A statistical look at the vintage-issuance delta in the Verra registry
On March 25 — a bit over a month ago at the time of writing — Toucan wrote a governance proposal outlining an approach to curb undesirable credits getting on-chain. This was later followed by Carbon Plan explicitly pointing out a large amount of ‘zombie credits’ that have found a home in the BCT pool. This article is a statistical look at the impact that a vintage-issuance delta would have in stopping undesirable credits from reaching on-chain.
Stats were compiled by Marcus Aurelius (of KlimaDAO), and Rez (me). I’m sure you can find us on the internet if you want to chat. You can see the stats by clicking on this link.
What is a vintage-issuance delta?
Vintage refers to the period of time that the credits are rewarded for. If an afforestation project issues credits this year for vintage 2019 — this would mean that the credits they just had issued are based on the project’s trees that have removed carbon from the air during the year 2019.
In the Verra registry, issuance rights for credits are rewarded at some point after the climate-positive action has taken place. For nature-based methodologies — this can take a while. However — even though the project has the ability to issue credits, it doesn’t always translate into them issuing the credits right away. This is because Verra charges a fee for credit issuance, and if the project hasn’t found a buyer for its credits — there is no point in paying to have them be issued. Lost money.
The vintage-issuance delta is the period of time that it takes from doing the climate-positive action to turning it into a carbon credit that you can sell-off. It is normal for this delta to be longer for nature-based solutions, where issuance rights take more time to get. This means we need to look at these kinds of numbers by category in order to not skew the results.
I’m sure many would rightly notice that if a project is 1) unable to sell off its credits or 2) doesn’t want to sell its credits — this is a red flag. Carbon projects, by definition, should be motivated by the sale of credits. This is also partially why fresh credits are considered preferable for offsetting.
There is a case that the vintage-issuance delta doesn’t address — credits having been issued and then being held for the purposes of owning a (presumably) appreciating asset. This is more or less ‘fine’ because someone had to hold these credits on their balance sheet instead of being an unknowable quantity in the shadows.
This is what motivates Toucan to apply a vintage-issuance delta for the purposes of protecting against ‘zombie credits’ in the short term. In order to talk about a vintage-issuance delta, we have to consider what constitutes ‘normal activity. This is where the stats come in!
What do normal issuance-vintage deltas look like?
Let’s look at all retirement events in the Verra registry — these are credits that have been actually used by someone to offset their footprint. This data explicitly excludes Toucan tokenizations which we will be comparing it with.
Based on looking at all historical retirements — a 90th percentile delta would be approximately 8.2 years. This means across all historical retirements, 90% of them had a delta smaller than 8.2 years.
Let’s look at this by category:
We can see that in most cases, 90th percentile deltas are nowhere near 10 years, with the major exception of Afforestation/Reforestation, where timelines can often be very long. For hydro, this makes sense as there was a historical oversupply that didn’t have appropriate demand until recently.
What do tokenized vintage issuance deltas look like?
For credits tokenized by Toucan, the 90th percentile delta is ~12 years — a stark difference from the 8.2 we see in retired Verra credits. Digging deeper into categories we can see some differences as well:
Very old energy efficiency and hydro projects have found their way into being tokenized. The major category of on-chain credits is large-scale Chinese hydro, which biases the entire data. These are generally also the kinds of credits that can be called ‘zombie credits’.
The way forward
Based on the data observed, a good stop-gap vintage-issuance delta would be 10 years. It would be permissive enough to let in almost all credits with the major exception of very old hydro and energy efficiency projects. In general, a 10-year delta seems to safely exclude very old, normally unused credits from being tokenized going forward.
Afforestation and reforestation projects COULD be excluded from this filter, though this might end up just causing more confusion. A major counterargument here would be that since the NCT pool (the pool any nature-based projects would gravitate to) has a rolling 10-year vintage cutoff anyway, this would have functionally no impact on what gets tokenized. Even if very old AFF/REFO credits were bridged — they would not be liquid, so the incentives to bridge these kinds of credits currently don’t exist.
