(Credit: Pixabay)Rubicon Carbon has introduced a risk adjustment framework for new and legacy carbon credits. The new framework addresses several issues in the current carbon credit market, the company said in a whitepaper outlining the system.
The whitepaper examines the need for high-integrity carbon credit and to drive confidence in voluntary carbon markets. All carbon credits have risk, according to authors of the whitepaper, Dr. Jennifer Jenkins, Rubicon Carbon’s chief science officer, Dr. Brian Clough, research manager, and Rubicon Carbon CEO Tom Montag.
Risks are both external – those imposed from outside the carbon project and factors beyond the project developer’s control – and internal, from flexibility in the project methodologies, or from uncertainty in the data used to measure project impact. Unknown gaps in these risks can erode the trust of credit buyers in the market.
“Carbon credit buyers need to know that each credit they acquire actually represents one tonne of carbon kept out of, or removed from, the atmosphere,” Jenkins in a statement. “However, credits are exposed to different risks that make their environmental benefits challenging to estimate, especially over time. Current carbon credit methodologies account for too little of the uncertainty that these risks introduce.”
To address this issue, the authors proposed a risk-adjusted approach, accounting for the gap between the number of registered credits and the actual environmental benefit of a project by retiring (such as removing from the market forever) additional credits with no beneficiary from a risk adjustment buffer pool.
“We implement the risk adjustment at the portfolio level, though the risk adjustments are calculated on a project-by-project basis,” the whitepaper stated. “The risk adjustment retirements from the portfolio are in addition to the buffer pools maintained by registries at the registry level, which are intended to hedge against non-permanence risk due to wildfire or other catastrophic reversal events.”
This approach improves the quality of the existing credit supply as well as future-proof the market, the authors said.
“Leveraging portfolio-backed carbon credits like Rubicon Carbon Tonnes, we have developed an ongoing risk adjustment framework to first assess the gap between the number of registered carbon credits and our estimate of the actual tonnes of carbon credits we and our buyers have invested in and then retire more credits than are actually used as offsets,” Jenkins said.
