using carbon credits to make “compensation” claims and a shift towards a more appropriate “contribution” based approach.
Our policy briefing summarizes the key findings of each chapter from the report.
On the home page of your website, you call for "a carbon price that reflects the cost of pollution". What would this price be in the context of reforestation?
The price paid by polluters should ideally reflect the cost of pollution, hence it is not dependent on whether you use the money for reforestation or another activity type. The idea is to enforce the polluter pays principle to the fullest extent, ensuring that the true cost of pollution is borne by those responsible for it.
There could be a range of ways to set a carbon price, some of which fully internalize the cost of pollution, and some of which do not.They could also be based on the social cost of carbon (i.e. a measure of the net damages imposed on society), or other considerations such as the “ability to pay” principle, where highly profitable companies could be asked to pay a higher carbon price, as a way of reflecting the different abilities of various actors to contribute to funding climate mitigation.
Like others, are you advocating for the creation of credits that take into account biodiversity and socio-economic aspects?
Credits are unlikely to be the best way for channeling finance towards real climate action. Projects that have biodiversity and social benefits we are in favor of, and believe are in need of financing, but this financing needs to come from alternative financing sources. If this were to be through credits, then they should certainly not be for offsetting and ton for ton accounting. Butan alternative approach that ensures conservativeness and high integrity.
Many actors claim to produce "high-quality" credits without substantial evidence. Could we envision a distinction between a purely carbon market and a high-quality market?
In some respects, the Verified Carbon Market (VCM) does already differentiate between projects with co-benefits by offering price premiums for such initiatives (e.g., the Climate, Community, and Biodiversity (CCB) standard). However, it is clear that the current approach does not go far enough. It would be good to recognize carbon as just one of the potential benefits that projects can provide. Maybe a system could be considered whereby credits are separated for different types of environmental and social-economic benefits, aside from carbon. However, then the critical question arises, how we define and quantify these benefits, and what is the asset you trade on the market, if any. Do you need a market? Do you need secondary trades?
Could an alternative approach be considered, such as implementing a rating system, similar to online reviews, for these credits?
I don't think reviews would work because reviews are commonly seen for products or services which people have a somewhat subjective opinion on (e.g. a movie, a book, a restaurant), and which everyone can easily form an opinion on. That's not the case for carbon credits, which are complex financial and environmental instruments that require expert knowledge to assess accurately.
There are already specialized rating agencies (e.g. Calyx Global) that evaluate and assign ratings to projects on the VCM. Rating credits can be helpful, but ideally should focus on distinguishing them, explaining how one set of credits differs from another, highlighting the unique characteristics and qualities of each, rather than checking whether they represent an exact tonne of CO2 or not. Because few or none will really represent a tonne of CO2.
What advice would you give to companies looking to purchase reforestation-related credits?
First, it should be noted that investing in the protection of standing forests, and in particular old-growth and primary forests, is extremely important, and probably of higher climatic value than investing in planting new trees.
If they invest in reforestation, companies should take responsibility and conduct thorough due diligence on projects to make sure that they deliver the expected impacts. Reforestation projects can offer a rich array of benefits that extend beyond carbon, but are not without risk. Companies should focus on these benefits (e.g biodiversity preservation, socio-economic development etc), and avoid fixating solely on carbon offsets and offsetting because this doesn't work from an accounting point of view, and could drive companies towards the purchase of the cheapest tonnes from low quality projects.
While it is still important to support those projects that are well-designed, effectively managed, and are having a real climate impact, purchasing reforestation credits should not serve as a justification for evading responsibility for your own environmental footprint or for creating misleading PR campaigns. Companies should take responsibility for communicating transparently and with care.
