Pricing Voluntary Carbon Offsets
Nine months ago, AlliedCrowds began looking into climate finance as part of our research into alternative finance for projects and entrepreneurs across emerging markets.
Almost by chance, we began looking into carbon offsetting. It seemed a fairly straightforward proposition: polluters pay for their pollution, internalising the negative environmental impact of their actions — a solution long championed by economists and environmentalists alike. In practice, it seems straightforward: Google ‘carbon offset’, calculate your footprint (for a flight, or household, or anything else), add the tons to your basket, and pay.
Beneath this simple surface, however, we discovered an opaque, complicated market with almost no data on sellers and buyers of carbon credits, their credibility, or their prices. Given our background in data, tech, and finance, we saw an opportunity to provide at least some of this information. Fundamentally, we set out to answer the following questions:
- What are all of the projects in the world?
- Who is buying credits from these projects?
- What is the price that buyers pay?
- Given the general controversy around carbon offsetting, what projects are more credible than others?
After about 6 months, we were able to answer all of these questions. The answers may not always be complete or perfect. But, they’re better than most other data out there, and getting better every day.
Directory
To our surprise, getting answers to questions as simple as, “How many carbon offsetting projects are there and where are they?” proved to be nearly impossible, unless you knew exactly where to look, and knew what to look for. We figured that was the foundation, and got to work. We identified five of the biggest carbon offsetting registries (American Carbon Registry, Climate Action Reserve, Clean Development Mechanism, Gold Standard, and Verra), pulled in all of the publicly-available data from those registries into one place, and standardised the information. In the end, we wound up with a list of 17,000+ projects (past and present) globally in a Directory that anyone could access. This is the vast majority of the projects in the voluntary carbon space.
Next, we put this data onto interactive charts and heatmaps for people to explore. It became possible for anyone to quickly understand how many projects there are in each country, broken down by registry, project type, and status.
This foundational data answered our original question of what all of the projects are globally, and where they are based. We’re now looking to add smaller registries like Plan Vivo and the UK’s Woodland Carbon Code to the data we already have, and will be updating our directory in the coming weeks with these projects.
Transactions
Now that we knew what all of the carbon offsetting projects were — creating, perhaps, the largest database of green projects around the world — we decided to get a better understanding of who was buying credits from these projects. Much of that data is also publicly available on the registries: once again, we gathered all that was open, standardised the data points across the registries, and began looking through the data.
In this way, we turned up data on hundreds of thousands of credit retirement transactions:
- When the retirement took place
- How many credits
- For what vintage
- What account retired the credits
- And on whose behalf
Want to know what projects Disney has ever retired credits from, and how many credits total? We answer the question by scanning across the registry-driven data, and pulling out all relevant transactions within seconds. Alternatively, we can also search by specific project, project type or methodology, country, size, SDG, etc. to see who has ever retired credits from the search parameter.
This allows our data to be applied across a number of potential uses — for instance, by firms that are looking to understand what projects their peers or competitors are purchasing credits from, or by project developers who are looking to find potential customers for their offsets.
At the moment, we’re looking to further this analysis by categorising all of the buyers by sector.
Pricing
When it comes to carbon offsetting, prices are a surprisingly obscure data point. At the same time, there seem to be anecdotal guidelines for what makes a more or less valuable project. Renewable energy offsets from a dated vintage of a CDM project are known to be less valuable — as little as under $0.50 per tCO2e. Small scale projects from Gold Standard that emphasize their work towards uplifting the local community, however, fetch a much higher price of over $5 per tCO2e.
Further complicating the situation is the fact that there are, effectively, two prices in the market. One is the ‘B2B/direct/wholesale’ price, which is the one large firms or intermediaries pay when they purchase credits from project developers. The other is a ‘B2C/consumer/retail’ price, that small businesses and individuals pay when they purchase credits online from a broker / reseller. (That’s the price you see when you Google ‘offset my flight’ and it tends to be 3–4x higher than what resellers pay when they purchase credits in bulk.)
