Making a new voluntary carbon registry seems to be perhaps one of the most challenging projects you could possibly work on when it comes to the carbon market. I’ve been keeping my eye on a few (not named, since it’s not necessarily important) projects going about things in a way I feel is not ideal. This post is an exploration of what I can observe is important in the market compared to what the consequences are of ignoring them.
I’ve noticed a trend in fellow engineer-brained people that get interested in the Voluntary Carbon Market (VCM) and after a short journey of discovery and disillusionment find out how complicated it is to create carbon credits. The next conclusion they make is that it’s too complicated and they can do it 100x better, issue 100x more credits, scale better, do more, centralize more, earn more money, etc. Then they embark on the journey of setting up a new registry. And I’m sure it looks like an amazing decision at the time.
I’ve seen this happen a few times now. Friends — you should not give up your dream of doing this more efficiently, better, and faster than the status quo. There is definitely room to do that. I would ask you to first take two steps back and ask if you are not just making one aspect (generally: simplicity) better at the expense of multiple others. Please don’t throw out the requirements with the proverbial bathwater.
I think there are many very well-intentioned people tackling the registry problem, but perhaps there is a need for more context. I don’t think what I’m going to say here will be largely original or controversial, but since information on carbon markets isn’t always that accessible — I hope this will trigger some curiosity to go out and dig deep. We need a bunch of people tackling the complexity we have in the markets. There is a lot to unpack.
This article is not a defense of the voluntary carbon markets. I would like to emphasize that much like only drinking two liters of orange juice for breakfast, voluntary carbon markets are not a “balanced meal” — they are a supplement. There are of course ways of going about things differently, though I feel the ways some have chosen to do things won’t have the impacts they expect.
What is a Voluntary Carbon Credit anyway?
Let’s start with definitions. In theory, a voluntary carbon credit should be a unit of account which allows organizations to ‘cancel out’ their own carbon footprint. Carbon credits drive finances to third parties, so they could do climate-positive actions in their name. Almost no corporation can reach net-zero by simply reducing the emissions generated by their core business activities. However, they can, for example, make up for the difference by having someone plant a forest that they otherwise would not have. This is the mechanism we are talking about.
In practice, a voluntary carbon credit is — in the most real sense — a social agreement. I could wake up tomorrow and start issuing self-certified credits on small pieces of paper to anyone willing to accept that my credits are valid. They could then go and have a huge marketing campaign that they are carbon-neutral. In the background, they bought some nice Rez Credits yesterday and mulched the paper in their office composter. Fascinating. No?
Currently in [many] cases … there are no legal consequences for doing that. Most governments do not, as of writing, significantly regulate who can issue voluntary carbon credits and who can make claims about their footprint. There is luckily a lot of regulation on the horizon. Until then — the voluntary carbon markets are a wild west where theoretically anything can happen. So hey — what the hell are the consequences anyway? How can we agree on anything?
Capitalist Needs Meet Social Consequences
Let’s look at it from the perspective of the buyer. As a company, you face pressure to act responsibly from the larger social landscape you are in. Acting responsibly is rewarded by good faith by your employees and customers. It’s also rewarded by ESG investors buying your stock. It’s desirable because everyone around you feels like they are contributing to unfucking the planet. That is the power of a good-faith effort to help stop the climate apocalypse. You actually did something. Your money went out there — found a good use — and made a measurable dent on our road to still thriving in the next 100 years. Perhaps your business will also be in a better place in 100 years because of it.
Voluntary carbon credits are a social agreement. While a government might (!) not arrest you for saying you are carbon neutral (yet), activist groups will do their best to turn your strategy for favorable, cheap optics into a death-plague that will follow you and cause active monetary harm. The good faith you attempted to foster will instead turn into indignant anger. Buying the wrong credit can cost your company more than the money you saved going down in quality. It’s often been said by people in this industry — You pay for the cheapness of the credit with your reputation, not money. The experts procuring the credits walk a fine line between stated goals, price, and not exposing their companies to optics risks.
