MSc Development Studies alum Alejandra Padin-Dujon unpacks the recent controversy involving the carbon credit certifier Verra, wherein investigative journalists questioned Verra’s ‘avoided deforestation’ credits, claiming these have been overstating the level of carbon offsetting actually achieved.

On 18 January 2023, the Guardian published an explosive article accusing Verra—the world’s premier certifier of carbon credits—of grossly overstating the emissions reductions associated with its “avoided deforestation” credits. Specifically, investigative journalists at SourceMaterial (partnered with the Guardian) claimed that only six percent of Verra’s avoided deforestation credits represented real emissions reductions.

Verra responded with an emphatic rebuttal. The legitimacy of this form of carbon offsetting (used by the likes of Gucci, Shell, and Disney) hangs in the balance. The implications of the scandal for development in the Global South are significant: Northern countries like Norway have invested large sums in forestry projects overseas—ostensibly to encourage greener development pathways—and Amazonian indigenous communities face the threat of ‘carbon pirates’ leveraging information asymmetries to establish land-based carbon projects on indigenous lands.

What are avoided deforestation credits?

Carbon credits are a way of counting reductions in carbon emissions. Carbon offsetting is the practice of “cancelling out” real emissions with emissions reductions, and this can be done in either a voluntary or legally compelled (“compliance”) capacity. The Verra scandal is about voluntary carbon markets.

“Avoided deforestation” credits represent successful efforts to conserve forested areas. This raises the question: what does it mean to “conserve” a forested area? One problem is longevity (ie, whether the protection is reliably long-lasting, and the trees won’t just be cleared in the next administration). Arguably, an even greater problem is baselines.

Everything turns on baselines

You can’t count progress without a point of comparison, and you can’t count carbon credits without estimating what emissions would have occurred without an intervention.

There are many kinds of baselines. These include absolute and business-as-usual (BAU) markers. Absolute baselines would mean comparing current forest cover against forest cover at some point in the past. This methodology would effectively invalidate the idea of “avoided deforestation”: how can you improve on 100 percent forest cover other than by planting more trees—a distinct practice in itself called “afforestation”? There would be no carbon credits to award.

However, researchers and certifiers do not generally use absolute baselines. They engage with BAU, which means projections that use a counterfactual: a sophisticated imaginary world wherein no intervention occurs in the selected forested area, but everything else (like political and economic trends) stays the same. An outcome of “no deforestation” would be unrealistically impressive. Indeed, avoided deforestation credits may be awarded even when deforestation occurs, as long as the intervention can be said to have prevented an even worse outcome for tree cover.

Verra is making this a methodological debate—or trying

According to Verra, the Verra forestry credit controversy turns on the methodologies used to identify how much forest was protected. Researchers and watchdogs used or cited “synthetic controls” (assumptions that create a broad counterfactual), while Verra claims more “site-specific” drivers of deforestation need to be included. If successful, this tack would turn the debate between Verra and the Guardian into a highly technical case of “he said, she said” wherein Verra holds the lion’s share of the information, and every site is a special case. It would be virtually impossible for anyone to do a bird’s-eye view analysis.

The incentive structure is wrong

In any case, quibbling about methodology misses the forest for the trees (pardon the pun). The incentive structure of the market in avoided deforestation carbon credits is ripe for abuse. These structural flaws would persist even if Verra’s methodologies vastly outperformed those of academic researchers—creating an atmosphere of high risk for environmental integrity.

The major players in this market are land stewards, carbon credit project developers (who devise ways to deliver emissions reductions), certifiers (like Verra), and buyers (like Disney or Shell). Per SourceMaterial’s analysis of one project, nut farmers in Peru signalled they might fell trees unless they were compensated for not doing so—and then proceeded with some level of deforestation anyway. The developer paid them and fiddled with the boundaries of the “protected area” to mask the real extent of deforestation. Verra collected 10 cents for every credit it certified, meaning it had a financial incentive to look the other way (even though its auditors raised the alarm). Finally, companies that purchased avoided deforestation carbon credits bought the right to claim carbon neutrality (or just lower emissions) at an attractive price: forestry credits are relatively easy to produce and under-vetted, so they remain cheap. No one had an incentive to blow the whistle. It is a lucrative collective delusion to claim that the nude emperor is actually wearing new clothes.

In conclusion

The Verra scandal is not really about methodology. It’s about the dubious legitimacy of an entire industry in avoided deforestation credits. The sale of such credits means that a multiplicity of “carbon neutral” claims by prominent companies may be bogus. It also means that a market-based environmentalist lever meant to safeguard the environment may, in fact, be entrenching financial incentives to hide the true extent of deforestation. By profiteering from low-integrity climate ‘solutions,’ Verra has earned its moment of infamy.

The views expressed in this post are those of the author and do not reflect those of the International Development LSE blog or the London School of Economics and Political Science.

Main Image: Deforested rainforest near river Jurua, Kulina Indios, Brazil, a woman with a child carries cassava manioc to the village. Credit: Joerg Boethling / Alamy via Climatevisuals.org.