We set out to get a clear understanding of both of these prices. The B2C pricing was straightforward to gather: we identified ~60 online resellers (South Pole, Atmosfair, etc.) who sell CO2 to individuals and small businesses, and noted how much they charge for a ton when added to the basket. In this way, we got pricing data for ~500 projects globally. (In some cases, offsets from the same project are sold at two different prices: example here.) This pricing data is here.
This gave us a good understanding of how the market values offsets from different countries, registries, and types. It also allowed us to see how certain projects compared against their peers. For instance, the global average price for forestry projects is $10.95. We can then see how projects in different countries compare against that average. In other words, holding registry and project type constant, we can find that (as an example) Verra-certified forestry projects in Kenya are 10% above the average. This suggests that the market prices a 10% premium on projects from Kenya over similar ones from other countries. The same thing can be done for projects of the same registry and in the same country: what’s the premium (or discount) for project type? And lastly, the same for projects of the same types within one country: what’s the premium or discount for the registry?
We applied this information on premiums / discounts based on project variables to the reported wholesale pricing released by organisations like Ecosystem Marketplace to create a more nuanced view of the pricing across projects in the market, resulting in an estimate for the B2B/wholesale/direct price for each project in the world. However, to know how accurate our predictions are, we need to verify the results — and that’s exactly what we’re doing now. We’re reaching out to all project developers and asking how accurate the estimate is. In return for confirming / editing the estimate, we send the project developers a snapshot of relevant data that they can use to find new buyers of credits.
This allowed us to answer the pricing question, for both the B2B and the B2C markets. It’s not the perfect answer, and we’re using estimates in many cases for now. But, as we continue to receive more data from the project developers, our data continues to improve.
Credibility
The final questions we wanted to address was around credibility of carbon offsetting projects. This is a complicated topic — offsets have gained a bad reputation after high-profile investigations into a number of projects that seemed to inflate their impact.
We felt that one way to build trust in the market is to highlight what projects may be “better” than others. As a proxy for a project’s “goodness”, we chose additionally. It’s a basic tenet that should apply to each carbon offset: a ton of CO2 wouldn’t have been avoided or removed from the atmosphere if ‘business as usual’ had continued. In other words, the offset should reflect an additional mitigation on top of what was already taking place.
The problem is that it’s hard to measure benchmarks and impossible to test an alternative hypothesis: we’re not able to reverse time and see what the amount of CO2 in the atmosphere would have been, if the project didn’t go forward. It’s certainly not analysis that we are equipped to conduct. But others are qualified, and they have run this analysis; we decided to use their findings as the basis of our examination into offsets’ credibility.
More specifically, we went through reports from the Stockholm Environmental Institute and the Oko-Institut and applied their analysis to projects in our database. They looked at how likely a project type was to be additional, and quantified that research. We combined their analysis and created an ‘Additionality Score’ for each project in the database.
Because that scoring is based on project type, rather than looking at each individual project, the score is best seen as an indication of how much due diligence a buyer should do when looking into a project. If it’s a project from a less additional project type, it should be scrutinised more, and vice versa.
We’re looking into providing a more nuanced, individualised score in the near future. This will be driven by proxies of quality, including project verifiers, consultants, and buyers of credits. For instance, if some of the most sustainable brands in the world trust a given project over another, our hypothesis is that the project is likely to have passed more stringent due diligence than its peers, and would therefore be of a higher quality. We’re compiling this type of analysis and will finalise in the coming weeks.
Conclusion
Carbon offsetting has tremendous potential, but till now, it’s been a convoluted, confusing market. We will continue to add more registries and projects, additional data points, and analysis in the coming weeks, and will keep our readers updated. In the meantime, check out our latest report on Nature-Based Solutions in Southeast Asia here. If you’d like to explore the data in that report, check out the Tableau Public dashboard here.
