Carbon credits have had a tough 2023. The promise of the multi-billion-dollar industry is to allow individuals, companies and governments to compensate for their greenhouse gas emissions. It does this by selling them credits, which each represent one tonne of carbon dioxide, from initiatives — in forestry, say, or renewable energy — that reduce or remove these harmful gases.
But the veracity of many of the projects’ claims has been called into question. Big schemes in Zimbabwe and Brazil have been accused of inaccurately reporting their effect on emissions and of swallowing up public land. An investigation by the Guardian newspaper and campaign group Corporate Accountability concluded that 39 of the top 50 offset projects had shortcomings serious enough to undermine their carbon reduction claims.
Sylvera, which has been named winner in the markets and financial services category of the FT’s 2023 Tech Champions survey, cannot claim to fix the myriad issues facing the carbon credit market. But, by investigating and verifying the claims made by projects, it says it can help buyers to compare credits, make more informed purchases, and steer funding towards higher-quality initiatives.
“If you buy a tonne of carbon, it’s a claim,” says co-founder and chief executive Allister Furey. “You might get a digital certificate. But how do you know that is actually real? [Carbon credits] do actually relate to things in the real world like forests, mangroves, and power plants which you can do the accounting for and check if credits really do represent one tonne — and that’s what we do.”
Sylvera, founded in London in 2020, sits in an expanding industry of carbon credit rating companies. In July, the company raised $57mn, while one of its main competitors, BeZero, closed a $50mn round in November of last year. Smaller competitors, like Renoster Systems and Calyx Global, have completed seed rounds. London-based Trove Research was recently acquired by investment research giant MSCI.
For each project, Sylvera’s database of ratings lists three main variables: measurements of the project’s carbon impact and how accurately this is reported; its additionality — that is, whether the carbon removal would have happened anyway, without the sale of the credits; and its permanence — whether the emissions savings from the project will last over the period claimed, typically 100 years.
When confronted with an unrated project, Sylvera first develops a framework for assessing it, which involves identifying relevant quality indicators and data inputs, and building software models for it.
In the case of a forestry scheme, Sylvera will then access historical and current satellite observation data from across the project site. This is fed into machine learning algorithms to create a baseline assessment, including forest cover and conditions and risks to permanence, such as the area’s fire history.
Project developers are also given a chance to answer queries or concerns based on the findings before the rating is posted on the platform.
“The core of what we do is providing deep, accurate, trusted data,” Furey says. “As part of doing that, we invest a lot in research and development into the science of monitoring different types of ecosystems and data handling.”
Projects have to achieve a high score in all three of Sylvera’s main scoring categories to achieve a high overall rating. For example, the Valparaíso Project, which preserves more than 28,000 hectares of rainforest in the Amazon Basin, achieved only a middling rating despite Sylvera estimating that the tonnage of carbon it has eliminated exceeds the number of credits it has issued. That is because Sylvera also found Valparaíso had probably overestimated its baseline deforestation rate, knocking its additionality score, while overlapping land claims, socio-economic factors and political instability dragged down its permanence rating. The Valparaíso Project did not respond to a request for comment.
Yet Sylvera is fundamentally in favour of the carbon market at a time when many stakeholders are losing faith in the concept.
Recent research from the University of California Berkeley’s Goldman School of Public Policy found that so-called Redd+ projects — which focus on reducing emissions from deforestation and forest degradation in developing countries — suffer from widespread over-crediting, which “creates a race to the bottom that is hard to emerge from. Buyers seek the lowest-cost credits that are often the most over-credited.”
Sylvera has yet to find a project that it considers good enough for its highest AAA rating.
The Berkeley study’s authors also note the harmful effects of some projects on local and indigenous communities, which in some cases have been dispossessed and had their use of forest resources restricted. While Sylvera assesses community co-benefits, as well as factors such as biodiversity, it is not included in the overall rating.
“We can’t count on the offset market to be fixed or be trustworthy,” says Barbara Haya, who co-authored the study. “There has been significant over-crediting . . . so it is clear there are real, systematic, quality challenges. So, I would say, given that the market isn’t working today, we need to be developing alternatives to offsets, like companies really focusing on, and prioritising, reducing their own emissions.”
Some companies are becoming concerned about the reputational risk that comes with touting their carbon offsetting credentials when the underlying projects are flawed. Household names including easyJet, Shell and Nestlé have announced that they will reduce or wind down their purchases, with the latter two opting for carbon “insetting” — spending to improve their suppliers’ carbon footprints — and easyJet saying it will pursue emissions-reducing technologies.
However, Sylvera says that cutting emissions and buying carbon credits go hand in hand. It estimates that businesses that purchase credits decarbonise 12 times faster than those that do not.
“From our perspective it would be better . . . if more money was spent on decarbonisation and [there was] less need for carbon instruments, but frankly that’s not happening,” Furey says. “If climate change was sorted we’d have a party and close down, but sadly there is a need for us.”
Read the full article here