Carbon For Good+

Lately it seems that open source decision making keeps popping up in conversation in the circles I hang out in.  Often called ‘Wisdom of the Crowds’, collective decision making by groups - exercised by hundreds of decisions at the individual level - is becoming more and more attractive an option is almost every aspect of the work that I do.

There is a certain leap of faith that one must make before the wisdom of the crowds (WOC) can be trusted as a decision making process.  I read with incredulity the case studies within James Surowiecki’s book The Wisdom of the Crowds (Amazon listing), which illustrate that seemingly disparate individual decisions lead to better group decisions overall.  Again, and again, and again.  It’s quite unsettling, as I think most people have trouble trusting that other individuals can make smart decisions so often (and the point is that they don’t, but overall the average is a positive result).

So how does this all apply to carbon credits and offsets, especially at the level of the individual conscious consumer/offsetter?

Well, it’s actually pretty simple: rather than worry so much about in depth measuring, tracking, verification and the like, which is consistently a barrier to providing high-value, high impact boutique carbon (because of the problem of economies of scale), we should just trust people’s judgment.  That’s right - rather than peg the cost of carbon at some number, which is invariably linked to the costs associated with measuring, tracking and verifying the ‘quality’ and ‘value’ of the particular offset, we should put all of the decision making power in the hands of the consumer.

Let me explain.  This doesn’t mean that we let any old carbon project get listed and sell offsets (though hardcore marketplace believers will argue for this route, since it has a built in quality control/self-adjustment component - however, it’s far from failsafe).  Rather, why not stick to what’s easier, and what we’re already doing: development (and its link to philanthropy).  This means piggybacking existing philanthropic and microfinance schemes, since the measurement, tracking, and verification costs associated with these business models are substantially lower.  Think Kiva, GlobalGiving, Prosper, MicroPlace, etc., etc., etc.

Slap a ‘Carbon Offset’ icon next to the already existing “Give/Donate/Invest Now” tab, and let people bid the price of it as high - or low - as the group sees fit.

And why stop there?  Give people the chance to evaluate how impactful they think a given project is along various guidelines (such as social, environmental, other impacts) and tack the extra value on to the original gift/donation/investment.   Set a minimum price - sort of like “Reserve Price” on eBay - to cover baseline costs, and then let the group do its group magic thing.

There’s a certain elegance to this model, because it creates an incentive structure that didn’t exist before: people get to use their own judgment in pricing a given project (and thus have ownership in the process, something everyone likes), and almost more importantly, project sourcers (ie: MFIs) have an incentive to find high quality projects to appeal to conscious consumers, and project developers are pushed to ensure quality standards - as defined by the group.

Of course, some will argue that this puts projects (and the people behind them) at the mercy of market fluctuations and consumer whim, which is certainly true, but…

…remember WOC, and how it almost always trumps individual judgments?

Yeah. There you go. 

Appeals to the higher goal of development impact, lifting out of poverty

This weekend the VCS finally revealed what it has been working on for the last few months, its master plan for revolutionizing the voluntary carbon market.

So what does the VCS have for us? At first blush, something refreshingly different from other carbon schemes: a collection of four registries to identify, verify, trace and authenticate carbon credits from A-to-Z.  This represents a step in the right direction since most standards (such as the Gold Standard) pair with a single registry when rolling out credit schemes.  The reasons for this are pretty obvious, since pairing with a single registry means fewer moving parts and the lower costs associated with managing a contained partnership. Managing and tracking carbon credits across registries is purportedly too difficult, and thus remains a barrier to more comprehensive, cross-registry standards.

What a load of bull.

Sure, linking up multiple registries - even four - is certainly more difficult than a one-on-one relationship, but the VCS’s move leaves me wanting more.  Here’s a running tally for how the VCS has consistently let me down:

1. I was initially hopeful that the VCS would be a truly collaborative, open system.  I was sick of closed, private standards (like the Gold Standard) that pretended to set the bar above all others while simultaneously solving the market’s problems, when in reality the result was almost always the opposite: an expensive, bloated, insulated standard that ignored many of the constituents within the voluntary system.

2. I was also hopeful that the VCS would open up the discussion to all interested parties, both within and without of the voluntary markets, the typical (corporate) and the atypical (individual) customers.  Alas, this was not to be, as the VCS ‘collaborated’ with a mere 50 non-profit and carbon credit-related organizations to come up with the fundamentals of the standard.  I’m not sure what they did for all those months, but I’m sure it took them ages to post the link to the CDM website on the VCS ‘Methodology’ section.  Well done.

Why not open it to a global forum, and get everyone to weigh in, from the unhappy corporates who buy high volume (but want higher quality), to the wary individuals who want low volume and are sick of buying ‘plant a tree’ credits.  There was an immense opportunity to both educate and dive deeper into the future of the voluntary market that was missed, and it’s a damn shame.

3.  Finally, I was all excited about the potential to create a truly cross-registry standard.  I had envisioned an online market place that tagged credits once they were listed, and gave them a unique VCS ID number that each member registry then used to keep everything kosher.  However, the VCS spokesperson claims that this is the “difficult next step that the organization must figure out” (I’m paraphrasing), making it sound like it’s going to be akin to finding the cure for cancer in terms of difficulty.

