Pachama unveils new criteria hoping to restore carbon market credibility

Six months after being at the center of the voluntary carbon market's latest greenwashing accusations, the carbon credit tech startup Pachama released an AI-based tool designed to improve its ability to evaluate forest-based carbon projects and avoid overestimating projects' climate benefits.

On June 21, San Francisco-based Pachama launched its Evaluation Criteria 2.1, which introduced a technology for evaluating project integrity known as Dynamic Control Area Baseline. At its core, it advances the concept of dynamic baseline, which calculates the climate benefits of a carbon project by comparing its CO2 impacts with a control area.

Under a dynamic baseline methodology, registries calculate a forest-based carbon project's climate benefits by measuring its CO2 absorption levels against an unprotected tract of forestland with highly similar qualities. By measuring the differences between the protected and unprotected forests over time, the methodology allows for registries to issue credits based on the project's impacts.

Dynamic baseline was originally introduced to quantifiably prove a project's additionality, or that its climate benefits wouldn't have happened under a business-as-usual scenario. Pachama's Evaluation Criteria 2.1 expands that approach.

First, it creates an AI-driven algorithm to match forest projects to control areas in a standardized way, which Pachama says will eliminate over-reliance on human assumptions. The algorithm uses satellite data to divide a project's territory into 100 sq m tracts of protected forestland, then matches each tract to an equivalent area of unprotected forest based on a set of attributes, like forest composition, topography, proximity to a road and political jurisdiction.

Second, it introduces what it calls "pseudo projects" -- randomly selected areas of an unprotected forest that match the size of the forest carbon project. Each pseudo project is also matched with a control area. This allows Pachama to observe deforestation in the pseudo project and its matching control area. Any discrepancy between the two indicates how much uncertainty there is within the algorithm, and that degree of uncertainty is then used to adjust the baseline and, ultimately, crediting.

Combine these two approaches into the dynamic baseline methodology, and they create baselines that are "conservative and realistic," said Carlos Silva, who leads Pachama's science team.

"We're taking manually drawn control areas out of the hands of the project developer, and we have a hands-off algorithm that selects that control area," Silva said. "On top of that, we're able to repeat it many times over to then compute the uncertainty. That's the real novelty -- taking that selection outside the hands of the human, putting it into an algorithm and adding the uncertainty."

Pachama will apply its algorithm to reevaluate all the carbon projects and carbon credits on its platform, as well as all projects added to its platform henceforth.

Moving ahead of Verra

Pachama's new evaluation criteria sets itself apart from the methodology used by Verra, the world's largest international carbon registry.

In October 2022, Verra first incorporated a dynamic baseline methodology after years of collaboration with The Nature Conservancy, the American Forest Foundation and the carbon offsetting consultancy TerraCarbon. Silva said he hopes Pachama's Evaluation Criteria 2.1 pushes Verra to update its methodology again to include techniques like pseudo projects.

"Whether we can get Verra to move to adopt it, that's still an open question," Silva said. "Our strategy at the moment is let's be very transparent to ensure the public can know which are the good credits to buy. And by releasing these approaches and making them public, we can push the rate of adoption faster."

Addressing market credibility

Pachama's updated methodology comes six months after the startup was at the center of an investigation that accused Pachama of selling credits generated by forest projects that weren't under threat of deforestation or didn't effectively protect against deforestation.

In a January 2023 article published by The Guardian newspaper, Pachama's former head scientist said only a fraction of the nature-based credits in the voluntary market represented real emissions reductions.

Fallout came swiftly. The carbon finance consultancy South Pole halted sales of its forestry-based credits. Australia revoked certain methods of credit generation via deforestation avoidance due to integrity concerns. The IPCC warned companies that exposure to substandard carbon credits could result in reputational risks. And nature-based credit prices plunged.

On Jan. 20, the assessed price of Platts CNC, a basket assessment reflecting the most competitive nature-based carbon credit prices, was at $3.10/mt CO2e, according to Platts, part of S&P Global Commodity Insights. As of June 23, prices had sunk to $1.30/mt CO2e.

But greenwashing claims have long dogged the voluntary carbon market. Groups and startups like Pachama have been working to address these criticisms through transparency.

"The market is not going to work until this problem is solved," Silva said. "I think the question is then, can you solve it? And once you do, how do you make it clear to the public?"

Rebuilding credibility will take time and advancements in crediting methodologies, he said.

Silva wonders about the number of times trust issues can arise before the market collapses altogether.

"I'm personally concerned about this," he said. "How many rounds of this can the market take and still persist in the long run?"

He added: "Our mission as a company is to solve climate change by restoring nature. We want this market to work, we think it can work with the right methods, and we're trying to do what we can within our sphere."