May 2024 Science Corner | Restoring Confidence and Quality in Carbon Credits Through Transparency

Photo by: Nikki Richter Photography

Written by: Micah Elias, Senior Scientist for Natural Capital

Globally, carbon markets are powerful tools for channeling funding support into nature-based solutions (NBS). However, significant challenges must be addressed for these markets to positively impact climate change. Carbon credits cannot be generated and sold from projects on USDA Forest Service land where Blue Forest often works. But, carbon financing can still play a crucial role in increasing funding for restoration through attributional carbon programs, in which emitters pay a flat rate for every ton of carbon emissions or similar initiatives. 

The current complex web of intermediaries and the lack of detailed transaction data hinder efforts to evaluate existing carbon credits and scale high-quality carbon programs. In our recent paper in Nature Sustainability titled, “Strong Transparency Required for Carbon Credit Mechanisms,” my co-authors and I propose the following measures to increase transparency:

1. Mandatory Disclosures: Regulators should require comprehensive disclosure of transaction details, including the distribution of value throughout the value chain.
2. Improved monitoring, reporting, and verification (MRV): Offset projects should provide detailed and accessible documentation, including geospatial boundaries and baseline emissions data.
3. Independent Verification: Third-party certification and rating agencies must adopt stringent and transparent methodologies to evaluate the quality and additionality of carbon credits.
4. Policy and Regulation: Policymakers should implement regulations that enforce transparency standards and prevent greenwashing, ensuring that only high-quality credits are traded in the market.

The voluntary carbon market faces issues such as overcrediting, lack of additionality, and uncertainty. These problems are exacerbated by a pervasive lack of transparency of methods, project information, and outcomes which makes it difficult to verify the true impact of carbon offset projects and assess their additionality (whether these projects would still have occurred without the revenue from carbon credits).

To improve carbon credit quality, especially in forests and other natural systems, we need to transition to ex-post crediting and enhance monitoring, reporting, and verification (MRV). Ex-post credits are based on observed changes in a project area, unlike ex-ante credits which rely on predicted outcomes and static assumptions, and currently dominate the market. This shift can be enabled through a more rigorous MRV process, leveraging cutting-edge data and tools. 

Enhanced transparency in these transactions will protect investors and consumers from fraud and help restore confidence in carbon markets. It will enable stakeholders to make informed decisions, foster innovation, and drive improvements in offset methodologies. Transparent value distribution will ensure that local communities benefit equitably from offset projects, supporting both environmental and social goals.

As we navigate the inherent complexities of leveraging natural systems to mitigate climate change, it is clear that carbon offsets can help mitigate hard-to-abate carbon emissions. However, their effectiveness hinges on robust transparency measures. For further details, you can read our full paper published in Nature Sustainability.