Navigating Carbon Markets: 3 Things Sustainability Leaders Should Look for in High-Quality Climate Projects

Shedding light on central criteria of effective climate projects

The Urgency of Climate Action

In the face of a rapidly changing climate, humanity stands at a pivotal moment. As we approach 2024, the urgency to address the far-reaching impacts of climate change becomes highly apparent. These include potential tipping points like the Amazon rainforest becoming a savanna (New York Times, 2023), a 95% probability of an Atlantic circulation disruption between 2025 and 2095 (Spiegel, 2023), and food production in danger in many parts of the world, including Europe and US (Bloomberg, 2023, The Guardian, 2023). However, embedded within these challenges lies an opportunity for transformative change. Our collective actions today can shape a more resilient future.

A Portfolio of Solutions: The Vital Role of Carbon Markets

The complexity of climate change demands a multifaceted approach. Encompassing new regulations, carbon taxes, behavioral change, carbon markets, and more. Among these measures, the voluntary carbon market stands out as a key player. Projected to grow from 2 billion USD today to between 10 - 100 billion USD by 2030 (Source), this market not only places a distinct price on carbon for companies but also charts a course towards a Net-Zero future. 

Let’s put this into an even broader context: The IPCC estimates that 10 Gt of carbon removal is required annually by 2050 to reach the climate goals of the Paris Agreement. Today, we are at just 0.003 Gt. This supply shortage is triggering early investment into carbon removals by companies before they need them to support a specific net zero claim (McKinsey, 2023). Further, early investments are also a commercial opportunity: In a recent report, PWC predicted a price increase of 250% for carbon credits generally and 1,000% for carbon removals between 2023 and 2030.

Next to these commercial opportunities through early investments, carbon credits also remain the only scalable model that incentivizes changes in practices, where state subsidies and grants are not (fast) enough. By channeling investments into projects that might otherwise remain dormant, the voluntary carbon market becomes a catalyst for positive change, aligning economic interests with environmental stewardship.

Overcoming Challenges in the Carbon Market Landscape

While the potential of the carbon market is vast, it is not without its challenges. Reports from sources like ZEIT, The Guardian, and Bloomberg shed light on persistent concerns, from issues with the quantification of carbon effects, to the redirection of funds for unintended purposes, as well as general issues with transparency. Identifying and resolving these challenges is imperative to enhance the credibility and effectiveness of the market. Yet, these challenges are also opportunities for innovation and refinement. By acknowledging and actively addressing these issues, the voluntary carbon market evolves into a robust and reliable force for climate action.

Developing State-of-the-Art Projects: Insights from Pina Earth

As the demand for effective carbon projects intensifies, the focus on ensuring their efficacy becomes paramount. Recognizing these issues, Pina Earth shares three approaches on how to develop state-of-the-art climate projects:  

1. Baselines with Scientific Precision

Establishing a credible carbon baseline is critical but challenging, as it involves predicting what would have happened without carbon financing. Calculating emission reductions from climate projects involves considering two scenarios: the project scenario, outlining emission reductions and additional sink performance through project activities (such as tree planting), and the baseline scenario, depicting what would likely have occurred without carbon financing (for instance, forest degradation). The baseline is also referred to as “business as usual scenario”. Only the difference between the two scenarios is the additional carbon storage and thereby eligible for issuance and investment.

The challenge lies in the counterfactual nature of the baseline scenario, making it inherently difficult to prove. To exemplify, certain climate projects in the past assumed high deforestation rates, but over time, the actuality of these assumptions became increasingly complex to prove and the real deforestation rates turned out to diverge from initial projections. This intricacy underscores the challenge of accurately predicting baseline scenarios and emphasizes the need for robust methodologies and ongoing evaluation to ensure the credibility and effectiveness of climate initiatives.

