Taking down the carbon markets won’t stop climate change: responding to the latest market criticism

In the past few weeks, a handful of new research about the efficacy of the carbon markets has been published, including a paper by UC Berkeley's Haya et al. The science on the carbon markets is still in development, like any other area of climate study, but most of these papers have a fundamental opposition to the carbon markets as a tool for protecting the critical carbon sinks around the world and were drafted with a preconceived aim—to discredit the market. This position and goal are misguided. Whether market opponents like it or not, any response to climate change is woefully incomplete without protecting and restoring nature, and the carbon markets can be an efficient tool for driving funding to those efforts. The time spent pushing forward ideological opinions and calling them ‘science’ is coming at the cost of driving forward solutions that have been proven to work in helping address climate change. 

Why the carbon markets matter

The most recent IPCC report found that “all assessed modeled pathways that limit warming to 2 degrees Celsius  (>67%) or lower by 2100” rely, at least in part, on mitigation from agriculture, forestry and other land use. Further, the committee names these approaches as currently “the only widely practiced” carbon removal methods. In plain language, that means if we're going to limit warming to 2 degrees Celsius, we need to find a way to protect and restore the world's forests, and fast. 

Achieving this goal depends on a massive and hyper-urgent reduction in fossil fuel emissions. Following that, we need to protect and restore natural carbon sinks on a vast scale and widely deploy engineered removal. All are absolutely needed and core to any safe IPCC pathway—all are nonnegotiables. Despite how critical nature is in fighting climate change, the level of investment into its protection is far lower than what’s needed. The United Nations estimates that globally $154 billion is spent every year on nature-based solutions, and while this sounds like a lot, it's less than half of the funding required. Of this, only 15% of this investment is coming from the private sector. Without a material increase, 1.5 degrees Celsius, or even 2 degrees Celsius, isn’t achievable.

Closing that gap depends on fast, efficient investment tools for private organizations to drive capital, largely from the global north, where most emissions are produced, to the global south, which has historically lower emissions, possesses some of the largest carbon sinks, and yet faces some of the most consequences as a result of climate change. REDD+ carbon credits finance activities that focus on the sustainable management and conservation of at-risk mature forests, like the Congo Basin and the Amazon, making them critical for closing the massive funding gap, in addition to providing essential benefits to biodiversity and local communities. These credits attach financial value to the carbon stored in forests and add an incentive to reduce human impact that results in greenhouse gasses (GHGs).

Where the markets have fallen short: a lack of transparency and trust 

At the highest level, the Haya et. al study highlights the known problems of the carbon markets and underscores how a tonne is not always a tonne, which is particularly important when making corporate claims. We agree and this is why we have a AAA-D rating scale to reflect the spectrum of quality, (and we have yet to find a find a project meriting our highest rating of AAA. However, much of the research and the media are taking known issues from a certain point in time, overstating their impact and fixating on what went wrong, offering no mention of the solutions available or alternative proposals for how we close such a massive gap in investment. 

In the past, REDD+ projects had well-documented and well-known issues, from problems with baseline calculations to questions about projects’ long-term durability. These issues are not a reason to write off an entire solution outright, especially when the technology exists to observe and improve them. That’s why we created Sylvera—to develop better data and insights providing transparency into the carbon markets so that we can incentivize investment into real climate action.

Sylvera’s approach to solving the market’s transparency and trust  issues 

Sylvera’s rating system makes carbon credit performance visible so that buyers can select high-quality projects that are delivering real impact, make credible claims, and build diversified portfolios of credits representing tonnes removed or avoided. We build assessments based on core pillars – carbon accounting, additionality, permanence and co-benefits – that directly address the concerns raised in this study, others like it, and the resulting media coverage of these reports. 

