Founder & Co-CEO of Heimdal.
getty
As founder and co-CEO of Heimdal, developing a carbon removal solution, I’ve had the opportunity to navigate the unique market of voluntary carbon removals. The market for carbon removals is self-regulated. And right now, I've noticed the market for carbon offsets is dominated by inexpensive dubious avoidance and low-quality removals. I believe this needs to shift to transparent and regulated for countries and governments to meet net-zero targets.
Right now, there are three cogent reported reasons I often see for buying carbon credits:
1. PR benefit.
2. Hedging against future carbon liability.
3. Feeling of responsibility.
Verification
The market has developed a form of self-regulation where third parties verify that removal projects and methodologies are genuine, additional and verifiable. These third-party verifiers come in and evaluate projects and methodologies and are paid by project developers/carbon credit suppliers for the service of doing so. Some of the large service providers include Verra and Gold Standard. Large providers can be slow to move and have a reputational stranglehold on the market. There are also other smaller players—sometimes nonprofits—getting involved, especially in the verification of newer technological approaches.
Not all third-party verifiers are interested in a project, or they may have long time frames. They can often make more and easier money by verifying traditional reforestation, forest preservation and cooking stove projects. This system of third-party self-regulation is ultimately based on reputation, which can be inaccurate, or slow to catch up to a changing reality.
Quality
It's important to understand the necessary concept of the quality of an offset or removal. The quality of an offset can be thought of as the multiple of durability times risk of reversal. Where durability refers to the expected length of removal, risk of reversal covers the risks that the expected durability is reduced by an unexpected event or poor management/handling. Currently two out of the three reasons to purchase outlined earlier—the ones with the strongest incentives—favor cheap, low-quality offsets. The self-regulated nature of the market means that these purchasing reasons can lead to demand for dubious, low-quality credits. This has led to a large existing market, already worth billions and on a trajectory to be worth as much as $50 billion by 2030.
For net-zero to be possible, I think we need to establish a differentiated market that recognizes the durability and reversal risks of credits. This would ultimately need to be regulated by government; however, some other trusted central entity could serve a similar role until government steps in. I believe removal credits should be evaluated according to an agreed framework, such as the widely acclaimed Oxford Offsetting Principles, a standard that classifies the quality of removals. Because this market is ultimately contingent on trust more than most other markets, transparency and nonpartisan regulating authority is necessary.
This authority could unlock greater demand for quality solutions and alleviate the strain for operators in the market right now. For example, in our experience with existing verifiers and buyers, we end up having to navigate similar or parallel processes for each customer as they understandably need to verify the quality of what they buy. However, this leads to an inefficient and not-yet scalable sales model.
The Path Forward
There is a pathway for how we move the market to where it needs to be. The third purchasing reason (feeling of responsibility) offers hope and a credible path to changing the dynamics of the market, preparing for a regulated future. The situation looking at the nascent market for high-quality permanent removals is very different from the much larger low-quality part. Credits are being generated and sold every year, but many of them are of dubious quality. In fact, estimates suggest there are only about 10,000 tons of carbon dioxide per year of high-quality, permanent carbon dioxide removal supply in the world today. Almost half of this is a 4,000 ton carbon dioxide per year pilot plant operated by Climeworks in Iceland. The supply side of the market is still in its infancy.
The hope is in the form of increasing efforts of companies and coalitions offering advanced market commitments to purchase high-quality carbon removals. These are purchases made because leaders believe it's the right thing to do, and they enable a market to grow. But more than the purchases themselves, the reason they are important in bringing the market forward is that they begin the process of generating nonpartisan verification. Company leaders are making purchases because they want to make a difference; that makes verifying the quality and delivery of removals equally important. I believe it is the market and academic infrastructure around this that provides the greatest value. They are not the ideal, single authority; however, they are perhaps the first incarnation of what could eventually become government policy.
To build the future, business leaders can work to accelerate the transition of high-quality carbon markets. The best way to do this is to participate. We can set the demands of suppliers and take responsibility for emissions by looking to high-quality, verifiable carbon removals. And to other entrepreneurs, I would say that the most under-explored aspect of the carbon markets is verification. There is an opportunity to build technologies for defensible verification that can give business and government confidence that the promised high-quality removal does in fact take place. We have the technologies available for cheap high-quality carbon removal, and we have the policy instruments at our disposal; all the world needs to do is execute.
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