BASELINE OVERESTIMATIONS

LESSONS FROM REDD: BASELINE OVERESTIMATIONS

Baselines involve reliably forecasting the future, a task inherently complex and uncertain. To navigate this challenge and generate premium credits, baselines must be:

Independence: Avoid being set up by any project financial stakeholder.
Realistic: Strive for optimal updates while ensuring stability for project finances
Transparent: Embrace transparent and verifiable calculations.
Conservative: Favor conservative methodological choices to prevent over-crediting accusations

HOW BASELINES WORKS

Avoidance offsets are purchased to deter high-emission activities, either by funding low-carbon alternatives such as renewables or by safeguarding natural carbon reservoirs, such as preventing deforestation.

The climate impacts of carbon offsets are assessed using a hypothetical scenario called a baseline, representing a business-as-usual situation.

In the context of REDD+, the baseline reflects the carbon emissions that would occur if no action were taken to protect the forest.

Consider the example of Forest1, which is part of a Reducing Emissions from Deforestation and Forest Degradation (REDD+) project. The aim is to mitigate the risk of a 20% deforestation rate estimated in Y0.

In Year 10, the REDD+ project successfully curtailed deforestation, saving 19 acres of forest and preventing the emission of 3800 tons of CO2, which were then converted into carbon credits.

The significance of the baseline setting becomes evident, as it plays a crucial role in determining the effectiveness of the REDD+ project and the quantity of carbon credits generated.

WHAT ARE SYNTHETIC CONTROLS?

In 2023, REDD+ projects faced increased scrutiny, particularly due to mounting accusations of over-crediting and the presence of 'phantom credits.' This controversy centered around the baselines established by project developers responsible for forest protection, following Verra's methodologies. Critics argued that these baselines were deemed unrealistic when compared to similar geographical sites facing identical deforestation risks.

Independent researchers crafted alternative baselines known as synthetic controls, revealing notably different results. Both the original baseline and the synthetic control seek to answer a fundamental question: 'What would have occurred in a specific forest without any intervention?' The effectiveness and climate impact of REDD+ hinge entirely on accurately estimating this hypothetical scenario.

In this illustration, the REDD+ project is credited with saving either 19 acres from deforestation, as per the baseline, or just 1 acre, as indicated by the synthetic control. The discrepancy between these scenarios sparked accusations of over-crediting. If, in this example, the synthetic control is deemed a more accurate estimate than the baseline, it suggests that 3600 credits could have been generated without any actual carbon impact.

This straightforward example encapsulates the core of the 2023 Controversy:

A QUESTIONNABLE DEMONSTRATION OF OVER-CREDITING

In early 2023, The Guardian made shocking accusations, asserting that over 90% of REDD+ credits lacked correspondence with actual forest preservation and carbon emissions reduction. This journalistic investigation relied on three scientific studies that compared REDD+ baselines with synthetic controls. The West et al. 2023 study, published in Science, crystallized the technical debate on the effectiveness of REDD+. While this study was widely quoted and extrapolated by The Guardian’s influential investigation, it has also faced reasonable objections.

Firstly, the study made debatable choices regarding satellite-derived data and calculation errors, raising questions about the veracity of their results. These issues, though relatively straightforward to address, could be amended for future REDD+ independent assessments.

However, the ongoing debate persists over the selection of sites when constructing synthetic controls.

West et al. sought similarities in physical features (e.g., slope, elevation, distance to urban centers) and general vegetation characteristics (e.g., tree coverage, coverage of timber concessions, extent of deforestation).

The study could have enhanced the relevance of donor areas for comparison with the project site by incorporating additional factors such as forest type, agricultural practices, access to markets, access to technology, geography, logging concession cover, and more.

Moreover, West et al. chose sites from the entire country, leading to comparisons across vast distances and potentially different local deforestation risks. The list of critiques could continue since constructing an alternative baseline is inherently approximate and therefore subject to improvement.

While the West et al. 2023 methodology is debatable, and its calculations are questionable, it doesn't automatically validate the accuracy of Verra-approved baselines on the other end.

WHY REDD METHODOLOGIES LEAD TO OVER-CREDITING

The four most-utilized REDD+ methodologies predict baseline deforestation rates at the project's initiation and for a 10-year span.

Project developers delineate a reference region and employ historical deforestation rates to construct the baseline. Two protocols additionally incorporate a risk-mapping exercise to allocate projected deforestation across the reference region, factoring in variables like proximity to roads and population centers.

The two primary loopholes are:

Setting a fixed baseline for 10 years onward neglects adjustments or the inclusion of significant policy changes. This became evident in the Brazilian Amazon during 2004–2012, a period marked by uniquely successful efforts to control Amazonian deforestation, rendering most REDD+ project baselines irrelevant (West et al. 2020).

2. REDD+ protocols provide project developers the flexibility to choose the highest baseline. Haya et al. 2023 created alternative baselines for four REDD+ projects using official VCS-REDD+ methodologies and discovered that the official baselines were consistently higher. This implies that developers are making methodological choices leading to high estimates of project effects on emissions and issued credits.

The year 2023 marked when the first REDD+ projects reached the 10-year milestone, enabling post-analysis to measure the actual deforestation rate in test sites and compare it to baseline estimations.

Project Kariba serves as a glaring example of these crediting system loopholes and how project developers can exploit them. After 10 years, Verra estimated that 15 of the 42 million carbon credits generated by the project (and approved by Verra) had been backed by avoided emissions. An investigation by The New Yorker revealed that the project developer, South Pole, kept selling the credits, knowing they weren’t connected to real forest protection and carbon value.

CAN A NEW METHODOLOGY RESTORE REDD+ REPUTATION AND INTEGRITY?

At the end of November 2023, Verra unveiled a new REDD Methodology in response to the intense criticisms faced this year. To prevent potential conflicts of interest and project-specific overestimation, Verra will oversee the baseline-setting process every six years using jurisdictional-level data coupled with sophisticated remote sensing technologies. All projects are anticipated to transition to the new methodology by 2025.

In 2022, over 400 million REDD+ credits were issued on the VCM, constituting a quarter of the total credits issued in the market.

2023 CONTROVERSY

In 2023, often referred to as 'annus horribilis,' the media coverage has been persistently negative, denting confidence and causing prices to fall.