In Portugal, over the last decade, we have rejected countless requests to “generate” carbon credits (CC). The reasons: the lack of an established market and the fact that most companies have not drawn up roadmaps towards carbon neutrality. Today, both premises are closer to becoming reality.
The great benefit of a voluntary carbon market (VCM) is that it assigns a “value” to the reduction of GHG emissions (or their sequestration), which is taken into account by agents when making decisions.
An MVC is based on companies voluntarily taking on emission reduction targets or making financial contributions that can have various purposes: ESG, preparation for the mandatory market or simply “marketing”.
However, the search for CC on the market must follow a thought-out strategy, with an emphasis on reducing own emissions and those of the value chain, in which access to MVC is just one of the instruments.
The document now proposed for public consultation on the creation of an MVP has some virtues, but also opportunities for improvement.
The explicitness of several fundamental principles such as “Additionality” (the notion that a mitigation or sequestration activity would not exist in the absence of the additional incentive created by CCs), “Integrity and Quality” or the “Design of a premium for credits with specific added value (Carbon+)” are positive elements in the proposal presented.
However, the proposed decree fell short on other aspects, three of which are very important:
The first is the fact that this document prioritizes, at least at this early stage, forest sequestration over the conditions of the associated claims. All sequestration projects (usually of a forestry nature) involve a potential risk: the reversal of sequestration.
An analysis of the history of Portugal’s national emissions graphs shows that when the forest fires occurred in 2017, in 2003 or 2005, national emissions exploded with the combustion of the carbon sequestered in our forest. Given the vulnerability of this asset, most carbon systems set up buffer pools in which percentages of the credits generated are placed according to a risk assessment of each project methodology. These bags are used as collateral in the event of reversals. All this is provided for in our MVC decree. However, this stock exchange is unlikely to be able to guarantee protection against highly correlated and systemic risks. What will happen if there is another catastrophic year like 2017? If the stock market runs out, how can the regulator (APA) buy voluntary credits on the carbon market? And what to do with the “claims” of the companies that bought the “burned” credits?
There is currently a huge debate about the validity of environmental claims on the international voluntary market and the credibility of the guarantees that can be placed on forest sequestration. Neither is fully reflected in this proposal.
A second critical aspect is the (almost complete) absence of any mention of the use of technology in the development of this MVC. The document mentions a market-independent Monitoring, Reporting and Verification infrastructure very similar to the one in place at the UNFCCC and, in this case, the biggest costs in systems of this type are precisely those of validating and verifying emissions. Why don’t we go one step further and include a technology-supported MRV system in this project, in order to reduce costs with independent verifiers who have not really proven themselves in international systems to be either “verifiers” or “independent”. Building the capacity of a national public entity to monitor forest sequestration using existing technological means would be a central point to guarantee the effectiveness of the system, in a country where it will be difficult to find economies of scale to justify the existence of fragile and inexperienced third parties.
Finally, there is also a missed opportunity in this decree that can be exploited: CO2 storage should not be limited to the forest. The forest is burning and there is limited space for it to grow. The solution is to use the forest as if it were agricultural land. Encouraging the planting of trees, but also their “cultivation” until they are cut down and replanted. After being cut down, trees can continue to bring benefits to the ecosystem. How does it work? Through the “Carbon Capture & Storage” concept. The “capture” is carried out efficiently through trees that absorb CO2 from the atmosphere. “Storage” is guaranteed through the use of wood in cities in the form of buildings, furniture or other durable solutions based on natural carbon.
Overall, we feel that this is a huge opportunity to create an instrument that can be used, among other things, as a climate policy tool. This could happen by encouraging the growth of business areas deeply correlated with sustainable development, using carbon assets to co-finance these activities. For this to happen, there needs to be a greater focus on the buyer, on simplifying and digitizing the system as well as including the notion that the forest is not the only place, nor probably the best place, to store CO2.
