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Recognizing limitations and potential of REDD+ credits may offer way out of a destructive debate

  • Featuring
  • Silvia Favasuli
  • Commodity
  • Energy Electric Power Energy Transition
  • Topic
  • Energy Transition Environment and Sustainability

REDD+ projects that aim to preserve forests at risk of destruction have become a lightning rod for criticism of voluntary carbon markets. A more nuanced view of their benefits and uses could provide a way out from the current fierce debate, writes Silvia Favasuli

Carbon finance has just started to become a mainstream concept in business and industry, but it has for some time been at the center of very emotional debates, especially when it comes to carbon credits based on the protection of endangered forests.

Voluntary carbon markets are one of the means that individuals and companies currently have to help tackle climate change. We can think of them as a place where buyers willing to offset their own carbon emissions can, on a voluntary basis, purchase certificates giving them the right to emit one ton of carbon dioxide per certificate. These certificates are known as carbon credits.

Carbon credits are produced by a wide array of projects, which all promise to reduce, remove or store greenhouse gas emissions. They range from energy efficiency plans to capture of industrial pollutants and the popular afforestation projects.

But when it is too hard to prove whether that promise of CO2 reduction, removal or storage is being kept, the emotional debate kicks in. External observers highlight loopholes in procedures. Project proponents fight back in an effort to prove the solidity of their processes. And while the dispute goes on, trust in carbon finance starts to erode.

REDD+ projects have been triggering this sequence of behaviors since their first appearance 20 years ago

The acronym stands for Reducing Emissions from Deforestation and forest Degradation, and the projects aim to contribute to the fight against climate change by preserving forests in specific areas that are considered at risk of deforestation.

They fall into the "avoidance" project category, since they aim to avoid the release in the atmosphere of the carbon dioxide produced any time a tree—whose dry mass is 50% carbon—dies.

The plus in the acronym indicates the wide range of co-benefits offered by these projects, which may help, for example, to improve the living conditions of the local population, increase water quality or preserve biodiversity.

Chart shows market breakdown by offset type. REDD+ project credits are included in the forestry, land use category

Chart shows market breakdown by offset type. REDD+ project credits are included in the "forestry, land use" category

By resorting to carbon finance, developers of REDD+ aim to offer local communities a revenue from looking after the forest they live in, and move them away from other potential sources of income that entail the destruction of the forest, such as the cultivation of palm oil, farming or even the illegal sale of logs.

However, the promise of REDD+ projects to preserve forests from destruction lies on what some observers consider a faulty account.

The baseline

The number of carbon credits emitted by any carbon project is equal to the level of GHG emissions reduced, removed or avoided thanks to the project itself.

In the case of REDD+ projects, the number of issued credits depends on the level of avoided CO2 emission due to the avoided deforestation.

To calculate that level, project developers start by identifying the "baseline", that is: what would happen to the forest in the absence of the project. In other words, how many trees will likely be chopped should there be no intervention, and how many GHG emissions would be produced as a result.

The baseline is usually identified by looking at the deforestation rate observed over the past 10 years in a nearby area—called the reference region—which has the same economic and social profile of the selected area.

Once the baseline is identified, a developer or a standard (a company that certifies carbon projects) is able to calculate the mitigation impact of the carbon project—i.e. the amount of GHG avoided—and issue an equivalent number of credits. Credits are then sold on the market and used by the developer to finance the project.

The weakness of REDD+ projects lies in the fact that it is not possible to calculate the baseline with absolute certainty.

Despite the many improvements seen over the years and the wide range of tools used by companies in charge of certifying these projects—from linear regression to spatial quantitative modelling—it will never be possible to have a certain picture of what could happen to a specific area in the absence of the project. Nor it would be possible to do a precise post-facto assessment.

Because of this, REDD+ projects are seen by many as violating one of the core principles of carbon finance: the "no overestimation principle".

The principle at stake

The no overestimation principle requires that the number of offset credits issued by any project should match the CO2 emission reduction obtained. Any unintended greenhouse gas emission caused by the project should also be taken into consideration.

Since there is no way of calculating with certainty the GHG emissions coming from a patch of land in the absence of the carbon project, it is impossible to guarantee the number of carbon credits issued by a REDD+ project really corresponds to its mitigation impact.

The violation of this core principle—some argue—risks REDD+ credits doing more harm than good. If it is not 100% certain a credit is offsetting the corresponding emissions, we may end up having more carbon in the atmosphere than we would otherwise, since the emitter could have chosen an alternative —and certain—way to compensate for its emissions.

Those who take this view argue that it would be better to completely remove REDD+ projects from carbon finance.

One of the most influential voices in this field is Owen Hewlett, chief technical officer at The Gold Standard Foundation, one of the largest standards.

In a recent comment on Linkedin, written after the publication on May 4 of a controversial article on REDD+ projects by The Guardian newspaper, Ewlett wrote:

"There is a fundamental question [about REDD+ projects], which is whether it's even possible to estimate [how many credits they can emit] accurately. This is because they're avoided emissions and the counterfactual is what would have happened in the absence of the project, as opposed to what did happen."

