Implementing Tonne-Year Accounting in Carbon Credits
What is Tonne-Year Accounting?
Tonne-year accounting (TYA) is a framework of methods used to equate temporarily stored carbon to a permanent emission into the atmosphere, taking into account both the quantity and duration of carbon storage. Unlike traditional methods of carbon accounting, which typically assume a 100-year permanence and do not account for the actual duration of carbon storage, tonne-year accounting allows for the evaluation of carbon projects of varying lengths—such as 30, 40, or 100 years—providing a more precise measurement of their climate impact over time.
Currently, most carbon projects on the market are sold under the assumption of 100-year permanence, regardless of their actual duration. This approach can obscure the true long-term climate benefits of these projects. For example, a credit may be marketed as offsetting one tonne of emissions permanently, when in reality, it might only temporarily remove a tonne of carbon for a period of 20 or 40 years.
This discrepancy in the market highlights a significant issue: there is a uniformity in how carbon credits are sold, without accounting for their differences in durability. As a result, buyers often purchase credits under the misleading impression of achieving permanent carbon storage, which is not always the case. Climate Action Reserve addresses this in their protocols: The CAR soil enrichment protocol and The CAR MX IFM protocol.
It's crucial to understand that carbon projects provide only temporary storage. A common oversight is assuming that once a carbon project concludes, the stored carbon will remain permanently secured. However, over an infinite timeline, the release of carbon back into the atmosphere is inevitable, whether due to natural events like forest fires or changes in land management.
For example, I'm currently evaluating a 30-year carbon project where, in year 31, all commercial timber is slated for harvesting. This will result in the release of the previously stored carbon back into the atmosphere. A project that secures carbon for a longer period, such as 100 years, inherently offers more climate benefit per-tonne than one that locks carbon for a shorter period, like ten years, due to the extended delay in releasing carbon back into the atmosphere.
However, 100 year projects often come with their own drawbacks around additionality and convincing landowners to enroll. Many forest owners do not want to sign 100 year projects, and as a result many 100 year projects are protecting forests that may not have needed protecting in the first place. If nobody who was managing their forest for timber would want to sign a 100 year contract preventing timber harvest, then the only people who might do that are those who weren’t planning on harvesting their trees in the first place! For this reason, short projects are necessary, but accounting practices need to make up for that.
Tonne-Year Accounting in Project Design
One of the main goals of TYA is to establish equivalency ratios between short-term projects and long-term climate impacts.
For instance, when a polluter releases a tonne of carbon into the atmosphere, the Lashov version of TYA combined with radiative forcing, allows us to determine the warming potential from that specific emission. Carbon dioxide released into the atmosphere does not stay aloft permanently, but instead it slowly decays and is absorbed by Earth’s other carbon pools (such as the oceans). By the numbers, after 100 years only around half of the CO2 put into the atmosphere is still around causing warming.
The same math can be applied to acts of conservation and sequestration. By preventing CO2 from entering the atmosphere for some period of time, we’re putting a pause on the decay curve. TYA can provide an equivalency ratio that describes how many tonnes of carbon need to be stored in a short project in order to have the 100-year impact of a tonne of CO2 entering the atmosphere today.
Realistically, if a short-term project wants to have a long-term impact, it needs to keep more carbon out of the atmosphere than it might otherwise be credited for. If the trees are storing 1000 tonnes for 30 years, then only a fraction of those 1000 tonnes should receive 100-year TYA credits. Alternatively, if it isn’t storing enough carbon to meet the equivalency, the project could extend the duration of storage to reach the desired outcome. This flexibility in design ensures that regardless of the specific parameters, the project can deliver a meaningful long-term carbon offset.
The benefits of thinking of carbon in this way are numerous. If there was a universal adoption of this accounting framework and agreed-upon parameters, such as a discount rate or time horizon, it would enable modifications in storage amounts or duration while still maintaining a consistent climate benefit per issued credit. Credits from different projects and programs could be fairly compared. TYA would also enable shorter project lengths which would allow conservationists to convince more landowners to enroll for these programs. Of course, there are reasonable limits to how short we want projects to be — we would need to ensure a length long enough to make sure that conservation/restoration was really happening.
Twists on the Theme
There are a number of varieties of TYA that have been put forward. The two most common approaches are either the Lashov approach or 1:100 year equivalency. The Lashov approach uses the decay curve of CO2 out of the atmosphere to compute long-term value. The premise is that by delaying the decay of CO2 (by sequestering or conserving carbon), we can push the curve off into the future. After 100 years, the amount that we’ve pushed the curve is the amount of good that the short-term credits have done. The nice thing about this approach is that it is based on actual observed decay rates, and it can be used to compute the equivalency of keeping carbon out of the atmosphere for any time-period, even 10,000 years.
