Empowering Carbon Credit Buyers: The Keystone for Net Zero Ambitions

In an insightful exchange with Hemant Bohra, Editor of Carbon Wire, Duncan Van Bergen, Co-founder of Calyx Global, delves into the evolving landscape of carbon credit markets. This discussion throws light on the buyer’s journey amidst shifting trust paradigms, the integration of Sustainable Development Goals (SDGs) in rating frameworks, and the potential synergies between high-impact projects and data transparency.

CW: What will be the carbon credit buyer’s journey three years from now?

DUNCAN: It’s indeed a compelling question. What will it be three years from now? To forecast that, we must navigate from the current state, which is marred by a crisis of confidence. The issue isn’t the absence of quality, but rather, it’s the substantial variability we see in our rating distribution curve. Users are becoming increasingly aware of this. The years 2022 and 2023 have been quite revealing, and as a result, buyers are now far more informed.

Some narratives in the past two years have been sensational but necessary. They’ve brought to light real issues with certain carbon credits and methodologies, highlighting the urgency and concerns of users. People want to utilize carbon credits, but they are wary due to these stories.

The journey for buyers can be complex and challenging for buyers because it requires going beyond certification and verification by established standards. The information available isn’t straightforward, making it tough for buyers to determine the best course of action. This is where carbon credit rating agencies like ours step in to provide crucial information that buyers can use to make more confident decisions. We fill that advisory role today.

Looking ahead, I’d first consider how the market might change. Assuming we overcome the current crisis of confidence, I expect the market to grow, with ratings becoming more institutionalized. Initiatives like the ICVCM will likely introduce more structured guardrails. Moreover, I wouldn’t be surprised by an increase in regulatory measures and a closer alignment between voluntary and compliance markets. There are already signs of this shift, like the regulations enacted in California regarding corporate climate action disclosures.

The market in three years, hopefully, will benefit from the additional insights now available to users, allowing for more informed and conscious choices. These developments are essential for the market to recover from the recent wobbles, which began in the latter half of 2022 and continued into 2023. It’s too soon to declare a rebound, but the seeds of change are there.

CW: How would you advise a buyer in mapping out their carbon credit buying journey?

DUNCAN: I’m assuming you’re starting with the broader sustainability issue, which is a significant strategic discussion that extends beyond our focus at Calyx Global. A company’s choices about their environmental footprint and climate journey needs to encompass much more than carbon credits and offsetting. The VCMI is working on guidance on this topic.

The first step, assuming a company has decided to include carbon credits in their climate strategy, is to set goals, understand stakeholder expectations, and consider a mitigation hierarchy and understand the current state of the market. The latter includes understanding the quality landscape – our insights, reports, and technical discussions can assist in this.

Armed with more insight, some companies decide to set a minimum quality bar for the credits they are willing to use or trade or broker. Calyx Global ratings are sometimes used for this. We have multiple cases of customers who have made decisions not to buy credits with a GHG rating lower than “B” for instance, and others who also combine that with a requirement of Calyx Global-confirmed impact on UN Sustainable Development Goals. Price obviously also plays a role, and companies will always look at what they can buy for a given budget.

Interestingly, the correlation between price and quality has had quite weak correlation, at least until recent shifts in the market. Some reasonably priced credits may be of high quality. We have sometimes called this the “ugly ducklings” paradox in carbon markets: there are certain, “less charismatic” credit types like landfill gas or industrial gas destruction where it is possible to find high-integrity projects at comparatively low prices. At the end of the day, finding the correct solution is process of iteration, understanding what’s available and how it fits into the company’s climate program. Then, it’s about defining a procurement strategy, whether through an RFP process or finding intermediaries with high-rated credits.

The market’s structure might not make it easy, but it’s more straightforward than a few years ago, thanks to more information and intermediaries utilizing ratings. It’s a journey, and we are building the Calyx Global platform to help with that journey and to make sure it arrives at a high-integrity and high-impact destination.”

CW: Can you explain how Calyx Global rates credits on their carbon claim, i.e., the promise that the credit represents 1 tonne of CO2 emissions avoided or removed?

DUNCAN: Our approach to GHG ratings begins with assessing the standard under which a credit is created. We’ve reviewed more than 15 standards, and about half meet our threshold criteria. This process acts as a gatekeeper for us, and we typically don’t rate credits issued under standards that don’t meet these criteria.

We next look at project types and methodologies, that’s where our expertise comes in. We work with seasoned experts to deeply assess the methodologies, essentially the “recipes” for creating specific types of credits. This detailed analysis is crucial as it feeds into our project-level assessment framework, which we then use to analyse individual projects. Altogether, this is a very detailed process with significant analysis in which multiple data sources are consulted. Depending on the project type, this can include geospatial data, country, and regional policy information, and much more.

CW: Could you elaborate a bit on the SDG aspect of your ratings framework? Also, do you perform an analysis on the promoters of the projects, or those layers in between the project manager and the beneficiaries?

DUNCAN: Your question about SDG impacts is pertinent. At Calyx Global, our mission is to improve the impact of carbon markets, for the benefit of people and the planet. We have always been convinced that assessing projects’ impacts on UN SDGs is key to this mission. Our approach to assessing SDG impact is also a crucial differentiator for us.

