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Turkey's forest fires kindle larger questions on offset permanence


Turkish carbon market participants speak to Platts on risk to their projects

Too early to ascertain actual market impact, effect on prices of credits: sources

Experts discuss solutions, alternatives to the challenge of permanence

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  • Kanchan Yadav    Silvia Favasuli    Vandana Sebastian
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  • Adithya Ram
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Forest fires have been raging in many parts of the world putting carbon credit projects at risk and posing a significant challenge to the permanence of the credits generated. Forests generate some of the biggest offsets of carbon dioxide and yet, thousands of tons of CO2 emissions are added in the atmosphere every year due to forest fires. Australia, California, Oregon, Brazil, Russia, Western Canada, Greece and Turkey are among countries susceptible to forest fires.

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Offsets in Turkey

Some 187 fires have broken out in Turkey in the last 10 days, of which 15 are ongoing as of Aug. 6, according to local press reports. The fires are scattered all across Turkey but are more concentrated along the southern coastline of the country.

Turkey's emerging carbon market gets its credit supplies from renewable energy plants, which are facing risks of damage due to the fires.

The most significant risk to Turkish carbon offset projects was the potential disruption to power generation due to emissions reduction generation plants going out of service, which means an interruption to the supply of emission reduction credits, Gaia Climate, an Istanbul-based climate finance and carbon credit consultancy, said. "It is an advantage that there are no land-use change and forestation projects from Turkey at this point. Collapse of those projects due to fires would mean dropping millions of VER [Voluntary Emission Reduction] credits from the market," said Gediz S. Kaya, co-founder and managing partner, Gaia Climate.

Turkey's hydro plants are mostly located in the north-eastern and the south-eastern regions of the country whereas wind plants are almost exclusively in the western areas that face the open sea. Turkey's wind plant carbon projects are primarily Gold Standard, while hydro plants are mostly VCS and IREC-certified.

"The most probable effect on our clients is the damage to renewable energy projects that are located in the fire zones. There is no report of significant damage so far but we are continuously monitoring some of the solar, hydropower and wind power plants as some of them are on alert and have even switched off the power generation. If the wildfires expand even further, damage to those plants may significantly impact the supply side of voluntary carbon market," said Kaya.

A Turkish project development company that S&P Global Platts contacted said that one of their plants in the south-eastern part of Turkey was earlier at risk but the situation is now under control. The company admitted that they might have to "sacrifice some credit generation" adding that it might affect their carbon income as well.

There are concerns among Turkey's carbon market participants that the fires are still raging and the Turkish government has not released an action plan to either reduce emissions or to adapt to a changing environment caused by climate change.

"The Government has promised that they will provide for seeds once the fire has been put down, I am not sure though, how much of it is true. They have also said that equipment with latest technology will be used, to be better-prepared for these situations in the future. Drones and other equipment might be used in the future," said a carbon sales manager at another Turkey-based company.

Turkish sources said it's too early to tell the actual impact of the fires on the carbon market and the prices of credits. End-buyers of the credits generated by the projects, however, are concerned.

"Our buyers and other solution partners on the demand side are aware that power generation and hence the generation of carbon credits can be interrupted seriously. We do not know how long the wildfires will last and how far they will expand but some impact on the Turkish carbon market in the near term is inevitable," said Kaya.

Other international developers expressed concern as well. "The forestry sector will need more investment for additional fire control measures during dry and hot summers. The financing of these additional measures can be availed from carbon credit finance," said Enking International, in an email to Platts. "The raging forest fires in Greece and Turkey are a wakeup call to the policy-makers and common public that climate change cannot be ignored anymore," it added. Enking International is a global carbon credit supplier based in India with projects in over 40 countries.

The company added that forest fires were likely to become a common occurrence in the future due to the above normal summer temperatures.

In the last two weeks, Turkey has lost over 120,000 ha of its carbon sink area, according to Gaia Climate. "That corresponds to loss of millions of tCO2e carbon sink capacity every year until those forests are put back in place. And that requires imminent forestation activity supported by climate change adaptive capacity so that there is sufficient response to extreme weather conditions. Fortunately, those activities including land use change and rehabilitation of the land can be supported by carbon finance," concluded Kaya.

The problem of permanence

While nature-based credits are one of the most popular credit types that are available, they have several ongoing issues. With the raging forest fires, market players are again questioning the viability of these credits, especially their permanence.

Permanence refers to how lasting the impact of emission reductions is. For example, projects like carbon storage and renewable energy have high permanence while those for nature-based solutions are lower.

Forest offsets are effective if they remain intact for around 100 years but the fires present a serious threat to the efficacy of the offsets.

"For nature-based solutions, permanence is one of the cornerstones of a project's legitimacy and so identifying and having a plan to mitigate all possible threats is a prerequisite of verification. In regions at risk of fires, fire management must be a core feature within the project design," said a VCS project developer speaking to Platts.

This requires comprehensive strategies that cover everything from high-resolution satellite monitoring and the establishment of natural firebreaks, through to trained teams on the ground able to respond quickly to hotspot alerts, he said.

Verra, a non-profit that certifies emissions reductions globally, for instance, has a methodology for 'avoided forest degradation through fire management'. The methodology quantifies greenhouse gas benefits from the implementation of preventative early burning activities in the miombo woodlands of the Eastern Miombo ecoregion of Africa, including regions of Tanzania, Mozambique and Malawi. Preventative early burning activities burn with lower intensity and remove fuel load from more intense late season fires. This process results in lower tree mortality and net biomass growth. The methodology uses the GapFire model that projects the growth and mortality of individual trees under different fire regimes and supports a comprehensive set of instructions for determining burn probabilities

Some market participants said that while there is no way to avoid the fires altogether, the impact can be limited by insuring carbon projects. The insurance can be done in the traditional sense by insuring the projects by an insurer or by creating "buffer credits". Under buffer credits, a proportion of the total volume of credits from individual projects are kept aside in a common buffer reserve, which functions as an insurance mechanism. These credits are non-tradeable. Reserve credits can be drawn upon to compensate for damages from any project at risk of potential reversal, in which case, credits are retired or canceled from the buffer reserve on behalf of the project's buyers

"Buffer pools of credits that cannot be sold add an extra layer of assurance to credit buyers and, for the VCS Pooled Buffer, the approach is highly conservative. And it is a system that is working; there has never been a reversal event from wildfires that has required the cancellation of VCUs under the VCS, which means that all fire events have been compensated for, at the project-level, by adjusting the number of credits available for issuance in ensuing monitoring periods," said the developer, who creates forestry projects, including REDD+ projects.

Talking about whether confidence would be undermined for nature-based projects due to forest fires, a sustainable energy expert said, "It depends on the recurrence of the incident. For a recurring incident in a particular geography, where an administration is not able to bring in the right kind of solutions, then obviously, people will lose confidence and take out their investments. However, if it happens once in 30-40 years, then it will not hit the sentiment."