Do’s and Don’ts of the Carbon Market
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November 12, 2021

Do’s and Don’ts of the Carbon Market

AWhile some effects and tipping points are as damaging as they are irreversible, the report also shows that the global temperature increase itself is largely reversible. This highlights the importance of carbon removal. Carbon markets can provide a vital push in these climate efforts. But only if it’s done right. Otherwise, it may run the risk of doing more harm than good. While carbon markets with carbon removal are still in an early stage of development, it is important not to skip steps and to correct wrongs while it’s still possible. In the following, we will mention a few don’ts (and throw a few do’s into the mix) with respect to carbon markets and carbon removal.

  1. Use bad data

Carbon removal and offsetting heavily depend on data. How much carbon is stored needs to be closely monitored in order for sequestration efforts to have the desired effect. Using bad data can often have adverse effects. An example of bad use of data in California’s forest carbon offsets program, where the analysis of the crediting system by nonprofit CarbonPlan showed that a large portion of the credits in the program did not reflect real climate benefits. Here, most credits came from forest projects, the vast majority of which involved “improved forest management” (IFM), a method of increasing carbon storage through changes in forest management practices. The carbon credits were assigned based on the difference to a predefined baseline carbon storage using broad, regional averages that ignore species distribution on the ground. As a result, projects implemented in areas with higher initial carbon storage than the regional average would receive carbon credits without having improved actual carbon sequestration. 

This highlights the importance of good and spatially highly resolved data through monitoring, reporting and verification (MRV) for both baseline estimation and proof of sequestration improvements. This is not only important for climate change mitigation but is vital for the credibility of the effectiveness of carbon markets, which – like most markets – are based on trust.

  1. Greenwash

Greenwashing isn’t a well-defined term. Mostly, it comes down to how a company advertises itself for an improved public image based on environmental-positive actions. Generally, there are two possibilities for polishing up a company’s green image with respect to carbon credits. The first form involves companies offering carbon compensation for their product for an additional fee (which is then used to finance climate projects) thereby shifting the responsibility and the financial load of these investments to the consumer. The second involves investing in climate projects and publicly advertising it. While both of these actions can change their public perception for environmentally conscious consumers, the actions themselves aren’t necessarily greenwashing. The crucial questions are how it is advertised (a common way, for instance, is claiming climate neutrality of the firm or product by solely buying carbon credits to compensate for emissions) and what actions are actually behind the publicity stunts (whether or not they are making a significant effort in reducing their actual emissions). 

Carbon markets constantly run the risk of losing credibility and as a result, carbon crediting needs to be stringent. While this avoids receiving credits for ineffective projects, it doesn’t prevent firms from greenwashing. There is still the risk of misusing these offsets as an indulgence to continue business as usual (“license to pollute”). This has sparked a debate in the Nature-based Solutions (NbS) community about whether or not to accept financing from polluting firms that show no effort to reduce their carbon footprint. 

On the other hand, these firms are also a great financial source for continued investments in the project development of carbon removal. Furthermore, carbon removal is absolutely necessary to compensate for current and historic emissions, not only, but particularly for hard-to-abate sectors as an important complementary measure to abatement. For this reason, some argue that it wouldn’t make sense to turn down these investments and instead focus on incentivizing investments in their own abatement strategies through policy and transparency, and for non-voluntary markets: a higher price on carbon. 

If you’re not a policy-maker, an NGO or the environmental manager of a company there is little you can do to control this. And as a project developer in constant search for financing due to the high development costs involved with MRV, it can be difficult to take a closer look at where the money is coming from. Nevertheless, it is important to remain wary of whom the credits are going to and which claims are made in your name.

