The story
On September 22nd, 2022, Commonland and Wij.land spoke about the potential of a carbon market in landscape restoration and provided examples from the field. Below you can find the most frequently asked questions, including their answers.
- How does the pricing of carbon credits work?
The pricing of carbon credits follows the basic rules of supply and demand. Since there was a surplus of supply the last decade or so, and demand for carbon offsets (credits) was still low, the average price ranged between 3-5 $ per credit. Each credit equivalates to 1 tone CO2. This is an average price across carbon credit types, and these credit types depend on the carbon program used (Gold Standard, VCS, etc.), the type of carbon project, within which the credits were generated (renewable energy, afforestation, soil carbon, etc.), and the geographic location. It is expected that demand will further increase and that the price will go up in the future.
A strong factor for a higher carbon price is the amount and quality of co-benefits that come along with the carbon project. In the case of 4 Returns, we expect to generate carbon credits with over-average prices, since we embed the projects into landscape restoration with a broad range of returns, and our project designs take this into account. Also, we focus on the boutique market using ‘Emission Reduction Purchase Agreements’ (ERPA) where a specific company makes a direct purchase agreement with us to buy carbon credits for a pre-defined price from a known carbon project. This approach helps to create transparency around the origin of the carbon project, and the type of (co)-benefits in terms of landscape restoration (e.g., improved soil fertility, increased biodiversity, water availability in the landscape, a new income stream for farmers helping to implement restorative landscape plans and transition to regenag, etc.…). Ensuring quality by transparency also impacts the price of the credits, generally leading to a higher price through higher-quality carbon credits. An ERPA helps to transparently ensure this high quality for the credits and can help set a higher price premium for the credits.
- What is the difference between carbon credits and carbon certificates?
They are basically the same, only that other wordings apply. Physically there is a small difference though: ‘Certificate’ describes the piece of paper/digital-analog on which the carbon credit is issued (the value ‘paper’), and ‘credit’ is just the attribution of a value to 1 t CO2 equivalent.
All carbon credits (issued as certificates) are issued in t CO2 equivalents, considering all greenhouse gases as specified by the UNFCCC (and its technical panel IPCC). There are so-called ‘global warming potential (GWP)’ values to convert tons of GHGs (methane for example) to tons of CO2 (same for all other greenhouse gases. These GWP factors may be constantly updated in the working group reports of the IPCC issued every year. ‘Equivalent’ means that the total amount of credits does not only consist of CO2 but also other greenhouse gases, converted using the GWP factors, as described above. For background info check the IPCC assessment report.
- Can companies/producers set up their own reduction/offsetting schemes and would these be subject to the same level of standards as the carbon credits you sell to the market?
Companies should focus on reducing CO2-equivalent emissions along their supply chain, rather than trying to offset all CO2-eq. by buying carbon credits. There are internationally recognized standards (often non-binding) for businesses that set a framework for the proportion of offsetting that a company can pursue to reduce its GHG emissions. The central standard is the SBTi net-zero standard, which clearly implements findings by the IPCC and its recommendations to set up clear guidelines for corporations on how to include carbon offsetting into their net-zero strategy. Companies should reduce CO2 emissions from their production, but also need to consider “… removing CO2 from the atmosphere to neutralize residual emissions and, potentially, sustain net negative emissions that reduce cumulative CO2 in the atmosphere over time….” (SBTi, 2021). The same guidelines state that corporates should focus on emission reductions first within their own supply chain (by e.g., adopting cleaner production technology, etc.) but then should also do mitigation beyond their own supply chain, by investing in carbon projects which help to enhance carbon sinks. Importantly, companies should use offsetting only for their unavoidable emissions, i.e., those which cannot be reduced any further. Check Net-Zero-Standard.pdf.
- How do you expect to see the carbon market evolve in the next 5 years?
Demand for carbon credits is growing, hence the price is going up for carbon credits. There is an increase in attention, demand, technological innovation, and sophistication currently happening in the global carbon markets. The integrity of carbon projects is at the core, and standards for ensuring the quality of carbon projects are tightening. Important is a multiplier effect for corporations that can rely on a previously tried and tested approach for compensating unavoidable emissions to support ambitious climate goals. Conditions are becoming better for organizations to move from one-off purchases of carbon credits to long-term investments helping to improve especially nature-based solutions projects (afforestation, soil carbon, wetland restoration, etc..). If carbon markets continue to develop further, they will create significant incentives for investors to invest in landscape restoration via carbon projects as vehicles. A higher price for carbon offset credits incentivizes organizations to invest in GHG reduction along their own supply chain, as it becomes cheaper to adopt new technology than to purely ‘buy-off’ emissions by cheap offsets. In the long-term, a price increase benefits reduce greenwashing as it makes it harder for organizations to buy cheap carbon credits, instead of committing to GHG reduction.
- What is the difference between carbon projects on a landscape level compared on a project level?
Commonland is developing a carbon finance framework with Wetlands international and Landscape Finance Lab called “Accelerating landscape regeneration at scale”. To make it easier for large-scale restoration activities to develop carbon projects within the landscape. In one landscape we could, for example, aim for different activities that would yield carbon potential and all these activities would be integrated into a pdd (project design document) on a landscape level. It is not necessarily a problem that carbon projects are on a project level. It is up to us to organize the projects that happen in a landscape into one project.