There simply is not, without actively fooling anyone, a significant market for Rez credits. The social consequences of using Rez credits to claim carbon neutrality are too expensive. Rez credits have not been socially determined to be within the realm of acceptability and will hopefully never be. Rez credits are not real.
A fight for the definition of ‘real’
So what do you mean when you say carbon credit? What qualifies? Where is the line? Unsurprisingly different organizations will have different responses to this.
Many organizations feel “avoidance” credits, in which an organization is paid to reduce their own ongoing emissions (and not pull anything out of the atmosphere) are significantly less “real”.
Fundamentally there is an ongoing battle on the definition of what a ‘real carbon credit’ is exactly. I think many people entering the market find these arguments hard to follow and extremely confusing.
It bears repeating — voluntary carbon credits aren’t a true commodity. A direct air capture credit from Climeworks isn’t interchangeable with a Rez credit I issued on Monday because I didn’t feel like driving to work (I don’t own a driver’s license). I hope this distinction is easily recognizable.
We have been talking in very black-and-white terms so far. The reality of the market is murky and grey. How “real” any credit comes down to subjective perceptions, trust in the system, methodology, proof, science, legal precedent, and many other factors. We get to a weird place — there is clearly a spectrum of “realness”, populated by every imaginable carbon credit project. We need to set some basic parameters of what realness is made of. In a sense — this is what registries do. Set up a series of parameters, accounting mechanisms, and trust-generating rituals that bring ‘realness’ to life.
The Ritual of Paperwork and Third Parties
Proponents, let us assemble around the project document. Let us burn some (ethically sourced) incense and recite the incantation of “Additionality, Leakage, Permanence and proper Baselining”. Let us follow the holy scriptures of VM0042 and repent our sins to the VVB. May our issuance be bountiful.
Okay, so we have a “realness” problem. Can we agree on what might constitute real? Boy, do I have good news for you! For the most part — we already have. In my head, this falls into two distinct parts: quality of the credits and quality of the registry. The quality of the credits is made up of (largely, though not exclusively) three aspects — additionality, leakage, and permanence. On the registry side, this is made up of divesting from conflicts of interest, openness towards being audited, and the inclusion of external stakeholders in standard-setting.
I think there are some better sources that explain there in more detail, though the article wouldn’t be that helpful without an attempt at trying to explain this part. So let’s take a quick look at what I mean by these parts:
Additionality means that you can prove that this climate-positive behavior would not be occurring if the incentives introduced by carbon credits would not exist. There has to be a believable, clear “business as usual” scenario which would be counted as the “baseline” that the incentives are directly improving on. If your coal mine was going to modernize equipment anyway because it was clearly profitable to do so — you should not be able to claim carbon credits for acting in your own short-term best interests already in the absence of credits.
Leakage means that the climate-positive behavior does not lead to other negative externalities that reverse the behavior’s positive impact. An example of this would be if we converted productive crop-growing land into pure carbon farming, where we iteratively grow a high-biomass crop like hemp and then throw the harvested biomass into some abandoned mineshaft. This would clearly reduce the amount of food production, leading to someone else having to clear more land for food production. This removes many drastic approaches to decarbonization that have undesirable consequences.
Permanence means that the effects of climate-positive behaviors are as long-term as possible. If I paid you to not drive your car, but you drove twice the next day — we avoided the emission of CO2 for only one day. If I pay you to grow a forest but you chop it down after it has matured — we have avoided emissions for a while, but not forever. The CO2 still gets put into the atmosphere after someone burns it for warmth.
Divestment from conflicts of interests means that the registry does not directly engage in activities that would motivate them to adjust policies in a way that is beneficial to them, but not the climate. This would include activities like direct marketing/selling of specific credits, self-auditing carbon projects, or being a for-profit organization. Direct selling would entail picking favorites, auditing projects would entail possibly closing an eye to some requirements, and being a for-profit motivates you to act in the best (short-term) interests of shareholders instead of the climate. A registry ideally should function as a ‘realness’ watchdog in the process. It should be able to punish bad actors. If it has significant conflicts of interest, the ability to do so is limited.
