The hole in the sum of parts

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One of the many deals announced at the recent COP27 climate summit in Sharm el-Sheikh came from the Royal Government of Cambodia, which announced that it would be selling Verified Emission Reductions (VERs) from three long established REDD+ projects to a range of corporate buyers.

Depending on which source you read, the deal covers between 10 and 15 million carbon credits. At a tonne of carbon dioxide equivalence each, the impact would be roughly the same as taking 2.7 million cars off the road for a year. Like if no one in the Democratic Republic of the Congo drove for twelve months.

Except those credits aren’t all the same, not by a long way. They do have common factors: they’re all REDD+ projects in Cambodia, all focused in or around protected wildlife sanctuaries, and all are partnerships between the government and internationally respected NGOs.

Look at the BeZero Carbon Ratings for the three projects, however, and the differences emerge. A business could purchase credits from one project that have the polar opposite impact of credits purchased from another. Without even knowing.

One project enjoys a AAA- rating, our third highest, suggesting in our view a high likelihood of each credit delivering a tonne of avoided emissions over the crediting period. The risk of fire, a natural phenomenon in parts of the region, poses some threat. Project accounting and our time series analysis of satellite imagery, including fire detections and impacts on vegetation, suggest this risk is mitigated.

The largest project is assigned our AA- rating, our 2nd lowest rating, with a low-to-moderate likelihood of delivery. The project is predicted to deliver over 115 million tonnes of avoided losses over the crediting period, but there are issues with additionality and over-crediting due to prior funding for conservation activities, and a history of low deforestation levels in the region compared with the national rate of loss. Whilst that’s a consolation in terms of the conservation of pristine habitat, it doesn’t pay the bills.

The smallest project, covering a mere 41,196 hectares, provides a lesson worth noting. On the basis of publicly available information, we assign our lowest possible rating, A, and have the project on watch for further developments.

Here, we have observed recent rates of deforestation so high that it’s plausible the entire project area will be cleared of primary forest before the end of the crediting period. So, in our view, despite a highly conservative baseline no credit vintage from this project will be safe from reversal in the coming decade. Any claims made, or indeed carbon emissions offset against them, are likely to be unfounded.

These projects now sit within a so-called nested jurisdictional REDD+ system. Through this approach the government and its project partners aim to reconcile mismatches in how carbon stocks and flows are accounted for at national and project levels. In turn this will enable access to finance from as many sources as possible, including the Voluntary Carbon Market.

There are tough goals to achieve: arresting deforestation at national levels while promoting equitable socio-economic development locally and nationally, and enabling the flow of finance from the developed countries that cause the bulk of greenhouse gas emissions to those nations that suffer the worst consequences. Climate finance can help this happen, but transparency is essential at all levels.

The initiative highlights the fundamental role that independent ratings play in the Voluntary Carbon Market and beyond. Implementation of the Paris Agreement can potentially facilitate the financing of both mitigation and adaptation where it is most needed, but this cannot happen at the expense of atmospheric integrity.

The inherent fungibility of carbon makes it a unique currency to fund the righting of past wrongs but the complexity underlying Cambodia’s newly struck deal should be a warning. Environmental justice works at many different scales.