- How is the quality of carbon currently assured to companies? How do you avoid greenwashing with carbon credits?
Quality of carbon is currently assured to companies by projects that have been set up following certain standard criteria and validated methodologies of the carbon programs (carbon standard organizations). Examples of international programs are Verra’s VCS, Gold Standard, and Plan Vivo. National carbon programs, such as label bas-carbone in France, the Emission Reduction Fund in Australia, and the Stichting Nationale Koolstofmarkt (SNK) in the Netherlands, provide standards to ensure the quality of locally generated carbon credits which are (partially) also used for achieving the nationally determined contributions (NDCs) of the respective countries. An important feature of quality-assessed carbon credits is the endorsement through the International Carbon Reduction & Offset Alliance (ICROA).
Greenwashing using carbon credits occurs if a company intends to improve its carbon footprint by means of cheap carbon offsets, without investing in measures that reduce GHG emissions along its supply & value chain. Carbon credits have a ‘leveraging effect’, in form of their price if it is higher than the price for reducing 1 ton of CO2 equivalent. Also, too low project development and MRV costs may indicate that a carbon standard is not providing for accurate and/or highly standardized criteria or monitoring methods and bear the danger of providing nurturing ground for greenwashing. Therefore, high-quality carbon credits from ICROA-endorsed accredited standards can be considered the best quality carbon credits and will hopefully be available at a higher price soon.
- How is the geography of carbon project emissions considered (capturing in the same location where it has been emitted)?
Emissions are a global problem. It doesn’t necessarily matter where we sequester carbon, wherever we can capture Co2 is good for the environment. Carbon projects under the Kyoto protocol could initially only be set in developing countries and not in developed countries. That is why carbon standards, like the gold standard, were initially all focused on developing countries. After the Paris agreement, this changed, and all countries could start developing carbon projects. From an ethical perspective, it can be better to focus on developing countries, where there are impoverished communities and degraded land. and do the carbon project in an area that is degraded and where there are impoverished communities. Sequestering carbon is not just about carbon, but also about regenerating land and creating co-benefits.
- How can we ensure that carbon offsets are localized and do not reproduce colonial patterns?
We need to make sure that projects fit into the culture of the area they are implemented in. A carbon project must be the idea of the local people and communities. It must be a project that they want to do and not something that they were asked to do. You need to find an activity that is already beneficial as it is. These activities should already be helping the communities. In the large golden standards, there are stakeholder consultation procedures to make sure that everyone agrees, and if someone does not agree then the carbon standard obliges the stakeholders to review the project. We need to choose projects that have co-benefits.
- How can carbon credit buyers and producers be connected in a way that they know each other, without the producer becoming anonymous and without the agency to choose who to sell to?
By using direct emission reduction purchase agreements (ERPA), buyer and seller, as well as producer, and involved communities can be connected, and a transparent exchange of information about the quality of carbon credits can be facilitated. It is more difficult to gain this level of transparency if carbon credits are created and then sold over a large registry.
- How is biodiversity conservation considered within the carbon credit market?
Through the inclusion of biodiversity into carbon credits, currently in form of the CCB certification of Verra.
- What is Commonlands’ view of the trade-off between the rigor provided by verification audits versus the cost & time it adds?
The three main barriers to the success of carbon projects are 1. Complexity, 2. No access to financing, 3. profitability. Commonlands’ aim is to crush those barriers and help create the highest credits possible by providing technical assistance, helping to finance them, connecting courses of funding to the projects, and looking for markets to sell credits.
- How do small community-led projects stand a chance of participating in the carbon market given they do not have the scale to afford the monitoring & verification process?
To do a carbon project, you need scale, because it is very expensive and difficult. If it is too small, then the costs are too high, and it is not profitable. Projects need to scale, and they can scale by organizing the communities by creating corporations or associations.
- Does the development of a validated methodology feed into a standard such as VERRA or GS? If the methodology is independent, how does Wij.land plan to make the credits buyable or usable with international standards that VERRA and GS have been able to set?
As there is a huge unmet demand for (agricultural) GHG emission reduction credits in the Netherlands, we currently aim for Dutch / NW European markets. Our current approach is to have the wij.land methodology approved by the Dutch official carbon market authority SNK (stichting nationale koolstof markt). SNK is in the process of being endorsed by ICROA, making it as robust as Verra and GS. In the meantime, we trust that our transparency, accessibility (both of the model and the participating farms, typically within 25 km of prospective buyers), and the co-benefits of soil & landscape restoration paid for by the credit sales serve to generate demand and fair prices.
- How do you plan to bring a more insetting model than an offsetting model going forward, for businesses and agri-sector to reduce emissions within their supply chain?
Through collaboration with (dairy) cooperatives that source the big majority of the produce of our participating farmers. The coop can reward farmers for reducing the GHG footprint of the milk and make ‘on pack’ climate performance claims to producers. We will start such a collaboration very soon.
By the way: Insetting is not always preferable from a socio-economic perspective as it limits the number of potential buyers of a farm’s certificate (lock in). Wij. land is not against selling credits to ‘the highest bidder’, provided these bidders have solid tier 1, 2, and 3 emission reduction policies in place.
