Maturity of carbon offsets opens a path for Blockchain and SDGs

Carbon offsets have been around for more than 20 years. In that time a dizzying variety of projects have been developed to reduce harmful carbon dioxide emissions compared with business-as-usual, generating billions of tonnes of effective and real reductions.

In that time, we have learned how to measure, verify and report on these reductions, we have built a system of electronic registries to hold them and we have built markets to trade them. Carbon offsets are now a mature business.

But in those 20 years, for the most part, we have only focused on the carbon element: every offset project generates these. But for a long time, we overlooked the co-benefits:

  • Reductions in land pollution.
  • Reductions in air pollutants other than CO2.
  • Stronger and healthier local communities.
  • Economic opportunity and jobs.

The launch of the Sustainable Development Goals (SDGs) by the United Nations in 2015 represented the starting point for a broader conversation on environmental issues. For many years, the concept of sustainable development had been discussed within the UN and other international fora, but the issue had not been translated into a set of wide, actionable principles.

The refinement of the SDGs into a concise list of 17 goals that would allow the world to “meet the needs of the present without compromising the ability of future generations to meet their own needs” represented the first time that interlinked social, environmental and economic goals have all been brought together

Until 2015 it had been climate change that received the most attention, thanks to the Kyoto Protocol and more recently the Paris Agreement. However, a large number of public and private actors had long seen the need to address other global goods in addition to the climate, and over the last ten years there were increasing efforts to capture these additional outcomes. 

Early attempts focused on capturing the “co-benefits” of carbon emission reductions. Distributing cleaner cookstoves, for example, reduced health impacts from burning wood in poorly-ventilated accommodation and allowed children to attend school and women to work, rather than risk their safety collecting firewood, all while reducing carbon emissions from inefficient fireplaces

Forest-based projects were also seen to bring economic and community benefits while also storing vast amounts of carbon dioxide. Small-scale, distributed renewable power generation brought benefits across many of the 17 SDGs to remote communities.

The challenge, however, has always been how to quantify these non-carbon benefits and render them into an asset that represents the value of sustainable development, and thereby incentivise the scale of investment that is needed to achieve the SDGs.

Earlier this year, two of the leading carbon offset standards, Verra and the Gold Standard, launched new rules and criteria for projects that specifically target the Sustainable Development Goals.

Verra’s SD VISta applies to any project that is contributing to the SDGs, including those related to eliminating hunger, promoting good human and environmental health and well-being, and ensuring education, and can be used in conjunction with its existing Verified Carbon Standard

Similarly, the Gold Standard for the Global Goals offers the opportunity to combine carbon offsets that meet the requirements of the UN Clean Development Mechanism or the Verified Carbon Standard, with measurable outcomes in terms of lifespan (Averted Mortality and Disability in Adjusted Life Years) or water security (water benefit certificates).

With these standards, the way is now open for climate-based projects to capture and quantify the associated public benefits embodied in the SDGs. We believe these standards will become the norm over time, as public and private stakeholders look to maximise the impact of their investments.

At the same time, it’s becoming clear that some existing technologies have passed through the realm of being “innovation” and are now “business as usual”. Wind power is a clear example, and we believe the time is right to start to streamline the process of calculating climate benefits from these newly-incumbent technologies.

Monitoring, verifying and reporting emissions reductions, as well as holding them in a recognised registry are critical components of the carbon offset business. But these aspects of offsetting, while well understood now, are challenging in developing economies and the need for increased standardisation of methodologies and baselines offer an ideal opportunity to leverage the capability of the blockchain to validate both the source and the transactions of offsets. By unlocking a trusted global market for environmental attributes, the blockchain helps renewable energy generators and carbon off-setters yield the full economic value and social benefit of their attributes, and provides corporates with a mechanism to flex their financial muscles and contribute in a meaningful way to the energy transition and to the SDGs.

Article 6 of the Paris Agreement comprises three approaches for cooperation between Parties – “cooperative approaches” under Article 6.2; a new mechanism to promote mitigation and sustainable development (Article 6.4 – 6.7); and a framework for nonmarket approaches (Article 6.8 and 6.9). There is very little clarity on how these approaches will function and very basic issues such as scope, governance and infrastructure for operationalising provisions under Article 6 are still to be agreed. Our view is that to ensure that SDGs are not relegated to being merely a reporting framework and the SDGs actually change countries’ development trajectories, its inclusion under Article 6.8 can unlock its potential and to effect real change.

As the Gold Standard puts it: “To ensure that sufficient resources are available to encourage the drive to achieve SDG goals, we can streamline the process of MRV for certain project types that deliver widely understood and easily quantifiable benefits.”

Hear, hear!  

Alexis Leroy
Board member at Climate Markets and Investment Association (CMIA)
ALLCOT