The 1:100 equivalency approach is more simplistic. It assumes that keeping one tonne of carbon out of the atmosphere for one year has 1/100th the value of a 100 year project. So a 20 year project should receive credits for 1/5th of its carbon if it wants to have a 100 year permanence claim. The advantage of this approach is that it’s simple and intuitive.
On top of these two approaches is the concept of discount rates. The idea behind these is that carbon removed from the atmosphere today has a greater impact than carbon removed from the atmosphere 100 years from now. There are two reasons behind this:
- The first most commonly cited reason is that the damaged to humanity done by climate change will only accumulate with time. Damages compound like interest. The sooner we take preventative action, the better off we’ll be socially and financially.
- The second reason is that scientist broadly agree that climate change is a positive feedback cycle. Putting carbon dioxide into the atmosphere today leads to warming, which leads to glaciers melting, which leads to bare-earth absorbing more sunlight, which leans to warming…
Scientists and policy makers broadly agree that there’s greater value in carbon projects today (or in the past) than there will be 30 years from now. So discount rates allow us to compute that value and reward the project. However, there is great debate about what percent discounts are fair, and thanks to the first point, the arguments around discount rates stray from climate science into social science. One commonly cited number is 3%, though conservative scientists believe the whole concept of discount rates is too nebulous to factor into carbon accounting.
Criticisms of Tonne-Year Accounting
Tonne-year accounting has unfortunately had a rocky history in the carbon markets. One source of this has historically been the debate around the discount rate and equivalency ratio. NCX was among the first to use tonne-year accounting for project credit issuance and was criticized by groups like CarbonPlan for applying a hefty discount rate. Critics argued that using an economic model such as a discount rate distorts the physical climate impacts intended to be measured by tonne-year accounting, thereby compromising the principle of equivalency.
The situation was made more complicated because NCX used TYA to create one year duration projects. Now, there are a lot of potential problems with forest carbon projects that last one year. It’s nearly impossible to say for certain whether or not a landowner was really likely to cut those trees down that year — as opposed to a 30 year period when it becomes quite clear that the forest would have been ready for harvest. However, this is an additionality problem, not a TYA problem. The two issues became conflated and even to this day TYA is often thought of as “one year project accounting”.
There have also been criticisms regarding the simplification of methodologies like the Lashov method. For example, Verra requested feedback and later rejected a TYA protocol using the 1:100 year simplified approach to tonne-year accounting, suggesting a deviation from the stringent application of the Lashov method. This was coinciding with NCX’s program and there also appeared to be concern around the one year project perception. It should perhaps also be noted that had Verra accepted the TYA protocol, they would have had to issue dramatically fewer offsets, and there would have been stunning implications for its past offsets.
At Renoster, our approach differs in that we adhere strictly to the Lashov method without simplification. In terms of discount rates, we apply both a 0% discount rate, treating future benefits as equal to present ones, and a 3% discount rate, reflecting the economic principle that future benefits are typically valued less than immediate ones. This dual approach allows us to be more accommodating in our scoring, potentially softening the impact of economic considerations on the assessment of physical climate impacts. While this stance addresses some market criticisms and supports our investment philosophy in climate mitigation, it remains a point of contention within the broader context of tonne-year accounting criticisms.
Renoster’s Philosophy & Approach
At Renoster, our differentiation lies in actively measuring durability, an aspect most teams do not consider. Most other rating agencies typically do not measure durability. Our effort to measure and value durability differentiates us in the market, providing an added layer of transparency and a clearer assessment of carbon projects.
Renoster makes use of the Lashov approach to compute the 100-year TYA equivalent of the projects that we review, and then report that ratio. We report that ratio with a discount rate of 3%, and without one. If you’re buying credits from a 30 year project and want to have a 100 year impact, you can refer to that section of the Renoster report to understand how many credits you should really be buying.
It's evident that there is a significant market interest in durability, especially when considering the high cost of credits from projects like Direct Air Capture (DAC), which promise carbon storage for up to a thousand years. These long-duration projects command premium prices, indicating a clear societal valuation of extended carbon storage.
At Renoster, we believe that emphasizing these differences in durability—and consequently, the long-term climate impacts—should influence the market to recognize and reflect these variations in credit pricing. Although currently, the price disparity between projects offering 30 and 100 years of storage may not be significant, highlighting these differences could help drive a more nuanced valuation in the market.
Our main goal is to elevate the conversation around the issue of durability in carbon credits—an issue that, despite being part of industry discussions for over 20 years, remains poorly understood and frequently overlooked in the market. Although some organizations, like CarbonPlan and others, have been vocal about this issue, the science remains on the fringes of the market. Ultimately, by adding this layer of transparency, we hope to move the conversation towards greater acceptance of TYA practices.
