Winter Timber Sale

Complexity of carbon credit system poses challenges

Efforts are underway to overcome a lack of clear standards

MADISON, Wis. – Sales of voluntary carbon credits, including forest sequestration credits, has been hampered by the lack of broadly understood standards for the credits, according to Erik Ringvold, who is working with a large group of global institutions meeting at the 26th United Nations Climate Change Conference of the Parties (COP26) in Glasgow.

“There is strong demand” for voluntary credits, Ringvold told a session of the Michigan State University Forest Carbon and Climate Program. But he said there is wariness on the part of buyers of the credits (generally large corporations and other big institutions) about the quality of the voluntary credits. He said “double counting” (or the same captured CO2 being counted twice) is a concern.

The carbon credit system is complex, and about 250 of the institutions involved are working to solve this problem, according to Ringvold, who is a Senior Engagement Manager with the consulting firm McKinsey & Company. They have formed the Voluntary Carbon Markets Integrity Commission with leadership coming from Mark Carney, former head of the English Central Bank.

Many of the voluntary credits have been purchased by huge I.T. companies to offset the CO2 emissions from the electricity required to power large computer networks. Other buyers include financial institutions and airlines.

Voluntary forest carbon credits tend to be inexpensive in the global market with a price around $4 per metric ton of carbon dioxide, but legally required credits can cost 10 times more.

Several voluntary carbon credit programs for smaller landowners were launched in the U.S. earlier this year. The programs have slowed, citing the need to improve their verification systems.

Ringvold explained that establishing a “baseline” for a forest’s future carbon retention complicates establishing a system to increase CO2 retention. The baseline is intended to provide a good estimate of forest growth if no credit system is put in place. The credits’ dollar value is then set over this baseline and is determined by the estimated increase in CO2 retention due to increased forest growth caused by the credits.

Establishing the baseline “is very difficult,” Ringvold said. “You’re never sure what would have happened if the carbon financing were not there.” Technologies including satellite and drone imaging can be used to improve the quality and efficiency of monitoring the forest carbon system.

Ringvold said that voluntary credits now provide about 30% for the forest carbon market, but that percentage is growing and will likely hit 50%, even as the total market continues to grow at the same time.

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