Openness towards being audited means that it should be possible to hold registries accountable for their processes and decisions in a reasonable manner. Opaque organizations are unaccountable organizations. When looking back at a failure — where did it originate? What decision-making process needs to be improved? If a registry does not have accountable, public processes, the ability to accrue and maintain trust is hampered.
Inclusion of external stakeholders in standard-setting means that registries should not under any circumstances prescribe methodologies without buy-in from experts, the scientific community, carbon projects, and end-users (ie corporations). Even without conflicts of interest — if registries act independently here, they can make tradeoffs that will not achieve buy-in from stakeholders — leading to problems down the road on either the buy- or sell-side of the market. Stakeholders that don’t feel listened to will not prefer to work with you — all else being equal — if there is a competitive environment where this is important.
Cutting back on Realness
Everything I just outlined is hard, and what is even worse — it can feel like it is slowing down progress. (Conversely, I would go as far as saying that maximizing “realness” IS progress.) People coming in with a startup mindset, and ruthlessly prioritizing what is important, especially without context, can lead to the wrong things being discounted. For outside observers, the aspects that create “realness” can initially seem either unimportant or too cumbersome — so quality can start flying out the window in the often sincere belief of “fixing the status quo”. Here are some counterarguments I’ve seen made on why [insert registry play here] decided that their approach should ignore some of these aspects.
Additionality — “Why should we penalize organizations that are already doing good things by not giving them the same access to finances?” “Can’t we just use regional averages as the baseline to simplify the process? Then it doesn’t matter what that specific project looked like before. ” “It’s pointless to prove a hypothetical” “Additionality is unfair”
Leakage — “This is hard to measure and creates too much administrative overhead to document.” “Can’t we just assume that there are no negative externalities here? We are doing good things after all…”
Permanence — “We can’t predict the future!” “ This gets in the way of projects doing positive things because they can’t guarantee permanence.” “We need impact now, we can work on permanence later”
Divestment of conflicts of interests — “Who is supposed to buy our credits if we don’t sell them directly?” “We could be some much more efficient if we did all of this” “We can’t have the organization depend so much on third parties we don’t know!” “We can do auditing much better than any third party! We have technology on our side!”
Openness towards being audited — “This just slows us down. We can’t spend this much time documenting — we have important things to do!” “If we can be publicly audited, other organizations can steal our process!” “Transparency is a problem only after we have a functioning system”
Inclusion of external stakeholders in standard-setting — “We have the best scientists and they know better.” “Noone knows what they are doing so our opinion is as good as anything else.” “All this external coordination steals focus from actually delivering anything”
Some of these arguments are more valid than others. Even major registries close an eye on some of these. As mentioned — the carbon market is a veritable grey zone. I think it goes unappreciated, though, that the carbon community has been having these arguments for decades. In my opinion, there is a lack of curiosity when it comes to the history and evolution of carbon markets. This history is also very inaccessible, esoteric, and often requires expertise in carbon accounting to even begin with.
A lot of these simplifications place the definition and mechanism of a “carbon credit” at risk since they can no longer realistically reflect provable, trustworthy, incentivized impacts. At the end of the day, ignoring any of these is at the registry’s peril. In the long term, any of these properties can be used in order to publicly smear your registry even before it has had any time to accumulate adoption.
Cutting back on the elements that make up quality/realness means you will struggle to grow and retain legitimacy in the long run. Above all else, legitimacy is the main resource that carbon registries have. Without legitimate registries — we are all back in the wild west of “anyone can do anything”, so your registry will fail to provide added value to a project just self-certifying and hoping they can find direct buyers on their own.
The inherent up-hill struggle
When you are a new registry, you face a classic network “cold start problem”. A registry facilitates carbon projects. These projects follow the registry’s process to receive credits. On the other side, a registry facilitates an ecosystem of carbon consumers, that actually affirms the value of the credits that are created by the process. Unintuitively, consumers are on the “hard side” of this network. I feel many new organizations tend to not realize this initially.
