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The Carbon Offset Market Has a Baseline Problem

As part of a corporate sustainability officer’s ESG efforts, they may have purchased carbon offsets to protect a forest that didn’t need protecting – or couldn’t possibly capture the amount of additional greenhouse gas emissions they claimed in an annual report. Then a skeptical watchdog explained the situation to the media and dragged their brand through the mud.

Leading activists agree that a robust carbon offset market can be important for combating climate change, but some also agree the market is experiencing growing pains, while disagreeing on how best to fix things. At the end of the day, it wasn’t the science of carbon capture that was the problem for the corporate sustainability officer; but rather, the process by which we baseline a forest’s capacity to support a company’s sustainability goals.

That’s because, even with sound motives, the carbon offset market has a baseline problem.

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And, that’s a problem because the climate situation is urgent. Every initiative or innovation to curb emissions must be fast-tracked. That includes maximizing the effectiveness of carbon markets. To instill confidence, we need to replace old, manual processes with technology solutions.

The Wild West

The voluntary carbon market, wherein companies offset their own emissions by investing in climate-saving projects, is still in its infancy. Yet it’s already considered by many to be the wild west. What’s contributing to the chaos?

  1. Exploding demand. By some estimates, the market for voluntary carbon credits is expected to reach $180 billion by 2030 from $300 million in 2019. That’s massive growth. The fact is, most companies can’t yet dramatically reduce their own emissions in the short term, so they invest in carbon capture projects around the world.
  2. Project backlogs. Before they can sell carbon credits on the market, such projects need to get in line and explain their impact to one of several standards bodies, a process that takes too much time. And because most projects involve the world’s forests, they’re attempting to explain carbon capture efforts in massive, seemingly unknowable spaces. Experts have said there are hundreds of projects waiting to be accredited.
  3. Growing distrust in the “quality” of credits. Examples of projects that don’t deliver the carbon-capture benefits they claim are cropping up with increased frequency. Take, for example, credits sold for protecting forests that were reportedly already protected. Companies risk their reputations buying credits that don’t move the climate needle, but they seek standards and admit they short-term have little option but to invest in markets as currently accredited.
  4. Efforts to reimagine accreditation standards. In response to the above points — and to quell some of the chaos — well-meaning bodies like the Integrity Council for the Voluntary Carbon Market (ICVCM) are overseeing efforts to standardize the standards. But, as such processes often go, there is some industry disagreement over their work. Which is perfectly natural and healthy, if only the situation that standards were meant to deal with — catastrophic climate change — weren’t so immediately dire.

Existing standards bodies and registries like the American Carbon Registry, Gold Standard, and Verra are staffed and supported by experts who take a science-based approach to validating carbon capture projects and issuing credits. Science is the only way to go. But while accrediting standards can always be improved, the carbon market today doesn’t have a standards problem; it has a baseline problem.

Addressing Baseline Challenges

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Nowhere is this more critical than in determining a carbon project’s baseline — its existing carbon capture potential, above which a truly beneficial (and credit-worthy) project captures more.

Without a solid baseline, a project can’t accurately account for key attributes baked into most standards: additionality (that the project captures more carbon than would have been possible without it), leakage (that the project doesn’t cause detrimental effects in nearby areas), and permanence (that the project’s carbon-capture gains will last, say, 100 years).

To understand a forestry project’s baseline, we need to understand a slew of factors, from the size of a project area to the species of trees it includes, to the amount of carbon currently held in those trees. We need to understand fire threat, insect infestation potential, and the status of logging operations in or near a project. And we need to recognize that all these factors can and will change over time.

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For years, forestry experts have collected such information and applied it in relatively coarse ways, such as averaged across a region or country. Today, there’s growing recognition that remote sensing (including satellite– and LiDAR-based methods) and artificial intelligence are needed to establish confidence-building baselines.

Not only are such technologies capable of more accurately determining the carbon-capture potential of a project, but they’re also able to do it more quickly and efficiently than current methods. Moreover, remote sensing plus artificial intelligence is virtually the only way to accomplish perhaps the trickiest part of a carbon-capture project: monitoring a vast forest and verifying that a project is reducing GHG emissions the way investors were told it would.

Embracing Technology

We’re starting to see progress, but we need to go faster. Various groups are recognizing the importance of better baselining and the role technology can play in bolstering the carbon offset market. For example:

  • Verra is currently considering a program called ABACUS that would recognize accredited projects for adopting “a dynamic performance benchmark baseline that remotely tracks changes in carbon stocks.”
  • NGOs like RMI are advocating for technology solutions to build trust in carbon markets and raise the quality of accredited offsets.
  • Perhaps unsurprisingly, tech giant Microsoft, which has committed to being carbon negative by 2030, considers the use of technology for monitoring and verification when it evaluates forestry projects. Over the past two years, the company has entered agreements to remove 2.5 million metric tons of carbon dioxide from the environment.
  • In September 2022, researchers in California published a paper exploring the benefits of using “remote sensing-based geo-spatial data products as components of large-scale carbon accounting and offset verification.” While they found on-the-ground measurements still necessary, they concluded such data analysis could increase confidence in the state’s carbon projects.

And all of them are right. When it comes to building trust in carbon markets, the answer isn’t necessarily to overhaul accreditation standards; it’s to adopt tools that make applying standards more effective and immediate.

Technology is transforming every corner of our lives. It can transform carbon markets, too. Not tomorrow, but right now, when the planet needs it.

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