One day after the Carbonz website publicly launched to sell carbon credits to businesses and consumers, offset trading has been paused. The move follows a Stuff probe.
The carbon credits issued by CarbonCrop did not require landowners to do anything differently – likely breaching the standards of the wider offset industry. The companies behind the product are now seeking input from the government and industry.
At least $140,000 of carbon credits were sold in pre-launch sales.
Under decades-old standards, forest owners can only earn and sell carbon offsets if they undertake new action, such as planting seedlings or introducing pest control. But owners issued CarbonCrop credits were not required to meet this bar.
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The new Carbonz online marketplace relied on the technology of CarbonCrop, harnessing AI to count the carbon dioxide being sequestered by trees, based on satellite images and aerial photos.
Carbonz was founded by Finn Ross, who worked in partnership with CarbonCrop to develop the new credits. Ross said CarbonCrop wrote the standards used to issue the credits.
On Tuesday, CarbonCrop chief executive Jo Blundell confirmed her organisation did not require extra action.
Before the public launch, the credits were offered to businesses. Organisations purchased thousands of credits in pre-launch sales.
With government guidance stating that carbon offsets must fund additional emissions action, companies using these credits to make climate claims could be on shaky ground.
How offsets typically work
In the carbon credit world, the standard principle – that a customer shouldn’t pay for a carbon-absorbing activity that would have happened even if the offset was never sold – is known as “additionality”. Money is paid to make a difference. The climate convention dates back to the UN Rio Earth Summit in 1992.
By letting buyers think their pollution is being offset, questionable credits can increase greenhouse emissions. The credits are often described as “hot air”.
If you have native trees growing in your backyard, these trees would have absorbed carbon dioxide and stored it in the form of wood, whether you took a flight or chose to Zoom instead. Therefore, to balance out any aviation emissions from a new trip, you’d need to plant an additional tree.
Projects that plant seedlings to generate carbon offsets can measure carbon gains fairly easily. The project starts with a patch of bare or marginal land, and records the growth of seedlings into trees. By measuring the amount of wood stored each year, the project can calculate how much carbon dioxide was sequestered.
Each tonne of carbon dioxide stored can then be sold as one carbon offset.
But planting trees isn’t the only activity that increases the amount of carbon stored by forests. Since pests can damage trees, fencing and pest control can help restore a forest and boost the amount of carbon dioxide absorbed.
Finally – sometimes controversially – offsets can be used to pay a landowner not to chop their trees down. This is known as avoided deforestation.
Typically, a forestry project calculates a baseline, for how much carbon dioxide would have been stored that year, under a business-as-usual scenario. This is an estimated guess on what was mostly likely to happen, had the project never occurred.
If the offset project undertook fencing and pest control, the auditor might use a neighbouring patch of forest where pests remained as a control.
After that, the auditor calculates how much carbon dioxide the forest actually absorbed.
The baseline is subtracted from the actual carbon absorption. What’s left can be sold as carbon offsets.
If the business-as-usual scenario is thought to be exactly the same as the actual absorption, the project shouldn’t be eligible to sell offsets.
Offset projects have come under fire for deflating the baseline, in an attempt to generate more carbon units. For example, a forest protection scheme might cherry-pick areas with high deforestation in order to sell more credits and raise more cash. For this reason, some experts encourage consumers to buy offsets funding new trees, as these are typically more reliable.
CarbonCrop did not use a baseline for the credits issued before the pause.
In its criteria, it said: “All ongoing sequestration is deemed additional, therefore there is no need to calculate a baseline rate.”
In essence, any landowner that planted native trees for other reasons – to improve the quality of nearby waterways or as a source of pollen for manuka honey – was able to earn offsets.
But since this planting was done for other reasons, this carbon dioxide would be absorbed even if the offset had never been purchased – failing to follow a key principle of the wider industry.
Theoretically, some CarbonCrop projects could have met the industry standards, if they undertook new work such as planting trees or pest control.
Some projects could have been issued more credits that they would traditionally be eligible for.
Stuff raised these concerns with CarbonCrop. On Wednesday, the company said it had temporarily stopped issuing credits and that the Carbonz marketplace had paused offset sales. Carbonz is still selling credits related to the Emissions Trading Scheme.
However, the start-up said it stood by its offset methodology. “CarbonCrop’s views on the flaws of additionality and the critical importance of removals are unchanged. However, it intends seeking input from the Ministry for Environment and independent experts, and making any adjustments to the methodology based on these discussions.
“Once that feedback is received, the company will review its position and make a decision on how and when to resume issuances and trading.”
The company’s stance
Blundell confirmed there was no requirement for landowners issued credits to do anything additional, such as plant new native trees. “We encourage pest control to enable growth. We encourage fencing to keep stock out.”
A person that chose to restore native forest a decade ago out of goodwill would not be able to sign up to earn carbon offsets today, under fundamental industry principles. This is “flawed”, Blundell said.
Some offset projects used “smoke and mirrors” to create a favourable baseline, she added. That influenced CarbonCrop’s decision not to use baselines, Blundell said.
“We’re on a mission to elevate awareness about the methodology and the flaws in the methodology of carbon offsets.”
The company’s quest to redefine the meaning of a carbon credit stands in contrast to decades of established industry practice, national guidance and international climate accords.
In 1997, when members of the United Nations wrote the Kyoto Protocol, they established rules for countries that wanted to buy and sell carbon credits from each other. All offsets must be for projects that were additional to business as usual, the nations agreed. The Protocol rulebook formulated methods to try to ensure this principle was upheld.
