New Framework to Calculate Carbon Credits Addresses Shortcomings of Previous REDD+ Methodologies

November 4, 2023 5 minute read

Resonance regularly features Insights under the umbrella, ‘Research that Resonates,' introducing readers to recent and important academic research projects and findings that are important to our work, but often behind a paywall. Here we report on a new framework to calculate carbon credits that addresses some of the very real factors hampering enthusiasm in Voluntary Carbon Market investments. 

Released last month, the Permanent Additional Carbon Tonne (PACT) accounting framework is a newly proposed methodology for nature-based carbon crediting and removals that aims to address shortcomings of previous REDD+ methodologies and offset efforts. Developed by scientists at the Universities of Cambridge and Exeter and the London School of Economics, this new approach that includes computer modelling allows credits to be issued and sold at the end of a set time-period and enables investors to directly compare carbon credit pricing across a wide range of projects.

The PACT framework comes at a time when many offset schemes are being criticized for failing to deliver overall emissions reductions as promoted or worse – masquerading for intentional greenwashing (Aside: an interesting article published in TIME cites "A comprehensive new study from Ecosystem Marketplace, in which evidence is presented to suggest that those broad-brush assumptions are wrong. It finds that most companies that participate in the Voluntary Carbon Market are climate leaders, not laggards.").

Tangibly and with reason given the complexity, current valuation methods for forest conservation projects have come under heavy scrutiny, leading to a crisis of confidence in carbon markets more broadly. In its announcement of the new framework co-developed by a team of its scientists, Cambridge stated of the declining standing of many current schemes, “This is hampering efforts to offset unavoidable carbon footprints, mitigate climate change, and scale up urgently needed investment in tropical forest conservation.”

What is REDD+?

REDD+ is a climate change mitigation solution developed by Parties to the United Nations Framework Convention on Climate Change (UNFCCC). Its framework, dubbed the Warsaw Framework, was adopted in 2013 at COP 19 in Warsaw and provides the methodological and financing guidance for the implementation of REDD+ activities. ‘REDD’ stands for ‘Reducing emissions from deforestation and forest degradation in developing countries. The ‘+’ stands for additional forest-related activities that protect the climate, namely sustainable management of forests and the conservation and enhancement of forest carbon stocks. Under the framework that centers REDD+ activities, developing countries can receive results-based payments for emission reductions when they reduce deforestation. This serves as a major incentive for their participation and increasing efforts.

However, as is the case with many sustainability, climate, and ESG initiatives, data and case-building is a major challenge. In the case of offsets, which involves complex and interconnected scientific and natural processes (read our Primer on Offsetting and Insetting, here), measuring the value of carbon storage is not easy. In fact, Recent research suggests as little as 6% of carbon credits from voluntary REDD+ schemes result in preserved forests, and these initiatives and projects are time-dependent (i.e., the length of time forests are preserved corelates to climate benefits achieved).

Key Advancements in the PACT Approach

The team behind the PACT framework suggest they have developed a more reliable and transparent way of estimating the benefit of carbon stored from forest conservation efforts and interventions, published last week in the Journal of Nature Climate Change. In their article, Realizing the social value of impermanent carbon credits, the team argues that saving tropical forests is not only vital for protecting and conserving biodiversity, but also “a much less expensive way of balancing emissions than the most current carbon capture and storage technologies.”   

The Cambridge announcement of the research and approach details the essence of how the framework is applied and why it is an improved approach.

Essentially, PACT works a bit like a lease agreement: carbon credits are issued to tropical forest projects that store carbon for a predicted amount of time. The valuation (estimation of worth) is front-loaded because more trees protected now means less carbon released to the atmosphere right away.

The technique is purposely conservative in terms of the initial number of credits issued. Essentially, it relies on deliberately pessimistic predictions of when carbon might be released and then utilizes remote sensing techniques for monitoring. If project results are better than initially predicted (the team suggests this is likely), then projects can be rewarded through the issue of additional credits.

These interval, results-based payments encourage local people and communities to protect forests as alternative livelihoods to those that involve harvesting trees. And the possibility of future payments (an ‘Ex post’ approach in which credits are issued when an offset is achieved) serves as an incentive for safeguarding forests long after initial credits have been issued.

This approach contrasts with the current ‘Ex ante’ methods in which the burden for conservation at the start of a project passed to future generations (when forest stands have grown) and fails to compensate for lost livelihoods along the way that are reliant on cutting trees.

Factoring in the “Social Costs of Carbon” or SCC

The PACT approach also allows different types of conservation projects to be compared in a like-for-like manner by quantifying the value in temporary drawdown via the “Social Cost of Carbon.” This is an alternative accounting approach compared to the dynamic accounting approach typically used in carbon markets that requires entities purchasing a credit to replace that credit if there is a reversal (when the carbon associated with an offset is reversed and its mitigation benefits are lost).

These reversals are based on the reality that the carbon tropical forests sequester (capture) are not taken out of the atmosphere permanently. In addition to human clearance, forests can be destroyed by fire, wind, floods, and pests. This “impermanence,” and therefore the difficulty of reliably measuring the long-term climate benefit of tropical forest protection, has made it an unattractive proposition for investors wanting to offset their carbon emissions, despite the much higher costs of more permanent, technology-based methods of carbon capture and storage.

“Nature-based carbon solutions are highly undervalued right now because the market doesn’t know how to account for the fact that forests aren’t a permanent carbon storage solution. Our method takes away a lot of the uncertainties.”  - Anil Madhavapeddy, a Professor in the University of Cambridge’s Department of Computer Science and Technology

The PACT methodology includes a calculated “Equivalent Permanence” or “EP” for each credit based on the ex-ante projection of “likely permanence” of the credit. EP in this framework is estimated as the ratio of the impermanence-adjusted value of the drawdown to that of a fully permanent drawdown of the same size.

“Until now there hasn’t been a satisfactory way of directly comparing technological solutions with nature-based solutions for carbon capture. This has caused a lack of enthusiasm for investing in carbon credits linked to tropical forest protection,” said Dr Tom Swinfield, a researcher in the University of Cambridge’s Department of Zoology and senior author of the study.

He added: “Tropical forests are being cleared so quickly that if we don’t protect them now, we’re not going to make the vital progress we need towards net-zero. Buying carbon credits linked to their protection is one of the best ways to do this.”

Valuing a Wide-Range of Nature-Based Solutions AND Livelihoods

Protection of tropical forests, a nature-based solution to climate change, comes with additional benefits: helping to conserve biodiversity, protecting natural habitats vital to regulating the global climate and mitigating the extinction crisis, and supporting the livelihoods of people living near the forests.

“Carbon finance is a way for us – the carbon emitters of the richer world – to direct funds towards rural communities in the tropics so they can get more out of the land they have, without cutting down more trees,” said Andrew Balmford, Professor of Conservation Science at the University of Cambridge and first author of the paper.

Co-author Srinivasan Keshav, Robert Sansom Professor of Computer Science at Cambridge added: “Our new approach has the potential to address market concerns around nature-based solutions to carbon offsetting, and lead to desperately needed investment.”

The developers of the PACT accounting framework state it can be used to value a wide range of nature-based solutions. They also believe it has the potential to address the preservation of livelihoods alongside forests needed for greater carbon storage. This kind of balanced incentivization will be important given nearly 30% of all progress towards the ambitious net-zero commitments made at COP26 is reliant on better management of carbon in nature.

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