A lack of trust is one of the most pressing issues for carbon markets. And it’s difficult to scale a market in which suppliers and buyers don’t always trust the product.
The challenge is many buyers fear that the credits they are buying will end up on the list of "bad" credits that represent little more than a transfer of money without any real, positive carbon atmospheric effects. "Good" credits, on the other hand, come from projects that are actually resulting in real carbon drawdown or avoided emissions.
But how to tell the difference?
In July, Amazon and nonprofit crediting organization Verra announced their plan to address that issue by creating a label that they say would indicate a higher standard of carbon credit. Their goal is to help companies trust that they are buying the good type of credits and not the bad type of credits. The label they have created, Abacus Verified Carbon Unit, comes from a group of researchers at Amazon as well as a set of third-party academics from the University of California Berkeley and The Nature Conservancy.
At VERGE Net Zero event last week, an architect behind the new credit, Jamey Mulligan, head of carbon neutralization science and strategy at Amazon, gave a look under the hood.
The credit label will focus on agroforestry and land restoration, two project types where the big three factors for carbon crediting — additionality, leakage and durability — have been extremely hard to confirm, stop and extend respectively. That’s why Abacus takes aim at those factors, trying to improve the story for each, according to Mulligan’s presentation.
"It is the first carbon market label that reflects innovations in the carbon accounting itself," Mulligan said. "[We are] creating an incentive for project developers to road test new project design concepts and carbon quantification methodologies that, at the end of the day, are built to enable confidence that the credits represent what they claim."
The first way in which Abacus credits are differentiated from existing credits on the market is the way in which they account for additionality.
According to Mulligan, existing carbon credit projects consider additionality at the start of the project, but never revisit this criteria. They assume if the project had never been set up, the land would never have been restored at any point over the decades. Abacus, instead, will use a dynamic baseline that allows the project area to be compared to a similar control plot.
"Essentially, projects have to outcompete matched control plots in the surrounding landscape to maintain additionality," he said. "This effectively transfers the risk of future non-additionality, from the atmosphere to where it is today, to project investors, where we think it belongs."
We think the key to success is trust, and we have a lot of work to do to cultivate trust on both sides.
The second way in which Amazon and Verra hope Abacus credits will perform better than traditional ones is on leakage, Mulligan said. A lot of leakage is caused by the displacement of agriculture from one location to another, which is why Abacus is focusing on agroforestry. It plans to match investment in, for example, reforesting a degraded pasture with investments in making the rest of the ranch or nearby region just as productive. That way, the production rate for a region would be maintained, thus hopefully eliminating leakage.
Finally, durability is something nature-based solutions have always struggled to prove. Buffer pools — investments in extra forestation to cover possible losses for a project due to wildfire or harvesting— have typically been used to combat this challenge. Projects that fall under the Abacus crediting scheme will continue to use this approach. The difference is that the buffer pools will come from higher quality projects.
The plan is also to use tree species that are better adapted to the environment and create enduring financial incentives beyond the crediting period. Mulligan did not elaborate on what these financial incentives might be.
Lastly, Abacus plans to chop the crediting period for credits — the length of time the project will accrue credits that can be sold on the carbon market — from the standard 50 years to 30.
"We found that lopping off the last 20 years of crediting, there's relatively little to affect an investor's financial outlook at the time of investment," he said. "[Instead it] generates significant unaccredited removals, as the trees will continue to grow beyond that 30-year endpoint. That can serve as essentially a second buffer pool — uncredited removals that can compensate for partial losses."
While these changes to carbon crediting are encouraging, they aren’t ready for prime time. Amazon and Verra still want these novel and innovative ideas for addressing concerns with current carbon crediting schemes to be tested and refined. The organization completed a consultation in October with a final proposed label coming in January. But Abacus still needs to be tested on the ground level with pilots and real carbon projects.
"We’re not sure how they’re going to work. There may be a better way to do things. And maybe ways to improve the concepts that we're putting forward," Mulligan said. "We think the key to success is trust, and we have a lot of work to do to cultivate trust on both sides."