Mitigating Carbon Offset Quality Concerns

Another Davos has come and gone. The terrible and fossil-fuel driven invasion of Ukraine, remnants of the pandemic, a continuing shift to autocratic governments, economic inequalities – all challenged the World Economic Forum’s relevance. Only a few, including Al Gore, seem to have found clear words as to the lack of climate action which is effectively non-existent as global greenhouse gas emissions jumped up by 6% in 2021 to their highest ever level, and are projected to have another increase in 2022.

The vision presented at Davos was that of a win-win for business and the planet. The thinking seems to be around making decarbonization attractive for corporations to invest in. Governments are effectively being asked to stand by and absorb the risk of new technologies whereas investors reap the rewards.

Carbon removal technologies, mentioned as one of the key means to help limit warming to 2 degrees Celsius in nearly every climate scenario, will not fix the issue for us. Latest methods like direct air capture provide 0.005% of 2022’s ~37bn MtCO2 emitted, even less when considering MtCO2e. These figures would need to increase by factor 1,300 within less than thirty years to do the part prescribed to them. It feels delusional to think that these technologies are either quick or a fix. Nevertheless, corporate net-zero plans bank on them big time.

In this light, Davos praised carbon offsets whereas recent reports yet again show that offset validation and certification do not necessarily work as intended provided today’s standards and verifiable enforcement thereof. A nine-month investigation by The Guardian and others effectively shows that a significant 90% of rainforest protection projects overseen by a leading carbon standard and certifier of 75% of all carbon credits worldwide, are likely to be “phantom credits” and do not represent genuine carbon reductions.

Phantom credits refer to carbon credits having been issued for reductions that have not occurred. This can happen when e.g. carbon offset projects claim credit for emissions reductions that would have happened anyway (no additionality), when carbon offset projects double-count emissions reductions, when it is very challenging to demonstrate what would have occurred in the absence of a project (over-inflated baseline), and when avoiding deforestation or implementing renewable energy in one location simply shifts the deforestation or conventional energy use to other locations (risk of leakage).

Eliminating phantom credits in carbon offset projects can be achieved through a combination of measures:

• Independent verification: Carbon offset projects must be independently verified by a reputable third-party organization to ensure that the emissions reductions are honest and would not have occurred without the project.
• Standardization: Carbon offset projects must comply with a consistent set of standards to ensure they meet the criteria for genuine, permanent, and additional emissions reductions.
• Monitoring, Reporting, and Verification (MRV) systems: Carbon offset projects must have robust MRV systems to track and verify emissions reductions to ensure that they are accurate and not double-counted.
• Transparency: Carbon offset projects must be transparent and publicly available to ensure that they are visible to stakeholders, including carbon buyers and regulators.
• Enforcement: Governments and regulators must be able to enforce compliance with carbon offset standards and regulations. This can include penalties for non-compliance and regular audits to ensure that carbon offset projects deliver real emissions reductions.

Many corporates rely on carbon offsets to significantly reduce their CO2e emissions. It has been booming business; McKinsey forecasted that the global demand for voluntary carbon offsets could increase by a factor of 15 by 2030 and 100 by 2050. Hugenumbers – the challenge of offsetting though is that there are not even remotely enough high-quality credits to mitigate the massive and ever-increasing level of emissions. And we have limited capacity to create new ones.

Shifting focus towards quality, evidently, and this is not only the recent case described above, but particularly existing offsets can be of poor quality and outdated. Future offset projects require better standardization and enforcement, independent verification, monitoring, and impeccable transparency.
We believe environment credits should closely follow the Paris Agreement and that corporates should be held accountable towards behavioral changes: reductions before removal, removal before offsetting. Governments in turn need to step up their game and moving constrain pollution; large patches of societies are ready for significant changes as long as such changes are embedded in honest, rudimentarily positive visions of our joint future.

How can Project Samsø help? Our solution is a MRV system, holding members of the network accountable driving towards eliminating phantom credits. Our infrastructure will, firstly, improve today’s carbon emission and offset verification and certification processes. Secondly, the resulting reliable and compliant footprints fuel the novel and automated conversion of existing securities into Carbon Linked Securities (CLS). Think of CLS as a traditional financial instrument with a built-in component offsetting companies’ remaining gap to their carbon net-zero balance, financed by public investors. The CLS solution allows us to convert any security into a clean, carbon-neutral investment for those investors.

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Do not hesitate to contact us via our official channel or any team member for questions concerning this update or any other area.

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About Strategy Partners LLC

Strategy-Partners LLC is a strategic designer of workflows and solutions for a Carbon Neutral Ecosphere. The firm assists with establishing unified accounting of carbon emissions and offsets with third-party verification and ongoing validation. Strategy-Partners is led by a team of financial securities veterans and data experts based in the U.S.  For more information, visit www.strategy-partners.net

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About KALYP Technologies LTD

KALYP Technologies, a provider of enterprise software in the financial markets with its distributed ledger-based software, establishes smart market infrastructure for institutions and enables more efficient digital processing. The firm is independently financed and led by a group of securities industry veterans and distributed ledger technology experts with an international presence between London and Boston. For more information, visit www.kalyp.com

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Important Information

All information has been obtained from sources believed to be reliable, but its accuracy is not guaranteed. There is no representation or warranty as to the current accuracy, reliability, or completeness of, nor liability for decisions based on such information, and it should not be relied on as such.

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Sources:

• Carbon Offset Guide. Concerns About Carbon Offset Quality.
• Abatable. Quality Approaches in the Voluntary Carbon Markets (VCM). 22 May 2023.
• SPGlobal. Carbon offsets prove risky business for net zero targets.
• EcoWatch. 94% of Forest-Based Carbon Offsets Certified By Leading Global Provider Are ‘Phantom Credits,’ Major Investigation Finds. 22 January 2023.
• The Guardian. Revealed: more than 90% of rainforest carbon offsets by biggest certifier are worthless, analysis shows. 30 January 2023.
• The State of Carbon Dioxide Removal.
• McKinsey. A blueprint for scaling voluntary carbon markets to meet the climate challenge. 29 January 2021.