Your registry needs projects — but the projects want to be sure there are buyers so they could reliably expect revenue. Your registry needs buyers — but the buyers want to be sure that buying credits from you won’t backfire reputationally. They would rather buy from a registry that other corporates have already purchased from. Even if they are interested — what are their motivations for being early adopters? Often the people making the buying decisions are not in positions of leadership within their organizations, making deviations from the “normal” pattern potentially dangerous for their personal standing within the organization. There are huge disincentives for deviating from the norm in hierarchical organizations.
I’ve seen registries resort to functionally buying up their own credit supply to bootstrap the project-side, but then struggle to find buyers at scale so they could actually offload their inventory. This would be an example of focusing on the “easy side” of the equation. This behavior also has a bad side-effect of hiding the disastrous consequences of trading away quality in the pursuit of simplicity.
Another direction I’ve seen attempted to some extent has been direct-to-consumer carbon scales with their own carbon standard, but I’m personally doubtful of the long-term viability of this strategy — as individual footprints aren’t that large compared to corporations and come with their own required expertise in mass-marketing to retail. Additionally, customer acquisition costs are high. This would only be financially viable if the credits were also exceedingly low quality (and super cheap), to create a margin to recoup acquisition costs. It’s a bad business and not good for the planet. (Note: Consumer offsetting on its own is a great initiative and needs to be more accessible. I’m just pointing out that becoming a retail sales org to subsidize your own registry operations looks like a bad business.)
Generally, there doesn’t seem to be a clear way out of this cold start problem without engaging current corporate consumers and understanding their buying criteria.
So what exactly do corporates want?
Well, belief in the credit's “realness” is a must, in the absence of which I don’t think any transactions will happen. No one wants to buy something that they don’t believe actually exists. Buyers have to be sold on the idea of trustworthy impacts existing for a credit. If I were to name the other top elements, I’d say they were: Compliance with Guidelines and Precedent, Narrative, and Price. These are not in any particular order, as buyers have different priorities.
First and foremost, if the corporation is in an industry with clear(ish) offsetting guidelines (like airlines who follow CORSIA), they will always follow the guidelines. They will also likely follow the lower-end of the guidelines, since generally in a market where everyone offsets — participants become more sensitive to price. All competitors are already virtue-signaling in the same way, so this just becomes a standard business expense to optimize for.
Guidelines and precedent are corporate bread-and-butter. There is a large element of gate-keeping when it comes to being accepted by guidelines as a viable source of offsets. To attract buyers, generally, registries need to start with organizations with no strict industry guidelines. This makes new registries either have to compete with a much stronger quality-based narrative (see Puro.earth as an example, or the emergence of Gold Standard before that) or price.
I’d like to highlight the power of ‘narrative’ when it comes to offsetting. If possible, a corporation would like to associate itself with the “good thing happening somewhere else” as directly as possible, as it helps establish its brand-story of helping the world. Because of this, high-quality climate action will always be a valuable service, and I think the market appreciates that — to an extent. We have cutting-edge projects like biochar, advanced mineral weathering, and direct air capture being funded by large corporates and the Frontier Fund. The narrative power here is “we are an innovative, cutting edge company financing innovative, cutting edge solutions”. Microsoft and Stripe come to mind in this category.
There is a great opportunity here long term. That being said — this side of the market is developing a lot slower compared to the classic nature-based approaches like conservation, reforestation, and afforestation, which have achieved scale and are largely considered the ‘safe go-to’ option when it comes to purchasing. They have a well-established precedent and a well-documented lack of supply. When it comes to high-tech climate action — there historically hasn’t been a lot of money changing hands at the high-end compared to the sheer volumes that are seen in quality nature-based methodologies. This will likely change over time as unit economics improve.