He continued: "There will always be doubt about that, even if being conservative, because in reality and by definition you could never know if the trees were going to be cut down. In other words, how accurate is accurate here when the reality can't ever be proven? To my mind this has always meant REDD+ shouldn't be used for offsetting."

A more radical position is expressed by Greenpeace, which is skeptical of the whole world of carbon finance, without opposing it completely.

A spokesman from the organization told Platts: "We also need a clear guarantee that any offsets are used for actual removal of carbon from the atmosphere, not the avoidance of emissions, and that offsets are being used for genuinely unavoidable emissions rather than a convenient way of avoiding hard choices and zero-carbon investment.

"Our ask to the UK government is that they commit to a moratorium on offsetting and voluntary carbon markets until clear limits are set on the role of nature in carbon removal, strict governance is established to ensure integrity, and biodiversity and community, and indigenous rights are protected," he said.

Still, a role to play

But many others in the industry are strongly convinced that REDD+ projects should be part of carbon finance since the benefits they bring are well worth the risk of overestimation.

"Rebuilding a forest from scratch is much more expensive than preserving an existing one, and it would take time that we don't have," a project developer working on REDD+ projects said. "So, it's better to make sure that we preserve the forests we already have."

Others view nature based projects as having a high value, as they not only remove CO2 from the atmosphere, but also store it, offering what would be the ultimate purpose of any action taken to reduce the level of GHG from the atmosphere.

A third argument in favor of avoided deforestation credits comes from the acknowledgment of the large share they represent in voluntary carbon markets. Excluding them from carbon finance may risk killing the market completely before it even takes off, some stakeholders argue. According to data from Trove Intelligence, retired credits from REDD+ projects constituted 45% of the total number of retired carbon credits as of Q1 2021.

REDD+ credits tend to be preferred by buyers because of the co-benefits involved in the projects and the current appeal of nature-based solutions, but also because the price of REDD+ credits usually trades at a discount if compared to other nature-based projects such as afforestation, which involve higher costs.

Platts Atlas of Energy Transition

Finding a way out

Some industry players believe that the way out from this often acrimonious debate lies in the constant improvement of methodologies and tools used to monitor and predict deforestation rates.

Technological developments will increase the level of certainty in REDD+ mitigation impact, according to a second project developer.

"Technologies for assessing carbon stock, determining deforestation and forest degradation risk, as well as quantifying sequestration rates are improving all the time," he said.

"The improved accessibility of accurate, high-resolution, multispectral satellite surveillance is changing the game when it comes to providing an ever more precise picture of what is going on in forests, both above ground and below. We can generate exact carbon stock data; monitor and respond to risks, such as wildfire hotspots or encroachment of illegal logging activities; and also demonstrate the rate of regeneration," he said.

Thanks to these advancements, it's also possible to predict with an increasing level of certainty the rate of deforestation of specific areas.

"We are currently working with an academic institute to develop models using satellite-based RADAR, which has high-spatial resolution that can penetrates cloud cover. This means we can create biomass maps for our areas," the second project developer said.

"RADAR also has very high temporal resolution, with daily data available. This enables us to estimate deforestation rates in near time. We will use this in combination with our ground teams to help identify and prevent illegal logging."

Forms of insurance against a potential overestimation of carbon credits issued by REDD+ have also been set up, according to the same source, and they could also be an instrument to overcome any concern around avoided deforestation projects.

"These projects commit an amount of carbon offsets to a pooled buffer account, which acts as an insurance mechanism against any uncertainty in calculations and also future risks of reversal events," the second developer said.

But perhaps the most significant progress in the debate around REDD+ may come from the mere acceptance of the limited potential of these projects.

Matthew Brander, senior lecturer in carbon accounting at the University of Edinburgh Business School, believes that we should accept the level of uncertainty offered by these projects and treat the credits they issue accordingly.

"REDD+ credits are always going to be uncertain in the change in emissions they have achieved," Brander said. "But I believe they do have a role to play in carbon finance."

"The level of carbon credits' uncertainty should match the buyer's requirements. If you as a buyer want to have absolute certainty because you have committed to a net-zero target, then REDD+ credits are not for you. For example, I don't think REDD+ are appropriate for the aviation industry, which is using REDD+ to claim that their emissions are net-zero. They'd rather use projects capturing gas from landfill for example, even if they have no co-benefits."

"But if you as a buyer are interested in supporting a project that does good thanks also to the co-benefits it has, then REDD+ are for you," Brander said.

Even better, one could purchase REDD+ credits together with credits coming from projects that guarantee their impact but have no co-benefits.

"You could buy two credits instead of one: one from REDD+ projects, to have the co-benefits, and one from an industrial project, which gives you absolute certainty on emission reduction and your net-zero achievements but no co-benefits," the senior lecturer said.

Keeping REDD+ projects in the game while recognizing and accepting their limited scope, could help overcome the debates around carbon finance, while preserving all the tools so far developed to advance in the fight against climate change, without taking potentially harmful shortcuts.

S&P Global Platts began publishing new daily carbon credit price assessments on June 14, 2021 that reflect nature-based carbon credit (CNC) projects and household device carbon credit projects.