Credit Quality and the Shift Away from Nature-Based Projects

September 26, 2023

In recent years, the voluntary carbon market, or VCM, has been a roller coaster of rapid growth and turmoil. This article aims to explore the evolving landscape of credit quality within the VCM. A recent report by BCG highlights that buyers in the VCM value certain quality attributes. As we see a shift away from nature-based solutions, these attributes will play an increasingly significant role.

The Crux of Credit Quality

At the heart of the voluntary carbon market lies the integrity of the carbon credits. The increasing focus on credit quality, especially in the wake of revelations surrounding Verra’s REDD+ program, has led many to question the efficacy and reliability of nature-based solutions. Planting trees and preserving forests might seem like straightforward answers, but the devil is in the details. Nature-based solutions often rely on broad averages and assumptions rather than direct measurements of carbon impact. Those averages themselves may be based on shaky assumptions with little scientific backing, making it difficult to ascertain the actual net emissions of a project.

The inherent variability of nature also makes nature-based solutions a risky bet. For instance, a forest that sequesters carbon today might release it tomorrow due to natural events like forest fires. Moreover, the calculations behind the carbon sequestration capacity of such solutions often hinge on rough estimates and averages, lacking the precision that engineered solutions can offer. As credit quality increases in importance, these fundamental issues will threaten the marketability of nature-based credits.

Emissions by sector — Our World in Data

Technological Solutions: Precision and Reliability

Credit projects based on engineering expertise present a tangible, verifiable, and often more impactful alternative. For instance, projects capturing vented and flared gases from oil wells not only prevent emissions but are scalable and leverage existing technology, making them a promising path forward. Direct air capture (DAC) technology is another shining example. By directly removing CO2 from the atmosphere, DAC offers a measurable and permanent solution to the carbon problem.

The oil and gas sectors, traditionally seen as environmental culprits, are now pivoting towards becoming part of the solution. Their deep expertise and vast infrastructure enable them to spearhead and scale up projects that capture and repurpose carbon emissions, offering a genuine path to mitigation. Moreover, as the largest source of emissions, the energy sector is the natural place to seek out the largest-impact projects.

Conclusion: The Future is Engineered

In conclusion, as the VCM evolves, understanding credit quality becomes ever more crucial. Both consumers and businesses must stay informed to make responsible choices. The BCG report highlights a fundamental truth: for the voluntary carbon market to maintain its credibility, it must prioritize quality. As it becomes evident that nature-based solutions can’t offer the precision and reliability required, the shift towards engineered solutions, especially those backed by the oil, gas, and energy sectors, becomes not only logical but also inevitable.

This article was written by Will Baird and Sam Stokes.
This article does not constitute legal or investment advice.

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