The key to a robust solution lies in constructing baselines rooted in scientific principles and ensuring their continuous updates. It is imperative that project developers refrain from solely relying on their own assumptions or depending on forest owners. Both parties may lack an objective view and could potentially manipulate arguments regarding specific activities. Therefore, Pina Earth decided against project-specific baselines based on assumptions about the “business as usual” behavior and decisions of individual forest owners. Instead, the foundation of baselines should consistently align with scientific evidence. At Pina Earth, this commitment is exemplified through the utilization of data from the Federal Forestry Inventory, the most comprehensive study on the state of German forests which is available today and will be continuously updated (every 10 years, hence 3 times in the project runtime). By leveraging this data, we gain precise insights into the common practice of managing monoculture forests, their susceptibility to climate change, and the extent of their adaptation to biodiverse, climate-resilient, and mixed forests. Additionally, the baseline is updated in regular intervals occurring every three to five years, ensuring the data remains relevant and reflective of evolving environmental dynamics.

2. Low risk due to a strong Legal Framework

The basis of a carbon project is a legal contract between the entities involved, such as the landowner, project developer, standard, and further intermediaries. Carbon projects situated in regions grappling with political instability can face challenges linked to legal uncertainties. The absence of transparent and consistent regulations, coupled with uncertainties in land tenure, hampers project development. Political shifts can disrupt project stability, while weak enforcement, community engagement issues, and corruption risks raise concerns about project effectiveness. 

Pina Earth focuses on developing projects in Europe, starting in Germany. This geographic focus offers a heightened level of legal security, thereby significantly reducing the risk of potential shortfalls. Germany’s political risk score falls within the lowest category according to the World Bank Governance Indicators (Worldbank, 2023), which includes factors like government effectiveness, control of corruption, political stability, regulatory quality, rule of law, as well as citizen participation and accountability. Germany further has strict forestry laws aimed at promoting sustainable forest management, biodiversity conservation, and environmental protection, exemplified by restrictions on the clearcutting of forests.

Within Pina Earth’s projects, forest owners contractually commit to implementing a comprehensive plan of forest activities with multiple milestones spanning the 30-year project duration. This contractual obligation ensures the project’s carbon sequestration, as it is dependent on the implementation of these measures. The legal infrastructure in Germany and the broader European context provides a clear set of guidelines and regulations. As a result, investing in a forest carbon project offers a higher level of legal certainty, making it an attractive option for sustainability leaders seeking to derisk their investments and contribute to climate mitigation efforts.

3. Fostering Project Engagement Through Visits

Ensuring high transparency involves granting companies the opportunity to visit the projects they invest in. These visits offer valuable insights into on-site conditions, project activities, and contribute to a more profound understanding of their investment. Pina Earth's projects, situated in Germany, benefit from a general right of access to forests, allowing anyone to visit the projects at any time. 

Moreover, Pina Earth goes a step further by extending an invitation to customers to join them and project foresters on-site, fostering a deeper connection between the companies and their positive impact. This hands-on experience offers unique insights into the activities and the specifics of carbon project development.

Pina Earth: Project Lake Kessel, 2023

Call to Action: Seizing the Moment for Net Zero Investments

In this article, we presented three characteristics of highly effective climate projects: robust and up-to-date baselines, ensuring a secure legal framework, and encouraging project visits.

The urgency of climate change is undeniable, with humanity facing a limited window to achieve global Net-Zero emissions. Many companies have set Net-Zero targets, necessitating the neutralization of remaining unavoidable emissions through carbon removals from projects like those undertaken by Pina Earth.

As corporations set ambitious Net-Zero targets, the demand for high-quality carbon removal projects increases and may surpass the supply significantly. Pina Earth urges corporate decision-makers to act today, securing access to carbon removals for their Net-Zero goals with state-of-the-art projects. Recognizing the scarcity of such projects and investing now ensures sustainability is not just a goal but a reality when combined with the reduction of own emissions.

Ready to align your Net-Zero strategy with impactful climate projects? Schedule a personalized consultation with our experts to discuss how Pina Earth can support your specific sustainability goals. Let's work together towards a future of environmental stewardship.

Dr. Gesa Biermann

Co-Founder & CEO

Pina Earth

Leos Paul Bloch

Head of Business Development

Pina Earth