SUBJECT: Comments on VCS proposal regarding Tonne-Year Accounting
Hello,
I am responding with three comments below to the "Proposed updates to the VCS Program," dated 2/7/22. See also Program Consultation.
Name: Will Clayton, CEO
Organization: Sky Harvest Resources LLC
Country: United States
Comment: Section 4.3, Requested Feedback Question #2
What concerns do you have about the introduction of tonne-year accounting as an alternative approach to non-permanence risk within the VCS Program?
We have no concerns with the introduction of tonne-year accounting. It has the potential to add much needed transparency to credits of varying durations and time horizons. It also extends greater inclusion for a broader set of beneficial project types. If anything, presenting tonne-year accounting narrowly as an alternative approach to non-permanence risk seems limited in scope.
Comment: Section 4.3, Requested Feedback Question #2
What concerns do you have with the proposed conversion rate of 100 tonne-years to one tonne? What do you think would be a more appropriate conversion rate, and why would this be more appropriate than 100 to 1?
We have two primary concerns. The first is related to the model itself and the second to the implicit decision around time preference:
Accuracy of model
The proposed “Verra model” – that is the simplified (linear) version of the Lashof model – sacrifices accuracy for simplicity. While accurate for projects with a duration of 100 years, it is inaccurate for all other project durations, an inaccuracy that is exacerbated for shorter durations – durations that will be more common to projects using tonne-year accounting. Moreover, simplifying the math to a simple conversion rate, which is to say a linear relationship, misrepresents exponential relationships, such as both the effects of carbon forcing and time preference. Thus, the Verra model is less flexible as well as less accurate.
To resolve this concern, we recommend that Verra simply adopt the Lashof model. The Lashof model is an accurate representation of the physical properties of carbon in the atmosphere and is the most accurate and appropriate model. In lieu of a conversion rate, Verra can publish a simple tool to calculate the accurate number of carbon credits across any project duration.
Implicit time preference
Our second concern is with the implicit time preference in the Verra model. Though the Verra model is linear, it can be effectively approximated by the Lashof model with a discount rate of 0.51%, regardless of project duration (see Excel spreadsheet). We highly recommend that Verra adopt a standard discount rate explicitly, rather than imbed it implicitly into another assumption. Moreover, action to combat global warming is preferred now, strongly. And so, while a discount rate representing time preference is an appropriate way to represent that time preference, the implicit time preference used by Verra (0.51%) is insufficient.
To resolve the second concern, we recommend that Verra adopt a discount rate equal to 3.0% explicitly and with space for public commentary. This discount rate is consistent with both the social cost of carbon (3.0%, Source: IWG Social Cost of GHG) and the 100-year GWP standard (3.3%, Source: Sarofim et al., 2018). Using this discount rate, the aforementioned tool would determine the conversion rate for any project duration. Here is a summary of the conversion rates by 10-year interval, comparable to that in Verra’s “Additional Background Information on Tonne-Year Accounting:”
Comment: Section 4.3, Requested Feedback Question #5
What further clarifications on using tonne-year accounting do you think are needed?
In the context of this proposal, tonne-year accou nting (TYA) is described as a tool for managing non-permanence risk. While certainly true, TYA has a broader application for which no clarity is given. Like the Rosetta Stone, TYA allows the carbon community to translate carbon equivalencies across different volumes, durations, and periods of time. In the proposed definition, there is no consideration for how equivalencies should be measured across periods of time, i.e., Verra does not address the question of time preference.
Theoretical question: Is it better to sequester carbon from the atmosphere today or in 80 years? If the answer is today, all-else-equal, then a demonstrable time preference exists. The Verra standard of a 100-year global warming potential (Source: VCS Standard 4.2: 3.14.4) is also a demonstrable time preference for the next 100 years (where the discount rate is 0%) compared to the subsequent infinity (where the discount rate is 100%). However, this binary representation of time preference misrepresents the continuous, rather than binary nature of time. A consistently applied discount rate more accurately represents this nature.
Determining how much we value that time preference is a difficult challenge. But the proposal avoids attempt to answer it. By not establishing an explicit time preference, the proposal accepts the status quo where there is no time preference in the first 100 years – the only answer we know not to be true if the answer to the theoretical question above is “today.” By doing so, the proposal perpetuates a system that compensates project developers equally for climate benefits today and climate benefits 70-, 80-, 90-years from now, long after the critical time window for collective action.
Impact to reverse global warming is strongly preferred now. For this reason, Verra should simultaneously clarify a standard of time preference when introducing TYA to avoid any ambiguity or possible misunderstanding that there is no time preference in the next 100 years. The time preference should be represented by a consistent discount rate applied across all years. The discount rate should be 3.0%.