Finally, we get to the price. There is an often unspoken demand for “the worst credit I can buy before I get called out”. High-reputation registries like Verra and Gold Standard can raise an otherwise mildly sketchy credit to that level in a significantly more straightforward fashion than new registries can. (Though I don’t believe this is done intentionally, this is just a historical consequence of their “seal of approval” being valuable.) I don’t think this is a great market segment to compete in, but it’s one that exists. Capitalizing on this need with an additional registry does not seem like a viable option to me. It will just accrue bad press and become toxic to corporates in short order.
Green grants
In the pursuit of simplicity, I’ve observed a few registry-style initiatives by market outsiders end up converging into something I would refer to as “green grants”. The difference between a green grant and a carbon credit mainly comes down to how impact accounting is done. Usually, this involves additionality being removed from the equation — rewarding some positive behavior (or lack of negative behavior) without proof of incentive-driven behavioral change (and resulting impact).
Let me be clear — green grants are not inherently bad. There is nothing wrong with rewarding positive behaviors. It simply emphasizes that the funding is not intended to generate carbon offsets. Green grants, by how they are set up, are not designed to quantify their climate impacts with any degree of certainty. Yes, they can generate these impacts. Yes, they can drive behavior change. This being said, in the absence of accounting for additionality — any numbers these sorts of approaches generate can not be compared with offsets. It’s like comparing apples with apple-shaped oranges.
This is perhaps the major gripe I have with these projects, as they often employ a similar data-driven aesthetic in what they are selling — while creating a potentially misleading illusion that the numbers that are being presented are a characterization incentivized change happening somewhere in the world. They are termed something like “impact” when they present their numbers. They are aesthetically similar to offsets through the virtue of sharing the same units of measurement.
Examples of this might include:
- Paying forest owners for just owning forests. Measuring the net-total carbon sequestration of the forest as the “impact” of the grant. (And of course, no clawback or contingencies when the forest is chopped down and burned as firewood)
- Paying farmers for already applying practices with positive climate impacts. Measuring the practice’s documented emission sequestration effects in scientific literature as the “impact” of the grant.
- Paying owners of renewable energy infrastructure for running a power plant. Measuring the “impact” compared to the alternative scenario emissions of a coal plant generating the same amount of energy.
- Paying people who don’t own cars money for the virtue of not owning a car. Measuring the “impact” compared to an alternative scenario, where they would be generating car-based emissions similar to the average driver.
The price of one such “impact unit”, because of what it reflects, does not optimize measurable changes. Instead, this approach seems to optimize for the biggest number in terms of coverage. Functionally paying a forest owner 0.01$, 1$, or 100$ a year for owning 1 acre of land will result in the same output in this accounting model. What is being claimed as the impact is still the growth of the forest in the absence of any (additional, incentivized) intervention. The incentives created do not actually factor into the model that calculates the consequences of the project, since the payment is not contingent on anything changing. This makes the system hyper-scalable (as you just need to sign up and get the money, very easy to talk people into this!), but also removes the main purchasing reason for the demand side of the equation.
Green grants without governmental intervention will likely continue to struggle with a problem that the carbon markets have solved to some degree — institutionalized demand and subsequent market-driven pricing. I feel green grants gravitate towards looking similar to voluntary carbon offsets as a sort of Batesian mimicry. Much like a non-poisonous butterfly that has evolved to look like a different — poisonous — butterfly that predators avoid. In the case of green grants, this behavior feels misguided, as generally the (large-scale) purchasers of offsets already have a process to differentiate between the two. This sort of approach is more likely to mislead the retail public. It is also likely to catch the carbon markets in the crossfire when they get criticized for not creating desired results.
I would ask these projects to be mindful of how they communicate what exactly they are selling. I’m also worried that they might be way too optimistic in expecting demand to materialize in a similar fashion to what the carbon markets have experienced. Especially since this model has good odds of generating an immense amount of units, which won’t work well in terms of price stability. If the units aren’t intended to be traded — you are back at square 1 of operating a traditional charity model. And that’s not bad either! It’s just solving problems in a different paradigm, which might be the best way to go about things for that particular problem.
