Buyer Beware with Startup Carbon Offset Offerings
Sources: Company Websites
Key Points: Startup firms in the carbon offset space are issuing their own credits and providing marketplaces for them. Using blockchain technology, they offer the promise of transparency, and are addressing opportunities for large scale carbon emissions avoidance. But buyers must pay attention to wide variability in methodologies and inconsistent information.
Last week, carbon trading platform CarbonKerma launched a blockchain-based marketplace for carbon offset credits it is generating from Carbon Capture and Storage (CCS). A similar model is appearing for other offset types; for example, there have been at least three blockchain-based initiatives launched in the last year targeting the shutting in of oil and gas wells (CarbonPath, ZeroSix and Onyx Transition).
Blockchain promises transparency and immutability, which can help address integrity concerns (such as the “double selling” of credits). It has become firmly rooted in the carbon market, with use in leading exchanges, namely ACX (formerly AirCarbon Exchange). And it has been embraced by global development institutions, including working to build bridges and interoperability across different (countries’) blockchain-based marketplaces.
What blockchain also appears to be fostering, however, are initiatives in which one company assumes multiple roles in what is traditionally a more fragmented chain in the voluntary carbon market (VCM). In other words, some of these startups, using blockchain, are assuming the role of offset project developer, standard setter/registry, issuer, and marketplace.
This consolidation of roles isn’t inherently bad or dangerous from a product quality (i.e. offset integrity) perspective. But the startups, with their respective methodologies, do make things more complicated if nothing else, as they are bringing divergent approaches.
An environment with a small number of established standard setters (firms such as Verra, American Carbon Registry (ACR) and Climate Action Reserve (CAR) are over 15 years old), brings a consistency and discipline to the standards-setting process. These firms implement and publish protocols and methodologies developed to establish the integrity of any carbon offset issuances. And, perhaps counter to public perception of low offset integrity and accusations that these entities suffer from conflicts of interest, they proceed with considerable care to oversee individual project applications. This measured approach has led to frustration on the part of would-be developers, who see the established registries as being overly conservative (slow) in accepting new sources of offsets as well as delays in processing individual applications.
The startups, on the other hand, are manifesting a wide range in their approaches and disclosure of their procedures. This can easily create confusion. To illustrate in the oil well plugging space, ACR’s recently issued methodology applies only to orphaned wells and only credits for avoided Scope 1, i.e. methane, emissions; CarbonPath and ZeroSix have methodologies that address producing (owned) wells and issue credits for leaving oil in the ground, i.e. Scope 3 avoidance.
But even these two have divergent methodologies. CarbonPath credits only ½ of its calculated avoided Scope 3 emissions, reserving the other half to address leakage concerns (that there will be another well drilled to offset the lost production from shutting down the target well); ZeroSix takes no such discount (it offers a different take on the economic theory behind price elasticity and argues that it is “very conservative” in its crediting).
As for disclosure, the three have their methodologies available on their websites. But CarbonKerma, has not disclosed its methodology, claiming that it is proprietary.
In a market that is unregulated, it falls on buyers to decide what standards are adequate (and there is an ecosystem of ratings agencies and others offering input). And the startups are to be lauded for bringing fresh resources and opportunities to the offset crediting space, particularly for industrial activities that hold great promise for decarbonization.
But if one thing has been made clear by the controversies in the VCM over the last year, the details of what lies behind offset crediting — in terms of determining baseline, additionality and leakage, as well as the rigor applied to measuring the impact — are anything but simple. One carbon offset often simply doesn’t look much like another (although the industry desperately needs credible categories of credits to simplify matters). And with the “jury still out” in terms of much of society’s comfort with offsets, primed in part by press coverage that appears openly hostile to them, issuers and corporate buyers would be wise to carefully consider the specifics from these startup sources.
June 26, 2023