We assess SDG impacts carefully, using a two-dimensional rating system that evaluates both the level of change and the quality of evidence. It’s a meticulous process, but it allows us to rate SDG claims analytically. We’ve worked on this framework for over a year with experts who’ve been in the field for decades. It requires a disciplined application of the framework and rigorous checks and balances, which we’ve established within our company through multiple levels of oversight.

Ultimately, our goal is to contribute to a market that takes a more detailed and evidence-based view of SDG impacts, leading to better price discovery and rewarding projects that can substantiate their impact claims.

We have recently also launched a further leg to our ratings; the assessment of Environmental and Social risk related to projects. These risks are about the local people and places that exist around these projects, and ensuring projects do-no-harm to them is an important component of quality. We offer screening and/or analysis of these risks at three levels, from a basic screening by project type, which is included in every subscription, to additional desk-based analysis and conducting interviews with local stakeholders.

CW: Given the wealth of data on Calyx, do you have buyers coming to you for advice or insights into forward linkages?

DUNCAN: As we assess more projects, it becomes possible to cross-reference and notice patterns, leading to additional insights about the many variables we track and analyze, including methodologies, project types, country-specific considerations, developers and the like.

CW: What advice would you give project managers on the best approaches for impactful projects?

DUNCAN: It’s essential that we manage our role properly, especially when it comes to avoiding any conflicts of interest. We take that very seriously. We don’t provide early-stage ratings for a fee, as that could create a conflict. We have chosen to orient our services towards buyers to avoid any perception of conflict

However, we are increasingly in a position to share insights and knowledge that could help in making informed decisions and improving the quality of the project. We aim to make more and more of this insight available to all the relevant stakeholders. Our goal is to improve the impact of the carbon market and help nudge it in the right direction by sharing our knowledge.

On our website, we’ve provided some specific advice for REDD+ project developers for example, like our ‘6 things for REDD+ developers to get right.’ We expect to offer more of this kind of guidance.

CW: Considering the variables of climate risk and other factors, how do you see high-impact or high-traceability projects merging with those where data might not be as complete? Where do you see this market now, and where could it go?

DUNCAN: I’ll address this from a specific angle, which is quite an area of interest for us as well. We’ve only begun to scratch the surface here. When you look at the variety of ratings on the Calyx Global platform, it can be challenging for users to discern what to use. We’ve started experimenting with adjusted portfolio ratings, where we “lift the hood” on a credit and identify its key shortcomings at a detailed risk factor level. For credits that mainly suffer from over crediting, we’ve piloted an approach with what we call adjusted portfolios to compensate for this.

Essentially, there are a number of carbon credits available on the market that make an impact yet don’t fully deliver on the 1 tonne of CO2 avoided or removed that they promise. Calyx Global’s Adjusted Portfolio Ratings addresses this problem by quantifying the “over-crediting” risk in credits and then identifying the number of additional credits necessary to compensate for that risk – helping organizations assemble a risk-mitigated portfolio. We piloted this with approach oneshot.earth. We helped them create a highly rated risk mitigated portfolio that they now sell themselves and through Net Zero Marketplace.

Of course, not all projects can be fixed in this way; some have flaws that cannot be compensated for. However, there are credits where such interventions are possible, which is where our expertise comes into play. We’re like the Lorax, speaking for the trees, but in our case, for the evidence. We ensure our adjustments are conservative credible, and transparent, so our users trust they’re not building a portfolio that will backfire reputationally or financially.

We’ve also observed some clients, particularly in the tech sector, who choose to support projects with lower GHG ratings because of their positive impact on communities or biodiversity. These clients separate their sustainability goals from their climate goals, buying certain credits not for carbon offsetting but for their broader sustainability impact. This informal approach to blending allows them to fulfil a more holistic vision of their environmental impact.

So, the future of the blended credit market may very well involve more formalized versions of these practices, where companies can confidently invest in projects that align with their diverse sustainability goals, backed by evidence and credible ratings.

CW: Can you share the breakdown of your customer base?

DUNCAN: Our client base has traditionally been split evenly between what we categorize as ‘buy to use’ and ‘buy to sell’. The ‘buy to use’ group includes corporate users who purchase credits with the intention of retiring them as part of their sustainability commitments. On the other hand, the ‘buy to sell’ category comprises intermediaries like brokers, traders, bank desks, and marketplaces that may re-sell the credits.

CW: As your platform continues to grow, do you have plans to train people on how to interpret and effectively use it?

DUNCAN: Currently, whenever we onboard a new subscriber, we provide a detailed demonstration to guide them through the platform. Beyond that, our Customer Success team provides help when customers need it.

Just today, I had a conversation with someone looking to invest in a biogas project in Asia. They were already a client but hadn’t thought to use our platform to research other biogas projects. This highlights the need for not just teaching the functionality of the platform but also educating users on how it can serve their specific needs.

While we offer customer support, I believe we need to do more in terms of educating users on how to leverage our platform effectively for their goals. Fortunately, as a B2B service, we can build a support structure that allows for personalized interaction with our enterprise customers.

There’s always more work to be done, and continuously improving user education and support is on our agenda.