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What’s the Difference?
Carbon removals involve mechanisms or natural systems that physically extract CO2 from the atmosphere, utilizing technologies like direct air capture or natural solutions such as reforestation. Carbon reductions, on the other hand, prevent emissions from entering the atmosphere through methods such as renewable energy projects or avoided deforestation.
Although historically overlooked, the distinction between removals and reductions has gained recognition in carbon markets over the past two years, influencing project evaluation, strategy, and the credibility of climate change mitigation efforts.
Removal strategies, while innovative, face challenges in scalability and cost. Direct air capture, for example, is notably energy-intensive and expensive. In contrast, reduction strategies, including REDD+ projects and renewable energy initiatives, are more common due to their lower cost and simpler implementation, despite variations in effectiveness depending on project design and integrity.
Market Dynamics
Demand for carbon removal credits currently exceeds that for reduction credits, with prices for removals averaging between $14 to $15 per ton compared to $3 to $5 for reductions. This price disparity is influenced by negative publicity surrounding baselining practices in reduction projects, especially those under the REDD+ framework, where overestimations have led to market skepticism.
Renoster's analysis suggests that, on average, removal projects underperform compared to certain reduction projects due to issues of additionality—many projects would proceed without the financial incentive of carbon credits. Projects like the Guanaré eucalyptus plantations illustrate how non-additional projects can still receive credits, undermining the credibility of removals. Guanaré is set of a non-native short rotation pulp plantations that are owned and operated by a large multi-national timber company. We believe that the timber company would have planted these trees regardless of the carbon offsets.
This trend highlights a market driven by scandal avoidance rather than diligent evaluation, illustrating the need for thorough scrutiny of both removal and reduction credits.
Policy & Regulation
The distinction between carbon removals and reductions in policy and regulation is still evolving. There has previously been a reluctance to differentiate between the two, possibly because of anticipated shifts towards removals due to the problematic aspects of reduction projects. However, changes are beginning to occur, especially in the voluntary carbon market.
For example, the American Carbon Registry has recently started to categorize credits explicitly as either removals or reductions. While this differentiation is informative, it hasn't led to significant policy changes yet; it primarily affects how projects are labeled without substantial regulatory consequences. The decision still largely rests with buyers in the voluntary market, who can choose based on their preferences whether to invest in removals or reductions. In compliance markets, the differentiation is less pronounced. For instance, the California Air Resources Board does not differentiate between removals and reductions in its forestry credits.
Renoster's Approach & Philosophy
At Renoster, we recognize the importance of both removals and reductions in combating climate change and don't necessarily favor one over the other. Removals, particularly through reforestation, are challenging to scale and implement effectively, yet they are essential. It is often easier and more feasible to protect existing forests—a method that should ideally be pursued extensively as it can be more readily scaled.
However, given the significant rates of deforestation globally, there's also a critical need to support removal projects that aim to restore these lost forests. We are particularly encouraged by removal projects that involve planting native trees, which align with our values of ecological restoration and biodiversity conservation. Unfortunately, genuine natural removal projects that focus on replanting native trees are rare. While many envision reforestation efforts as restoring vast areas like the Amazon with its original flora, the reality often falls short. Most reforestation credits typically fund projects like eucalyptus plantations intended for industrial use, not ecological restoration. This discrepancy can mislead buyers about the impact of their investments.
Regardless of the type of project, we advocate for the ones that truly aim to restore native ecosystems, aligning with our vision of effective climate change mitigation.
Cases of Misuse
With reductions, we have observed promising projects that involve planting native trees with small farmers. However, upon closer examination, these projects sometimes reveal significant issues. For example, some small farmers have reported planting trees years before the initiation of the carbon project as part of existing government programs, with no intention of generating carbon credits. This has led to scandals where project developers capitalize on these pre-existing efforts without contributing additional environmental value.
Instances of misuse extend beyond individual projects. In West Africa, some farmers were unaware that their already planted trees were being used for carbon credits, with project developers covertly acquiring carbon rights from the government. Similarly, in the Mississippi River Delta, tree plantings subsidized by federal programs were registered for carbon credits despite the trees being planted years prior to the project's start.
These examples showcase a widespread issue within the removals sector, highlighting the need for vigilance and improved oversight to ensure that removal credits genuinely contribute to carbon mitigation efforts. This commonality of substandard projects within the removals category is a critical consideration for anyone involved in carbon markets.
Conclusion
The distinction between removals and reductions shouldn’t be the primary factor in assessing the quality of a carbon credit. Instead, the focus should be on the additionality of the projects—ensuring that the activities, such as planting trees or installing solar panels, wouldn't have occurred without the incentive of the carbon credit.
Our findings indicate that issues are prevalent across the spectrum, with removals often funding non-additional activities and reductions frequently overstating risk levels. Transparency and due diligence is needed to verify the real impact of carbon projects, ensuring that investments genuinely contribute to climate mitigation and aren’t just superficial sustainability efforts.
