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Revolutionizing Carbon Credits: Embrace a "Pay Upon Delivery" Model!

You wouldn't buy a puzzle without all the pieces, so why would you pay for carbon credits that haven’t been delivered?

Published January 26, 2024


This question challenges the current system of carbon credits, which are often built on promises of future behavior rather than measurement of historical impact.

 

Let’s look at a standard nature-based carbon credit. Typically, a landowner will enter a contract for 40 years, and as soon as the contract is signed, credits are issued and sold to buyers based on forecasted impact. However, there are no guarantees that the land will be properly monitored, nor the environmental impact verified.

 

This raises concerns about the validity of carbon credits and whether they can truly offset emissions. After all, 40 years is a long time, and a lot can change within that span.

 

If a natural disaster like a wildfire destroys a forest, the credits previously issued for that project would still be considered valid, even though the impact they were supposed to represent no longer exists. At best, the non-existent impact is offset by the retirement of additional credits from so-called “buffer pools”—effectively an insurance policy for credit reversals.

 

While, these buffer pools are designed to address the risks associated with such situations, they currently face significant challenges—most notably being undersized and governed by conflicts of interest. Despite this intended purpose, the current state of buffer pools emphasizes the need for reconsideration and improvement to ensure they effectively fulfill their role as a safeguard in the carbon credit system.

 

Questions about the legitimacy of certain offset projects have eroded the effectiveness of many credits. Consequently, these credits, once thought to contribute meaningfully to sustainability efforts, rightfully face scrutiny and skepticism, emphasizing the importance of careful evaluation and transparency in the carbon credit market.

 

The current system not only undermines the effectiveness of carbon credits but raises questions about the ethics of such transactions. If we wouldn't buy a puzzle without all the pieces, why should we pay for carbon credits that haven't yet delivered the promised impact? It seems illogical to invest in something that may or may not actually contribute to offsetting the environmental impact of emissions.

 

Enter Carbon 2.0

Enter Carbon 2.0, a powerful mechanism that has the potential to revolutionize the carbon credit market. Carbon 2.0 is a Rosetta Stone, able to translate the impact of any project, of any volume, for any duration, across any time period. With this framework, we can truly equate and compare the impact of different types of carbon credits. (For further reading, see “What is Carbon 2.0?”).

 

By measuring the value of carbon storage over shorter period of time, we can issue credits after the impact occurs. And for buyers, this means ‘pay upon delivery’. In this model, if a wildfire burns a forest, we can’t issue more credits, but the credits we previously issued are still valid.

 

While it is important to continue improving standards that normalize other attributes of carbon offsets, such as additionality and co-benefits, Carbon 2.0 represents a major step towards improving the quality of carbon credits. It is ready to be adopted now, and by doing so, we can create a more efficient and liquid market that will increase our ability to combat rising temperatures.

 

By implementing Carbon 2.0, we remove the burden from buyers of having to understand and decipher each type of carbon credit—and there are scores of carbon credit types. Instead, we create a standardized system that allows for easy apples-to-apples comparison and evaluation across different projects. This transparency will not only improve the credibility of carbon credit issuers, but also improve buyers’ confidence in the quality of their credits.

 

It's time to stop paying for empty promises. It’s time to move toward a smarter model for carbon credits: It’s time to pay upon delivery.

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