Navigating the CO₂ market: 3 things sustainability leaders need to know to identify high-quality climate protection projects

The urgency of effective climate protection

In the face of dramatic predictions regarding climate change, humanity is at an important crossroads. The urgency of tackling the far-reaching effects of climate change is becoming ever clearer. These include potential "tipping points" such as the transformation of the Amazon rainforest into a savannah(New York Times, 2023), the 95% probability of a disruption of the Atlantic current between 2025 and 2095(Spiegel, 2023) and the threat to food production in many parts of the world, including Europe and the US(Bloomberg, 2023, The Guardian, 2023).

But these challenges also present an opportunity for change. Our collective action today can enable a climate-resilient future.

A portfolio of solutions: The central role of_{CO2 markets} 

The complexity of climate change requires multi-layered solutions. These include new regulations,_{CO2 taxes}, behavioral changes,_{CO2 markets} and more. Among these measures, the voluntary_{carbon market} stands out as a key lever. From USD 2 billion today, this market is expected to grow to between USD 10 and 100 billion by 2030(source). It not only sets a_{carbon price} for companies, but also points the way to a net zero future.

The IPCC assumes that 10 Gt of_CO2 must be removed annually by 2050 in order to achieve the climate targets of the Paris Agreement. Today, however, we are only at 0.003 Gt.

This lack of supply is leading companies to invest early in carbon removals, even before they need them to support their net zero targets(McKinsey, 2023). In addition, early investment also offers a commercial opportunity: according to a recent report by PWC, a price increase of 250% is forecast for carbon allowances in general and 1,000% for carbon removals between 2023 and 2030.

In addition,_{CO2 certificates} remain the only scalable model that can bring about changes in behavior where government subsidies and grants are not (fast) enough. Otherwise uneconomical climate protection measures can thus be implemented. The voluntary_{CO2 market} is therefore a catalyst for positive change and reconciles economic interests with ecological responsibility.

Overcoming current challenges in the_{CO2 market} 

The potential of the_{CO2 market} is enormous - but not without obstacles. Reports by ZEIT, The Guardian and Bloomberg point to weaknesses in international measures: In particular, unclear quantification methods, misused financial resources, as well as a high lack of transparency make it difficult to determine the actual effectiveness of climate protection projects.

By consciously addressing and actively solving these challenges, the voluntary_{carbon market} becomes a robust and effective lever for climate protection.

Development of state-of-the-art projects: Insights from Pina Earth 

With the increasing demand for effective_{CO2 projects}, the focus is shifting to ensuring their effectiveness. In this context, Pina Earth presents three approaches to developing state-of-the-art climate protection projects:

1. baselines based on the latest scientific findings

Two scenarios are compared to calculate the_{CO2 storage capacity} of a climate protection project: the "project scenario", which depicts_{CO2 storage} through the project activities (e.g. tree planting) and the "baseline scenario", which depicts what would have happened without the climate protection project (e.g. deforestation). The baseline is also referred to as the "business-as-usual scenario". Important here: Only the difference between the two scenarios is the additional_{CO2 storage} and therefore permissible as a marketable_{CO2 certificate}.

Establishing a realistic baseline is crucial for the effectiveness of a climate protection project. At the same time, modeling the baseline is challenging because it needs to accurately predict what would have happened without the project funding. Some forest mitigation projects have assumed high deforestation rates in the past, but over time the reality of these assumptions has become increasingly difficult to prove and actual deforestation rates have deviated from initial projections.

The key is to establish baselines that are based on scientific principles and are continuously updated. It is essential that project developers do not rely solely on their own assumptions or the landowner's statements. Both parties may lack an objective view. Therefore, Pina Earth has decided against project-specific baselines based on assumptions of individual forest owners. Instead, the basis of the baselines should be consistent with scientific evidence. In Pina Earth, this is implemented by using data from the German National Forest Inventory, the most comprehensive database on the state of German forests available today, which is continuously updated (every 10 years, i.e. 3 times during the project period). Through this data, we gain precise insights into the common practice of managing monoculture forests, their vulnerability to climate change and the extent of conversion to biodiverse, climate-resilient forests. In addition, the Pina Earth baseline is updated at regular intervals of three to five years to ensure that the data remains relevant and reflects evolving environmental dynamics.

2. low risk thanks to a strong legal framework

The basis of a_{CO2 project} is a legal contract between the parties involved. For projects in regions characterized by political instability, legal uncertainties can also translate into uncertainties in_{CO2 storage performance}. The lack of enforceable and consistent regulation, uncertainties in land ownership, as well as corruption risks and difficulties in community involvement can pose risks to the effectiveness of a project.

Pina Earth focuses on the development of projects in Europe, starting in Germany. This geographical focus offers a high degree of legal certainty and thus significantly reduces the risk of potential shortfalls. According to the World Bank's Governance Indicator(World Bank, 2023), Germany's political risk is in the lowest category. Factors in the indicator include political stability, control of corruption, regulatory quality, rule of law, citizen participation and accountability. Germany also has strict forest laws that aim to promote sustainable forest management, biodiversity conservation and environmental protection, which is illustrated, for example, by restrictions on clear-cutting forests.

In Pina Earth projects, forest owners contractually commit to implementing a comprehensive plan of forestry measures with milestones over the 30-year duration of the project. This contractual commitment ensures the_{CO2 sequestration} of the project, as the storage capacity in turn depends on the implementation of the measures.

The legal infrastructure in Germany and the wider European context provides clear guidelines and regulations. As a result, investing in a forest carbon offset project located there offers a higher degree of legal certainty, making it an interesting option for sustainability managers looking to secure their investment and contribute to global climate protection.

3. deep insights through personal visits

Ensuring a high level of transparency involves giving companies the opportunity to visit the projects in which they invest. These visits provide valuable insights into local conditions, project activities and contribute to a deeper understanding of the investment. Pina Earth's projects in Germany benefit from a general right of access to forests, which allows anyone to visit the projects at any time.

In addition, at Pina Earth we go one step further by actively inviting clients to accompany us and the project foresters on the ground to foster a deeper connection between the companies and their positive impact. This hands-on experience offers unique insights into the activities and specifics of_{carbon project} development.

Proactive action makes Net Zero targets a reality ‍

In this article, we have presented three characteristics of high-impact climate protection projects: robust and up-to-date baselines, ensuring a secure legal framework and promoting project visits.

The urgency of climate change is undeniable and humanity is in a limited window of opportunity to comply with the Paris Climate Agreement. Many companies have set themselves Net Zero targets, which requires the neutralization of remaining unavoidable emissions through carbon removals.

As ambitious net zero targets are set, the demand for high-quality carbon removals will increase, possibly far beyond supply. Pina Earth therefore recommends that decision-makers act today to secure access to high-quality carbon removals for their net zero targets. In addition to reducing their own emissions, investing in carbon removals ensures that sustainability is not just a goal, but a reality.

Are you ready to implement your Net Zero strategy with effective climate protection projects? Schedule a one-on-one meeting with our experts to discuss how Pina Earth can support your specific sustainability goals. Together we can take global responsibility through regional forests.