The Inherent Flaws of Carbon Credit Contract Lengths

Understanding the Mismatch in Contract Lengths

Carbon credit contract lengths are a complex aspect of environmental management that seem illogical at first glance. These contracts range vastly, from as short as 20 years to as extensive as 100 years. The disparity in these timelines raises immediate questions about their equivalency and effectiveness. For instance, a 20-year carbon project, such as those found on Verra's platform, may show promise initially but some of them are nearing their end with little clarity on the future of those forests. This uncertainty could lead to issues like double counting of credits if new credits are issued post-project, highlighting a significant flaw in the current system.

In response to these concerns, there exists a method known as tonne-year accounting. This method calculates the long-term value of shorter-term credits using the decay rate of CO2 observed in the atmosphere. This approach allows for a scientific reassessment of projects like the 30-year initiatives on Verra, converting their impact into a more comparable 100-year value framework. However, this method isn't widely adopted yet, suggesting a need for broader implementation, especially for buyers seeking long-term environmental benefits from shorter contracts.

The Ecological and Sociological Impact of Varied Contract Lengths

The divergence in contract lengths is not just a financial or scientific issue but an ecological and sociological one too. Long-term contracts, such as those spanning 100 years, are daunting and impractical for landowners. They require commitment over several generations, often without adequate compensation following the initial credit payout. This makes them unattractive and unlikely choices for forest landowners who must balance conservation efforts with economic realities like continuing taxes and resale/property value.

Because the structure of 100-year projects discourages participation, these projects often attract entities like nature conservancies or parks, which were never at risk of deforestation to begin with, and therefore do not genuinely contribute additional conservation efforts. This leads to a phenomenon where many signatories of such long contracts are either not aiming to improve forest management or are engaging in activities that would have occurred regardless of carbon credit incentives.

On the other end of the spectrum, shorter contracts, often around 20 to 30 years, face their own set of challenges. Many of these projects support forests that would naturally regenerate within that period, meaning the carbon credits awarded do not genuinely represent an additional environmental benefit. This is particularly evident in projects involving commercial timber companies, where the timing of tree planting and harvest aligns with normal business practices, thus nullifying the supposed additional impact of the carbon project. We don’t want to be sponsoring big timber companies to cut down trees, replant them (get carbon credits), and then cut them down again just as the project ends. This is what they do all the time, and awarding carbon credits for it does nothing for the environment. Unfortunately, many ARR and IFM projects do exactly this.

‍

Variable Contract Lengths Based on Biological Rotation

The resolution to these discrepancies may lie in adjusting contract lengths based on the biological rotation ages of the forests involved. Biological rotation age is the age at which it makes the most financial sense to harvest trees. Protecting trees beyond that age is what’s beneficial to the climate.

By tailoring contract length to biological rotation age, we ensure that credits are being issued to projects that truly go above and beyond the norm in terms of conservation. Such a system would not only make ecological sense but could also incentivize more landowners to participate, as the contracts would be more aligned with the natural lifecycle of their forests and the specific ecological needs of their land.

Take a 60 year old Douglas Fir forest in Washington for example. This is a forest with a biological rotation age of around 50, so conserving it is very important. Loggers really want to cut these trees down because they’re mature. Even if we signed a 10 year contract to protect these trees, we’d be doing a lot of good.

On the other hand, imagine a 20 year old Douglas Fir forest. In this case, these trees are going to be left to grow for another 30 years before they reach maturity. Imagine a 30 year carbon project taking place here. It wouldn’t have any impact at all!

In the ongoing discussion on effective carbon management and conservation practices, it's clear that a one-size-fits-all approach does not work. A nuanced, scientifically grounded method like variable contract lengths, complemented by accounting practices that reflect the true long-term value of carbon credits, could pave the way towards more meaningful environmental stewardship and a more sustainable future.

‍

The Parity Issue in Carbon Credits

As we move deeper into the discussion of carbon credit contract lengths, an emerging point of contention is the uniform valuation of credits, irrespective of the project duration. This uniformity overlooks the diverse ecological impacts of various projects, from short to long-term initiatives. The ideal scenario, as proposed in discussions with several carbon registries, is a universal recognition that projects contribute differently to climate goals depending on their actual ecological effectiveness.

Despite general agreement among experts on the potential benefits of variable contract lengths tailored to the biological rotation ages of forests, there is a notable reluctance to adopt this approach. This hesitance stems from a fear of upsetting established norms and the stigma around shorter projects. People just think long projects are better, even if the science says otherwise.

The situation is made more challenging by various standards making blanket pronouncements about contract length. For example, the ICVCM has a blanket 40-year requirement — regardless of that forest is a 60 year old Douglas Fir stand or a 10 year old one. This one-size-fits-all approach may lead to inefficient conservation efforts, where the designated project length neither matches the natural cycle of the forests involved nor addresses the specific conservation needs effectively.

Increasing regulatory assertions, like those from the ICVCM, which standardize carbon project lengths without regard to regional ecological variations, further complicate the advocacy for more scientifically sound practices. There is a growing concern that these regulatory approaches might stifle innovation and suppress efforts to optimize carbon credit strategies in favor of more transformative environmental benefits.

‍

The Role of Technology and Community Acceptance

Theoretically the length of carbon contracts could be decided upon quite algorithmically. Remote sensing (such as LiDAR) can be used to determine forest size and how close it is to biological rotation age. Then carbon contract lengths could be drafted for each forest to ensure that they exceed that age (perhaps by some standard such as 10-20 years). The 10 year old Douglas Fir forest would need a 50 year contract in order to participate. The 60 year old forest would only need a 10 year contract. The same amount of good is being done.

‍

Conclusion: A Call for Openness and Scientific Rigor

It is evident that rethinking carbon project lengths is not merely a technical challenge but a complex issue that intertwines science, regulation, and market dynamics. The path forward requires a collective openness to unconventional project lengths that surpass mere compliance and genuinely contribute to forest conservation. It is critical that carbon purchasers understand the value of ‘shorter’ contracts, and the potential downsides to longer ones.

Understanding and implementing carbon credits effectively hinges on recognizing and advocating for contracts that extend beyond the biological rotation age of the forests involved. This approach promises not only to enhance the credibility of carbon credits but also to drive meaningful environmental change, ensuring that each project genuinely contributes to the overarching goals of climate change mitigation.

‍

Video

‍