OPINION: VCM baselines are in the news again

Paula VanLaningham is the Director of Carbon Research at London Stock Exchange Group (LSEG).

PAULA.VANLANINGHAM@lseg.com +44 (0)7825 422101

A new paper has been published criticising the crediting methodology underlying REDD+ and has prompted a fresh wave of debate.

But is it adding anything new?

The paper, published in Science, addresses perceived inaccuracy of baselines in Reducing emissions from deforestation and forest degradation (REDD/REDD+) carbon credit projects, and has prompted a new round of media coverage that the voluntary market greatly over-exaggerates the carbon benefits of projects, and in fact might cause more harm in the long run.

A lot of the media coverage – as it has several times before – appears to have taken an important, but specific technical criticism of the accuracy of baselines to prove a counterfactual about deforestation...and blown it up to be representative of all carbon trading.

This new study was undergoing technical review at the time of the Guardian/Die Zeit article from January 2023, but was one of the three studies cited in the piece.

Famously, "the Guardian Article" – as it is referred to in hushed tones within the industry – sharply exacerbated a drop-off in prices for voluntary carbon credits across different project types, particularly in the nature-based market.

It also prompted a review of REDD+ methodologies – and, indeed, the whole project review process – from Verra, the largest voluntary standard and the focus of much of the article's criticism; supposedly prompted the resignation of long-time Verra CEO David Antonioli; and refocused market attention on the long-awaited Integrity Council for the Voluntary Carbon Market (IC VCM) Core Carbon Principles (CCPs), which had waned after differing opinions within the Council prompted a prolonged delay in generating them.

Last week's West et al publication adds firmer figures to the conversation but doesn't do much to alter the fundamentals of the discussion, although it does also include suggestions about how to improve baseline measurements and crediting in the voluntary market, a critical component that was unaddressed in the initial round of media coverage and appears to not be making the cut this time, either.

The study focuses its attention on 27 REDD+ projects across six different countries, comparing "deforestation counterfactuals" of control areas with the baselines laid out by the projects.

The authors conclude that, among other things, for most of the projects, the baselines are not representative of actual deforestation risk within the boundaries of the project and are thus over-issuing credits.

Verra responded to the initial criticisms in January, but its decision to re-examine the methodology and crediting process for REDD+ projects underscores that some of the concerns raised about the way "avoided deforestation" is measured – or that some projects might actually increase deforestation, only outside of the border – certainly hit their target.

Nothing new

But, critically, the fresh wave of coverage that it has kicked off hasn't added anything new.

Concerns – both inside and outside of the industry – about the risk of over-crediting, unfair distribution, and additionality across projects has flared up repeatedly in both voluntary and compliance markets since emissions trading first became a thing more than two decades ago.

New Zealand's Emissions Trading Scheme (NZ-ETS) – the Pacific's oldest and most established carbon market – has been weathering its own identity crisis all year amid criticisms that its NZ-ETS eligible forestry methodologies are favouring the development of "exotic" tree plantations at the expense "native" species.

All of this before one even starts to tackle the critical questions of fair land use and indigenous rights.

However, the urge both inside and outside of the industry to extrapolate larger lessons about emissions trading from technical studies about a specific project type is somewhat unhelpful and could have far-reaching implications beyond the voluntary carbon market.

Carbon trading, whether any one person feels it should be, is a key component of the entire Paris Climate Agreement.

The issues raised by West et al in the paper published last week are looking at voluntary carbon projects, but they're not necessarily specific to voluntary carbon projects, meaning, there is no reason to think that the same issues wouldn't pop up even in a regulated system.

Some voluntary carbon project host countries have moved to exert increased control over the credits generated within their borders, a move that has proved to be controversial for a variety of reasons, but is also perhaps unsurprising given the potential size of a UN carbon credit market in a Paris-aligned world.

Under the Nationally Determined Contribution (NDC) system, carbon sinks like peatlands, wetlands and standing forest become a national resource and potentially a huge generator of financial capital for many of the most economically-deprived regions in the world.

That said, the fundamental challenges inherent in measuring deforestation rates against baselines (this time against an NDC, rather than a geographical boundary), or managing natural disaster risk, or protecting indigenous land-use rights, or properly accounting for the rate of carbon capture, or measuring biodiversity... none of that changes just because the system is managed by nation states instead of private project developers.

The methodological risks don't necessarily just go away because they're being managed on an official level and not a private one.

There still needs to be strong oversight of both the project operations and the crediting process – that doesn't exactly get easier when that oversight becomes national or supranational.

Carbon methodologies are supposed to evolve as the science that underpins them evolves.

In the last twenty years, improved satellite technology, stronger on the ground monitoring, and greater scrutiny has greatly improved a lot of the technicalities of carbon crediting.

But there is still clear uncertainty about what works and what doesn't, and there likely always will be, whether it's a private sector initiative or one built at the highest levels of international cooperation.