Additionality in Carbon Credits Trading
In some markets, companies that need to reduce their emissions can buy what are known as carbon credits. Each credit represents one metric ton of carbon dioxide avoided or sequestered. These credits are traded in exchanges and also used to settle large bilateral deals negotiated offscreen. These trading markets are a crucial element of reducing greenhouse gas (GHG) emissions worldwide. However, not all carbon offset projects are created equal. In order for a project to generate a credit that can be traded, it must demonstrate that it is additional to what would have happened anyways. The concept of additionality is at the heart of a debate that is reshaping the future of climate finance.
The current debate around trade carbon credits emissions mitigation is often framed as a tradeoff between environmental and economic concerns. In order to mitigate the effects of global warming, policy makers are weighing the benefits of various options that include carbon taxes, cap-and-trade programs, and other mechanisms. Cap-and-trade programs are the most common and have been implemented in various forms across the world. In these programs, a regulator sets a limit on total emissions. Companies that exceed that limit must either pay a fine or purchase carbon credits from other companies to make up the difference. Carbon credits act like permission slips that allow companies to emit a certain amount of CO2.
For many forest-based carbon credit projects, the baseline against which additionality is measured is a fictitious generalized “common practice” management trajectory. This methodology introduces biases that result in a clustering of IFM projects within geographic areas and ecosystem types characterized by sharp ecological gradients, which can compromise additionality. To address this, our research focuses on developing unbiased methods for establishing common practice estimates along such gradients.
The Concept of Additionality in Carbon Credits Trading
In contrast to the standardized products offered on exchanges, our new approach allows for the creation of customized credits that are uniquely suited for specific projects and end buyers. This customization can increase the value of the credit, reduce the risk of accusations of greenwashing by end users, and provide important information to investors about the quality of their investment.
This research is an essential step towards ensuring that the credits created by IFM projects lead to real global emission reductions. In the long run, this could help to build trust in the use of these carbon credits and contribute to greater confidence in forest management as a climate mitigation strategy. This in turn can support the development of robust carbon credit markets and help us reach our climate goals faster. This research is supported by the U.S.
Department of Agriculture and the Natural Resources Conservation Service. We would like to thank them for their generous support. We would also like to thank the many individuals and organizations that helped us along the way, especially those involved in the TFVCM. Without their guidance and support, this work wouldn’t have been possible. We are grateful for their efforts and look forward to continuing our collaboration in the future.