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Commentary

Carbon Markets can Move the Needle

Improvements in technology and measurement are showing that forest conservation projects do work – and should be accelerated, says Antoine Rostand, Co-founder of Kayrros.

The voluntary carbon market continues to divide opinion. Just recently, the Science Based Targets initiative (SBTi) provoked a backlash – including from within the organisation itself – when it revised its Corporate Net Zero Standard to let companies use environmental attribute certificates, including carbon offsetting schemes. A group that claimed to speak for the “overwhelming majority” of SBTi staff said they were “deeply concerned’ by the move”. SBTi later appeared to backtrack, saying that there were “no changes” to its standards and a formal draft of rules on carbon offsetting would be presented in July.

The strength of the reaction shows how polarised – a now-familiar term – the conversation has become. This does no one any good: we’re all conscripts in the battle to prevent the climate crisis spiralling out of control. Taking swipes at each other merely wastes precious time. We need to find a way to direct the flow of money from those who have a lot of it to those who have much less, and who are, by virtue of where they live, charged with protecting resources on which we all depend.

The climate finance gap – the difference between the amount of funding allocated for climate-related activities and the amount actually needed to effectively address climate change – stood, as of late 2022, at US$2.61 trillion a year. According to BloombergNEF’s ‘Long-Term Carbon Offsets Outlook 2024’ report, carbon credits could reach US$238 per tonne in 2050, and the market could be worth US$1.1 trillion annually by the same year.

Support for the green transition

The world cannot afford the green transition without the carbon market. This is the hard truth of the matter. The good news is that, despite the scepticism and the bad press, the carbon market does, in fact, work. In June last year, we used our Forest Carbon Monitor to assess more than 90% of the Amazon, which is the world’s largest rainforest and one of the world’s largest carbon sinks. Our analysis, which we ran by processing terabytes of satellite data with AI, showed that of 75 reviewed conservation and emissions-reduction projects funded by the carbon market, just five showed the same static deforestation rates. In other words, 96% were working.

More recent analyses have yielded similar findings. Kayrros considered 115 REDD+ projects (98 of which are active), spread across the Amazon and Africa. These represented 80% of the total market. We found that the median emissions reduction was 276,000 tonnes of CO2 per year, equivalent to the annual emissions of 60,000 cars in the US, with a potential revenue per project of more than US$1.1 million per year.

Eighty-four out of 94 projects were working well, showing less than 0.5% deforestation per year since the project’s start, and a lower rate of deforestation than their surroundings. This means 90% of the projects could be called ‘good’ in terms of their performance. On average, the projects we looked at showed a deforestation rate 2.7 times lower than their immediate surroundings. That this might seem surprising only shows how far trust in the carbon market has fallen.

Serious inefficiencies

The reason for this is that the carbon market has historically been undermined by ineffective and infrequent inspection procedures, which led to mispricing and other serious inefficiencies. Teams charged with checking project sites would sometimes inspect them only every five or even ten years, and usually only by checking a few samples and generalising from them. Needless to say, such an approach couldn’t flag issues fast enough to deal with them. Nor could it adequately detect carbon leakage – when forest preservation at one location pushes deforestation to surrounding areas.

And it could not transparently prove that biomass losses would have been worse without the projects in question. This approach to analysis created problems further down the line. Last year, Verra parted ways with its CEO, David Antonioli, following allegations that the non-profit, which is the leading organisation in the voluntary carbon market, approved tens of millions of worthless carbon offsets.

And yet, in spite of this, the net result on forestry preservation was beneficial. We know this thanks to satellites. By using increasingly powerful artificial intelligence to process raw satellite imagery, we can establish with near-certainty what is going on at each project site. And on our data, a wholesale rejection of the carbon market is no longer a tenable position.

We have rigorous proof that by and large, projects are doing what they ought to do, which is to slow or even halt deforestation. Monitoring allows for third-party certification of carbon projects. It empowers governments and law enforcement to punish bad actors. It dramatically strengthens the positive impact that forestry preservation was already having. And, bit by bit, it brings trust back to the carbon market.

Restoring trust

Relying solely on decarbonisation, which is often pitted against the carbon market by the latter’s detractors, won’t be sufficient to get us where we need to go at this point in our climate trajectory. Restoring trust in the carbon market, using remote sensing and reliable quantitative measurements to show what’s working and weed out any bad actors, will make a major difference. We need much more rigour in our analysis of the efficacy of carbon projects around the world, so we can verify the ones that work. And we need clear, open communication about how carbon credits are generated, verified, and traded to teach both the public and policymakers about the benefits and limitations of carbon markets.

By doing this, we can start to move the needle. Annual corporate climate finance is not keeping up with corporate climate commitments. According to Accenture, just 18% of companies are on track to reach net zero. So we have to be pragmatic. Of course, stopping deforestation takes the right legislation and the right level of enforcement. But satellites are an essential piece of the puzzle. They are needed to create the conditions in which money can flow, via the voluntary carbon market, to the right places. They enable us to compensate all of those in the Global South for their service as sole guardians of what benefits all of us.

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