The value of impermanent carbon credits

Balmford, Andrew; Keshav, Srinivasan; Coomes, David A.; Groom, Ben; Madhavapeddy, Anil; Swinfield, Thomas

doi:10.33774/coe-2023-5v93l

Cited by 5 publications

(6 citation statements)

References 18 publications

(31 reference statements)

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“…The lack of credibility of the credits being issued poses a threat to this important revenue stream 35,48 . There is growing recognition that conservative credits issuance 49 can help address issues such as impermanence 50 , and leakage 51 The relative importance of the three validation criteria as the reasons matched sets were rejected. The three panels show differences in deforestation rates for the 44 REDD+ projects (% yr -1 ) during the first five years of project implementation, arranged by project-level average differences (x-axis).…”

Section: Discussionmentioning

confidence: 99%

“…The lack of credibility of the credits being issued poses a threat to this important revenue stream 35,48 . There is growing recognition that conservative credits issuance 49 can help address issues such as impermanence 50 , and leakage 51 . At time when confidence in the voluntary carbon markets is low, we hope our results provide reassurance that ex-post counterfactual estimates of avoided deforestation can deliver relatively consistent estimates of additionality, helping accelerate their widespread adoption and rebuild trust in nature-based climate solutions.…”

Section: Discussionmentioning

confidence: 99%

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Sensitivity of estimates of the effectiveness of REDD+ projects to matching specifications and moving from pixels to polygons as the unit of analysis

Guizar-Coutiño,

Coomes,

Swinfield

et al. 2024

Preprint

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There is a substantial interest in the potential of carbon credits generated by Reducing Emissions from tropical Deforestation and Degradation (REDD+) and traded on the voluntary carbon market for generating the finance needed to slow forest loss. However, such credits have become marred in controversy. Recent global-scale analysis using a range of methods for estimating the counterfactual rate of deforestation ex post suggest that many REDD+ projects have overestimated their effectiveness at reducing deforestation and consequently issued more credits than can be justified. All such methods include potentially arbitrary choices which can affect the estimate of the treatment effect. In addition, using pixels as the sampling unit, as some of the studies do, can introduce biases. One study which has been widely cited in the debate (Guizar-Coutino et al. 2022) estimated avoided deforestation using statistical matching of pixels and a single set of matching options. We estimate avoided deforestation from the same set of projects using 7-hectare plots rather than pixels to sample deforestation and explore the sensitivity of the results to matching choices (exploring 120 matched sets in total). We filtered the results on three criteria: 1) post-matching covariate balance, 2) proportion of REDD+ samples that were successfully matched, and 3) similarity of trends in deforestation rates prior to REDD+ implementation (parallel trends). While one of the 44 REDD+ projects failed these quality control process, we estimate treatment effects for the remaining 43 projects. There was a substantial correlation between our new estimates and those published in 2022 (0.72 measured in annual percent change, and 0.9 measured in total area change) and our headline estimate of 0.22% per yr (95% CI: 0.13 to 0.34) is essentially unchanged. At a time when confidence in the voluntary carbon markets is low, we hope these results provide reassurance that ex-post counterfactual estimates of avoided deforestation are consistent, helping accelerate their widespread adoption and rebuild trust in nature-based climate solutions.

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Section: Discussionmentioning

confidence: 99%

“…The lack of credibility of the credits being issued poses a threat to this important revenue stream 35,48 . There is growing recognition that conservative credits issuance 49 can help address issues such as impermanence 50 , and leakage 51 . At time when confidence in the voluntary carbon markets is low, we hope our results provide reassurance that ex-post counterfactual estimates of avoided deforestation can deliver relatively consistent estimates of additionality, helping accelerate their widespread adoption and rebuild trust in nature-based climate solutions.…”

Section: Discussionmentioning

confidence: 99%

Sensitivity of estimates of the effectiveness of REDD+ projects to matching specifications and moving from pixels to polygons as the unit of analysis

Guizar-Coutiño,

Coomes,

Swinfield

et al. 2024

Preprint

Self Cite

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“…satellite remote sensing) and difference-in-difference methods used to assess outcomes between the project and its controls, in near real time, and only issuing credits once additionality has been observed. These methods provide by far the most scientifically-robust crediting methods proposed to date, yet challenges remain on the specifics of constructing counterfactuals, ensuring leakage mitigation 12 and equivalent permanence 13 , and tracking outcomes beyond changes in land cover. To address this, conservative estimates must be made wherever there is uncertainty so that the risks of overestimating the resulting benefit towards our pressing global targets is minimised.…”

Section: Operationalising and Financing Scientifically-credible Natur...mentioning

confidence: 99%

Nature-based credit markets at a crossroads

Swinfield,

Shrikanth,

Bull

et al. 2024

Preprint

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A swathe of recent impact evaluations demonstrating disappointing results suggest nature-based credits (derived from carbon or biodiversity offsets) are at a crossroads. Either nature-based credit markets are fundamentally reformed to adopt the latest scientific understanding on additionality, leakage and permanence, rebuilding investor confidence and allowing them to upscale, or they will continue to demonstrate non-additionality, lose investor confidence and constrain one of our most promising tools for drawing private investment into conservation. Scientific credibility can be established by releasing nature-based credits ex-post after proven demonstrably additional relative to a statistically-derived counterfactual. Credit markets must also be reformed to make them robust to, rather than resistant to, scientific improvements in credit estimation methods by conservatively estimating benefits whenever there is uncertainty. These principles imply a greater degree of regulation to ensure fundamental demand for these high-integrity, higher-priced mitigation outcomes. We argue these principles are necessary to support credit markets associated with sufficient market confidence to attract investment and deliver the environmental benefit embedded in the ambitions of the Kunming-Montreal and Paris agreements.

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“…In non-compliance settings, these credits should only be used to offsets emissions that are themselves quite poorly estimated, such as beyond-value chain emissions. Balmford et al (2023) suggest to replace the usual buffer approach to the risk of impermanence of nature-based credits, whereby a buffer is added to the issued carbon credits in case the carbon savings do not materialize (e.g. because of a forest fire) by a dynamic accounting approach tracing changes in carbon stocks over time and issuing or cancelling credits accordingly.…”

Section: Market Design Optionsmentioning

confidence: 99%

Market Design for the Environment

Cantillon,

Slechten

2023

SSRN Journal

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The value of impermanent carbon credits

Abstract: A new framework linking economics with remote-sensing means impermanent carbon reduction can be directly compared with permanent drawdown.

Cited by 5 publications

References 18 publications

Sensitivity of estimates of the effectiveness of REDD+ projects to matching specifications and moving from pixels to polygons as the unit of analysis

Sensitivity of estimates of the effectiveness of REDD+ projects to matching specifications and moving from pixels to polygons as the unit of analysis

Nature-based credit markets at a crossroads

Market Design for the Environment

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