Xilva’s response to the Guardian’s investigation on carbon offsets
🤝 Consensus: Carbon offsets have a significant role to play in solving the climate crisis.
❔ Claim: A considerable amount of carbon offsets issued by the world’s leading provider hold no value.
❌ Dispute by offset provider: The methodology used to calculate the above is flawed.
Making headlines on the carbon markets
The Alto Mayo forest, one of the projects object of the Guardian’s investigation. Credits: Guardian & AFP/Getty Images
Recently, the Guardian published findings of an investigation that claimed that more than 90% of rainforest carbon offsets by Verra (the world’s leading carbon crediting programme) are essentially, valueless. The claim has profound implications for the large corporations (including Shell, Disney, Salesforce, Gucci, and BHP) who have purchased these credits as part of their net zero strategies and other climate goals. Verra vehemently denies these claims; however, the Guardian’s findings have rattled the sustainability industry and contributed to a long-standing debate on the integrity of the carbon market.
Do the findings discredit the entire carbon credit market? No. It is integral to understand that the article does not dispute the role of high-quality carbon credits for climate action. Rather, what has been called into question is the methodology that Verra has used to calculate carbon credits for their rainforest Redd+ projects. The findings are explosive in that Verra’s clients are publicly declaring smart climate practices, and in some cases “carbon neutrality” when there is a likelihood that their climate action has been grossly overestimated.
To shed some light on the roaring debate that the article has intensified, and to clarify the crux of the Guardian’s claim, we provide a rapid overview on carbon offsets:
Decarbonisation vs. carbon offsets for climate action
Decarbonisation is the process of reducing human-caused carbon dioxide (CO2) emissions from the atmosphere. Decarbonisation is essential for climate action and achieving Net Zero as per the Paris Climate Agreement. However, decarbonising industries will not happen overnight, nor will it happen within the time frame required to address the climate crisis. For the “interim,” carbon markets can help mitigate climate impacts.
Carbon markets can direct money to where it is needed in the climate crisis. They enable parties to trade carbon credits generated through the reduction or removal of greenhouse gases from the atmosphere.[1] One carbon credit represents 1 tonne of carbon dioxide removed from the atmosphere and can be presented as avoidance or removal credits, explained as follows:
Removal credits: These are generated from activities that pull carbon from the atmosphere, such as tree growth.
Avoidance credits: These are generated from activities that reduce emissions by preventing their release into the atmosphere such as avoided deforestation. [2]
The article by the Guardian is concerned with Avoidance credits. The Guardian investigation alleges that that there is a discrepancy between the credits approved by Verra for REDD+ projects and the emission reductions calculated by scientists. To understand this, we need to know that avoidance credits are calculated based on what the emissions for a given area would have been had a project not intervened. The calculations consider other integral factors; however, in this instance what we need to know is that the deforestation levels calculated by Verra and the deforestation levels calculated by the investigative team are grossly misaligned. This is what has exacerbated the debate on the integrity of carbon markets.
Notably, the article does not seek to undermine the necessity for funds to finance forest conservation, rather it is emphasising that to calculate climate impacts, we need rigorous systems that can be trusted.
Forests
Natural climate solutions can contribute about a third of our climate mitigation needs[3] and nature is the only cost-effective and readily available mechanism for carbon removal at scale. [4] If we are going to have half a chance of limiting global warming to well below 2 degrees Celsius as per the Paris Agreement, we need to deploy natural climate solutions at scale. Of the natural climate solutions available to us, forests have the greatest potential for carbon sequestration.
Forests are a proven, scalable climate solution and provide an array of other benefits such as biodiversity, improved water and air, and enhanced rural livelihoods.
The Xilva way
Table: examples of funding type options and potential benefits a mix of them can deliver
Xilva is committed to the protection and restoration of forests at scale. To achieve this, we work to direct capital flows to the conservation of forests. Simply put, we bring together two separate worlds — forests and finance. The team draws on decades of expertise from varying sectors such as forestry, science, and business to overcome the bottlenecks and challenges hindering capital flows.
As the below table illustrates, carbon credits are just one source of financing that Xilva uses to fund forest conservation. Xilva consults with investors to identify the most appropriate funding option that aligns with their unique climate, nature, and social impact goals.
We know that trust and transparency are absolutely core to the work that we do. Our proprietary project assessment methodology, the Xilva GRADE, scores projects across 6 core areas. It is designed to ensure investor confidence. Xilva GRADE also examines the full spectrum of positive environmental and social impact that a project generates, beyond carbon sequestration. Another integral part of our process is a feedback loop to project developers, empowering them to improve the quality and merit of their projects. This drastically reduces a company’s risk to invest in a low-quality or controversial project.
Closing reflection
Whilst carbon markets are partially contentious, we believe that there can be true value in increased public awareness for the mechanisms involved. This can exert the right pressure to enhance integrity and transparency. Confidence in the system for measuring emissions can open doors for carbon markets to be appropriately scaled.
Xilva is mission-focused on forest conservation and restoration at scale. We want to see the true potential of forests realised, and with our proprietary framework Xilva GRADE, we are a unique formula for due diligence as an enabler of forest investments, and have opened a route to regenerative forest investments, not just carbon projects.
[1] World bank. 2022. What you need to know about Article 6 of the Paris Agreement. https://www.worldbank.org/en/news/feature/2022/05/17/what-you-need-to-know-about-article-6-of-the-paris-agreement
[2] The Climate Trust. 2020. Avoidance and Removal Offsets are Needed Equally. https://climatetrust.org/avoidance-and-removal-offsets-are-needed-equally/
[3] Noah Conference. 2021. Mobilizing Capital for Forests — The Brainforest Ecosystem. https://www.youtube.com/watch?v=8wwjmgaMdok
[4] World Economic Forum. 2022. Scaling investments in nature: The next critical frontier for private sector leadership. https://www3.weforum.org/docs/WEF_Scaling_Investments_in_Nature_2022.pdf