Puh-lease.  Sure, it’ll require a bulletproof backend with basic tracking requirements, but it’s hardly rocketscience, and it’s not as if it hasn’t been done before (as the spokesperson rightly points out, banks have been doing it for years).

I’m simply worried that the four registry ‘collaboration’ is the end of it.  There’s no word that the group will expand, and it’s worrisome that the VCS didn’t think through the tracking system - it hints that they probably haven’t thought through registry expansion plans.

In any case, not to be too critical, but it’s very disheartening to see how the supposedly ‘open’ and more creative factions (and they are a faction), such as the VCS, are finding it all but impossible to think outside the box.

::sigh::

Following the Carbon Forum America 2008, I definitely have mixed feelings about the state of carbon markets today.

I must first say that I met a number of highly motivated, very intelligent people throughout the day, all of whom are trying to make their mark in the space. Whether it’s as the best certifier, a foundation exploring new avenues in environmental action, or as a lawyer trying to navigate the labyrinth of carbon capital markets and regulations, it’s hard not to be thoroughly impressed by the caliber of the people in the field.

Now, that said, I do have a number of comments about the day (read: gripes) that I feel should be brought to light:

- Carbon market design is not collaborative

It seemed that almost everyone I met, and this is especially true amongst the speakers at the various sessions, was out to push their own agenda. From a UNFCC exec clamoring for ever stricter regulations and using CDM/JI framework as the benchmark, to the creators of the Gold Standard, to an offset project developer with difficulty selling on established markets (due in part to overly strict standards, but mostly because his projects were blatant attempts to make a fortune), it was all ‘me me me’. Nobody was listening.

- Market standards are taken for granted

The main thing I noticed was that nobody questioned the various standards, all of which had a presence at the Forum. It was kind of like walking down a street in downtown Mexico City, with the buskers, hawkers and street vendors all clamoring for my attention. What none seemed to acknowledge was that the standards, whether CDM, VCS, or Gold, have massive blind spots when it comes to their target audiences. Sure, the Gold Standard has added an extra layer, an extra filter, to the process to help identify sustainable development offset projects (and thus ascribe value to these), but they haven’t made the experience any easier, or more inclusive. The Gold Standard takes for granted the CDM base methodology (and additionality tool, but more on that later), while providing more hoops for offset sellers to jump through.

The Voluntary Carbon Standard was no different: like the Gold Standard, it dismissed charges of complexity and exclusionary practices because “it had been approved by over 50 NGOs”. Big whoop. So 50 NGOs approved a flawed methodology that none of them will ever actually use (because they aren’t offset sellers or project developers). Whatever happened to listening to those who will have to navigate the standards minefield, pay the exorbitant fees, wait the 3-year average approval process? The carbon market ‘user community’ has been ignored, and this fact was only reinforced at the Forum.

- ‘Additionality’ is not questioned

My absolute biggest gripe related to the way in which no one, not a single speaker (that I saw, anyway), questioned the validity of the CDM’s ‘additionality tool’. Obviously, the CDM folks have to stand behind it to a certain extent, but rather than recognize that it could be more differentiated in its scope, they argued for stricter rules! This despite the fact that there’s a huge waiting list of projects awaiting approval, held up partly because additionality requirements necessitate a bulletproof M & E component.

The 800lb gorilla in the room was ignored, and the carbon user community let down once again.

- Markets are industry-dominated

Almost all of the above issues stem from one simple truth: the carbon market is dominated by industry. It was designed to change behavior at the industry and organizational level, which has had a number of unforeseen effects:

- Offset projects have aligned themselves to meet industry-sized needs. A premium is placed on volume, which in turn (to reduce verification and certification costs) aligns projects so that they can be placed in homogeneous batches. Think cow-methane capture (a pretty standardized and measurable process) rather than the installation of CFLs in rural home in Uganda, or biodigesters (whose measurement components are infinitely messier and more complex).

- As a result, standards are targeted toward big projects that can afford a lengthy, and expensive certification and verification process (due to high volume). The side effect is that ‘micro projects’ are all but nonexistent. The CDM classification for a micro project places the emissions bar at 5000 tonnes CO2e, which effectively excludes everyone without a herd of 3000 cattle. Or identical energy efficiency projects spread across 4000 identical homes with identical energy usage habits.

Back to Basics

All of this brings me back to what I see as an obvious point: the carbon market and associated standards, need to be redesigned according to the needs of the individual consumer. Enough with trying to force industry standards and expectations on your average Joe. The simple truth of the matter is that carbon markets are meant to change behavior (albeit by allowing certain people to change very little, if at all), and are currently ignoring the individual component of the carbon user community.

The result? Carbon offset buyers are faced with boring choices (plant a tree, cow excrement, open ocean iron filings) and potential sellers, individuals in the developed and developing worlds who should be rewarded for changing their behavior, despite the minute amounts of carbon emissions reductions achieved, are being ignored. Worse, carbon positive behavior (ie: switching from fire wood to a sun stove, normal lights to CFLs, etc.) as a mechanism for lifting people out of poverty, by encouraging such activities, is totally shut out.

Enough is enough. Carbon for Good has to work, or true change will forever be limited…