As the private market to sell carbon offsets to businesses and consumers evolved, it aligned with the Kyoto Protocol’s principles. Proof that emissions reductions are additional is “a key concept”, according to the World Bank.
CarbonCrop said it based its rules on five other frameworks, including the independent Gold Standard certification process for offsets.
In its rulebook, CarbonCrop stated projects “should represent sequestration that is enabled, either in advance or retrospectively, through the finance”. Ordinarily, this would require the calculation of a baseline – which the company chose not to do.
Gold Standard distanced itself from CarbonCrop’s work. “It is not clear how any Gold Standard methodologies have ‘informed’ their approach. Claiming this without reference is at best an appropriation of our brand equity, and without direct attribution, would be considered greenwashing.”
On its website, Gold Standard warned that carbon offsets that fail to use baselines could actually increase greenhouse pollution. “If carbon credits are awarded to activities that would have happened anyway, emissions are allowed to rise without a corresponding cut elsewhere, therefore making the process meaningless,” the organisation wrote.
To receive Gold Standard’s seal of approval, offset projects must be thoroughly audited, including the calculation of a conservative baseline.
Third-party carbon offset verifiers Verra and Plan Vivo also require the determination of a credible baseline.
When the Paris Agreement replaced the Kyoto Protocol, countries also negotiated rules for country-to-country carbon trading, coming to an agreement last year. All parties, including New Zealand, upheld the original principle.
When New Zealand purchases up to 102 million tonnes of emissions savings to meet its Paris pledge, it will need to fund new projects. The rulebook stated all projects must complete “a robust assessment that shows the activity would not have occurred in the absence of” the Government’s payment.
The private market will align with the standards and practices set by the Paris Agreement. The industry is grappling with what to do if a government counts an offset project towards its Paris pledge.
Ministry for the Environment guidance on carbon offsets warns there must be proof the emissions saved “would not have occurred under business as usual”.
Companies that have purchased CarbonCrop’s credits could be unable to meet the standards of the government guidance. Green claims made on the basis of these credits could be open for challenge.
More than $140,000 had been paid for thousands of carbon credits in pre-launch sales.
Stuff asked whether these customers could seek a refund. Blundell said: “The businesses that have already purchased CarbonCrop units have been in discussion with us for several months and have a strong understanding of the methodology.”
What customers knew
Blundell claimed the company had been upfront about not using a baseline.
However, the lack of a business-as-usual baseline was not mentioned in the FAQ section of the Carbonz website, nor in the promotional material for the launch. At the time of Stuff’s investigation, consumers would only find out by clicking on the link to the Native CarbonCrop Unit methodology document.
Asked if she had read the complete terms and conditions of other organisations she had purchased from, Blundell did not answer the question. “We’re proactively working on improving the communications around this,” she said Tuesday.
To understand the principle was not adhered to, consumers would need to both read the methodology document and understand the conventional meaning of additionality. CarbonCrop outlines a different definition to the concept – but does not highlight to readers that this is a departure from the industry standard.
“Potentially, that’s an area that we can clarify,” Blundell said.
AUT carbon market expert David Hall said the setting of a credible baseline is “standard practice”.
As the private offset industry aligns to the newly agreed rulebook of the Paris Agreement, standards are expected to rise. The international accord requires credible carbon accounting, Hall said. “There are a number of different ways of doing those baselines… The language of the [Paris Agreement] says any such assessment needs to be conservative.”
Companies that purchased offsets that didn’t use a baseline should be wary of making green claims, he added, considering the government’s current guidance. “It will be hard to claim carbon neutrality if the units aren’t consistent with those standards.”
Hall said New Zealand benefitted from a “high integrity” offsetting system, compared to other markets. “The system… does have strict rules and pretty strong regulation.”
Even so, offsetting had a “diminishing social licence”, with people increasingly demanding emissions reductions. “The standards need to tighten and tighten.”
Gilles Dufrasne – of international watchdog Carbon Market Watch – was also concerned about CarbonCrop’s standards.
“Even if the impacts today are real, which is highly uncertain, it is very hard to believe that CarbonCrop will be able to guarantee that the carbon stored in these forests will remain stored for a period of time that is meaningful for climate action,” he added. “These credits don’t seem robust, and buyers should be extremely cautious before spending their money on them.”
Carbon accounting firm Ekos measures the carbon footprint of businesses to reduce emissions and offset the remainder, using carbon credits independently verified by Plan Vivo. Chief executive Sean Weaver said, based on the current criteria, he wouldn’t accept any offset produced using CarbonCrop’s methods.
In addition to the baseline issue and lack of independent verification, the credits were not issued with a recognised carbon registry to limit double-selling, he added.
Before venturing into the carbon offset market with Carbonz, CarbonCrop developed its technology for the national Emissions Trading Scheme (or ETS).
The ETS and the carbon offset market have different goals, rules and standards.
CarbonCrop helps forest owners to determine if they are eligible for the ETS, and if so, to measure the amount of carbon dioxide being absorbed by their land. Rather than requiring more expensive site visits, AI analyses satellite and aerial images to measure tree growth and carbon absorption rates.
For stands of trees that don’t meet ETS requirements, CarbonCrop – through the Carbonz marketplace – was attempting to brand the carbon dioxide the trees are set to absorb each year as carbon credits, and sell these to private customers.
Landowners would be on the hook to repay carbon offsets if they cut down their registered trees. If the forest caught fire, a pool of back-up offsets is intended to cover the losses. If this pool is exhausted, there is no Plan C.
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