  1. Waste resources

Not all carbon removal methods are created equal. They differ greatly in their implications on energy, time and financial resources, and given the looming crises lying ahead, these are all precious resources better not wasted. One rather resource-intensive mechanism is direct air carbon capture and storage (DACCS). In a study published in Nature Communications, which assessed the effectiveness of DACCS, expanding this technology could significantly delay the need to cut emissions. Particularly in hard-to-abate sectors and despite high implementation costs, this could even come at a cheaper price than abatement. However, to reach current climate goals a huge amount of these factories would need to be built in a short amount of time – a major hurdle for scalability. Such a large-scale, rapid deployment of DAC comes at the additional cost of resource demand: The energy needed to run DAC machines would equal half of the current global energy demand and would, therefore, further delay the abatement efforts of the energy sector already lagging behind set objectives. At a point where energy demand needs to be throttled to facilitate the replacement of fossil fuels with renewable energy sources, another big energy consumer couldn’t come at a worse time. Furthermore, the lower the cost-effectiveness of a carbon removal project, the fewer projects can be financed, again creating an unbeneficial competition for resources and a time lag in project development.

In summary, direct carbon capture may be effective, but it is cost-, energy-, and time-intensive. It quickly becomes clear why DAC cannot be considered as a silver bullet for combating climate change and exhibits the need for low-input, cost-effective climate solutions. 

This doesn’t mean DAC shouldn’t be considered at all. In fact, it can even be beneficial if applied in areas with great surpluses in renewable energy. Nonetheless, Natural Climate Solutions (NCS), which make use of natural processes that basically remove carbon just by existing, require fewer energy and financial resources. But since natural systems require time to grow and adapt and time is a concern if we want to reach net-zero by 2030, scaling up and streamlining the MRV process (currently the largest cost and time factor in NCS projects) could lead to an acceleration of project development to keep pace with the growing demand for carbon removal. Even so, we may have to consider a hybrid approach considering various carbon removal technologies. 

 

  1. Replace old problems with new ones

Recently, researchers from the ETH calculated that up to two-thirds of current CO2 emissions can be compensated for through reforestation. But also these seemingly natural climate solutions can generate new problems if not done right. This is particularly the case in carbon removal through afforestation. 

Another popular carbon removal technology is Bio-Energy with Carbon Capture and Storage (BECCS). The concept is as simple as it is controversial: Use plant biomass that has accumulated carbon over the lifespan of the plant, burn it for energy, and capture and store the released CO2. 

The cultivation of this biomass creates a large demand in cultivation space, creating competition over land resources with other uses such as food production and raw materials. To intensify production, cultivations are often planted in monocultures of non-endemic species, fertilized artificially and treated with pesticides. This can have severe consequences on local fauna and flora, driving biodiversity decline by destroying ecological niches and decimating other collateral insect populations. Ironically, these plantations are also more sensitive to pests, droughts and other natural pressures that expose the risk of quickly thwarting the sequestration efforts in a short amount of time. Other adverse effects observed are the overexploitation of water resources, competition with the production of food and raw materials and other more effective carbon removers (like peatlands or native forests) or loss of valuable forest resources for local communities. Intensive production has also been shown to deteriorate soil quality. In a previous blog, we have shown that soils hold a major carbon reserve and are a crucial part of carbon removal efforts. 

These examples show that no method is flawless and can cause unwanted side effects. On the other hand, healthy, natural landscapes like forests but also ecological practices in agriculture not only store more carbon and are more resistant to stressors, but also provide additional health and environmental benefits (lookout for the next blog on the co-benefits of NCS). Therefore, it is necessary to consider the potential negative side-effects from the beginning of the planning phase and to keep an eye on and strengthen possible co-benefits such as biodiversity, and additional income for local populations. 

As we have shown in this blog, there aren’t many ways of developing carbon removal markets the right way, but many ways of doing it wrong. In this context, nature-based solutions aren’t perfect and they are as far away from being a silver bullet as any other method out there, but they are the best option we have: they are cost-effective and generate many additional benefits for humankind and nature alike. But as shown, even these need to be done right to be effective and consistent. This can be done with accurate data and the realization of projects that don’t only focus on carbon storage but also take other effects into account. These points considered the potential of NCS is huge. As Seqana we are determined to play our part in further improving the project development of NCS by offering accurate and highly resolved soil data on a consistent and time- as well as cost-effective basis in the context of a world where the role of healthy soils for combating climate change is increasing insignificance. 

 

This blogpost was guest-authored by a friend of Seqana Christopher Wittmann

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