Perhaps some of these sorts of projects will find a sustainable audience. I don’t want to “yuck” someone else’s “yum” preemptively. I just thought it would be useful to express that there are some differences between initiatives that express themselves through some measurement of greenhouse gasses.
Challenges with the status quo
Coming back to the carbon markets, there is definitely room to improve when it comes to existing registries. There are three main carbon registries that currently make up the market — Verra, Gold Standard, and CDM. Let’s take Verra as an example, as it’s the one I have the most familiarity with. I’d like to preface this by saying that I do appreciate Verra’s existence, regardless of the challenges they face. That being said, there is room to improve. The potential for improvement here is varied, ranging from communication issues, operational speeds, data accessibility, and speed of adopting innovation.
I’ve heard stories of it taking upwards of 6 months for a Verra-certified project to receive credits in their registry account after they have received approval — significantly delaying the project’s ability to make deals. I’ve experienced the months of waiting you have to sometimes engage in to get a response from Verra. Operationally, they are a victim of their own success, as the organization and database tech seems to be struggling to keep pace with the sheer number of activities they are expected to engage in.
When it comes to data, many companies working in the carbon markets periodically hire armies of interns to hand-annotate publicly available project documentation PDFs. Basic information like which model was used, what date did the carbon accounting start at, what were the projected estimates, how did that match up with reality, and how many approved-but-unissued credits are there for a given project? These are all questions that really should be queryable from the registry, but Verra doesn’t have a public API. Any data you see has been collected by reverse-engineering their own website or extracted by hand. All of this makes it hard to run large-scale analyses and learn from what has already happened. It holds back progress and places more power in the hands of third-party data brokers.
Finally, Verra struggles to keep up with technological innovation. As one example — the current standard methodology to verify carbon sequestration in reforested areas is fully manual. Experts arrive on the scene, pick a small ‘representative’ area, measure the circumference of all the trees in the area using a tape measure, extrapolate that information to find the amount of biomass in that area, and then extrapolate that estimate onto the rest of the project area. Patently low-tech considering currently there are literally dozens (if not low hundreds) of satellite-powered service providers who can more accurately estimate above-ground biomass without ever visiting the forest.
These are only a couple of examples. There are many. Some of them are more important and pressing than others. Some are only major pains to one or two stakeholders. The point is — if you talk with anyone that works in the carbon markets, you’ll hear about things that definitely need a lot of work. And the progress is slow compared to the accelerating effects of climate change. That just feels bad.
A path forward?
The whole point is — there is much to improve on… and we don’t exactly have a lot of time. We need the ‘realness’ of the entire carbon market to go up — it’s not something that is viably simplified away for the sake of convenience. We need trustworthy credits that make a dent in our mission. We need registries that enforce their processes to work like well-oiled machines. We need predictable, scalable, trustworthy results.
To finish on a positive note, I do believe that the situation has to (and will) get better over time. New competitors will emerge in the registry space, trying innovative things in different niches (like Puro, Open Forest Protocol, Regen Network, etc). The competition will force everyone to keep up and innovate to retain legitimacy and market share. It will be glorious.
There is potential for innovation in the registry space. In fact — this is likely the main way we are going to see the situation improve. Just please remember not to simplify your way out of the carbon market, if that wasn’t your original intention. Registries look like a tough space to succeed in, so be prepared for a long, frequently ungratifying, uphill battle for legitimacy. For some, it will be worth it in the end.
When that day comes — I’ll be standing next to the finish line, cheering for your success.
Your fren,
Rez
Aknowledgements
I’d like to thank my proofreaders for their attentiveness and detailed feedback. Special thanks to Wassim from SCB, Stenver and the Solid World carbon team for their thoughts about this article. The feedback helped this article sound a lot less like a strange mix between an introductory piece and a rant. Toned down the ranty-ness by at least 50% 😅
If you want to read more of my thoughts or get in touch, my Twitter handle is @0xRez. My day job is figuring out liquid forward carbon financing at Solid World DAO. I occasionally write long-form content on Medium. Engaging with my writing is greatly appreciated.
Thank you for reading. 🙇