• The Carbon accounting score verifies whether a project is accurately reporting on its activities, which directly translates to its overall avoidance or removal of CO2, and other GHGs, measured in CO2, equivalent (CO2e). For nature-based solutions, we verify these activities, which include the planting of trees and the protection against deforestation, by comparing data provided by the project developers with our own measurements using satellite imagery and machine learning. We also use satellite data to conduct an independent assessment of the project area and leakage area to determine the extent of the leakage and GHG. We then evaluate whether emissions reductions have been achieved. 
• The Additionality score assesses the likely impact of the carbon avoidance or reduction activities claimed, which is a blended view of the additionality of the activities in the absence of the project, and the over-crediting risk from mis-quantification. Over-crediting risk quantifies whether the project is inflating the threat of deforestation and, therefore, issuing too many credits. For REDD+ carbon credits to offset GHG emissions, they must have prevented carbon emissions that would have occurred otherwise. A measure of the likely additionality of carbon credits is, therefore, essential to understand their climate impact. When it comes to baseline measurements (the emissions that would have occurred in the business-as-usual scenario), the paper points out that methodologies are inconsistent and can be applied subjectively. We agree, and this is why our analysis is always ex-post and project-specific (in other words, based on how the project has actually been implemented) and not methodology/proxy-based (i.e. based on how the project has been designed/planned).
• The Permanence score assesses whether the GHG emissions avoided or removed by the project are likely to be maintained for a significant period of time, typically 100 years. We also look at historic disturbances such as fires and human activity and forecast future risks using different climate model scenarios. By analyzing the permanence of a project, we can assess the long-term impact, which is particularly important to monitor if engaged in long-term offtakes. Unlike the Haya study, which only looks at historical data in the form of disturbances from the past, Sylvera models forward-looking climate risks to evaluate permanence risk.‍
• The Co-benefits score assesses the scope and relative impact of project activities on local biodiversity and communities. In our assessment, we look for the absence of safeguards, something that can be harmful to communities, but we also see many instances of success. We independently identify which UN Sustainable Development Goals the project is contributing towards by examining the activities implemented by the project. The co-benefits of a project are often used to help market the project in response to increased demand from buyers for benefit-sharing schemes. Understanding the scope and impact of these activities can help buyers determine whether the project is aligned with their own priorities and whether the project is delivering material benefits.

As stated, the issues with REDD+ projects are well-known and well-documented. Last year, we openly and publicly reported that a majority of, but not all, REDD+ projects were not sufficiently delivering the intended or claimed benefits. However, based on our analysis this study takes singular tests and basic approaches to assessing the same pillars of our methodology, which have varying degrees of statistical significance. Then, they draw conclusions far beyond those justified by their approaches with the singular aim of pushing an ideological position. This is not good scientific practice. It’s dangerous and disincentivizing a constructive improvement of a vital source of funding.

The tools to improve measurement and certainty already exist 

The Haya et. al executive summary states, “This market system creates a race to the bottom that is hard to emerge from. Buyers seek the lowest-cost credits that are often the most over-credited”. We fundamentally disagree with this ideologically driven conclusion. Although it is true that without the ability to assess quality a market for “lemons” emerges, the tools and technology to assess and improve the carbon markets already exist and are in deployment. We have already seen buyers prioritizing quality today with the tools at their disposal, such as our ratings and data about the projects. As a result, clear signs of correlations between price and quality are beginning to emerge in the carbon markets. In addition, more buyers than ever are looking to invest in future supply as a way to drive higher-quality projects from the earliest stages. 

Sylvera is committed to providing the most accurate, unbiased, and cutting-edge technology to help companies make better investments in climate action, starting with carbon credits and we’re not alone. Countless other companies, many of which are our partners, also develop and apply new technology and solutions to help improve the functionality of the carbon markets, alongside industry regulatory initiatives, like ICVCM and VCMI, which have made major strides in uplifting market integrity across the VCM.

We have no hope of reaching the 1.5 degree Celsius goal without protecting and restoring natural ecosystems. It’s simple math: without them, CO2 emitted will dwarf CO2 captured or removed. While also urgently needing investment and development, tech-based solutions like Direct Air Capture in the short- to medium-term will remain incapable of removing CO2 at the scale we need or at the price point we can afford. They will also require a level of transparency and disclosure significantly higher than what’s publicly available now, particularly to keep these projects on par with the levels of accountability and continuous improvement to which REDD+ and other project types are subject.

Defending and restoring our natural ecosystems requires tremendous financial resources. While philanthropy and government funding are a start, they provide nowhere near enough investment to fulfill the task. Every year a $230 billion debt to nature is being accrued: the price for that debt is the future of communities, species and the stability of our climate. We should not abandon a valid but flawed tool and just do nothing. Instead, we should expect emitters – companies, countries, universities, NGOs and individuals – to slash emissions, but we should also expect emitters to pay towards funding of otherwise unfunded emissions reduction. REDD+ is one such tool, and discarding it, rather than putting in the hard work to improve it, is negligent and irresponsible.