| Practice area: | Space |
|---|---|
| Client: | N/A |
| Published: | 27 September, 2022 |
| Keywords: | #Earth Observation carbon markets environment EO Net Zero space economymarket efficiency Space in Focus Sustainability |
On the path to net zero, carbon offsets promise to assist companies in lowering their greenhouse gas emissions and transition to carbon neutrality. But a lack of standardised verification and insufficient monitoring of these voluntary carbon markets leave room for fraudulent offsets. In this issue of Space in Focus, Greta Dohler explores how satellite-based Earth Observation could contribute to achieving greater transparency in voluntary carbon markets.
In order to limit global temperature rises to 1.5°C, the IPCC concluded that global greenhouse gas (GHG) emissions[1] must fall by 48% by 2030 compared to 2019, and by 80% by 2040[2]. In response, many countries have pledged to lower emissions to reach net zero[3]. In addition, many companies and organisations have set their own targets to become carbon neutral.
While lowering GHG emissions is the most effective and most important tool in limiting global warming to 1.5°C, the transition away from fossil fuels is both financially costly and time consuming. This means many organisations are likely to still generate emissions by 2050. Certain industries, such as construction, goods transport, or agriculture may never be able to fully decarbonise. To achieve net zero, any remaining positive GHG emissions can be offset with ‘negative’ emissions, as shown in Figure 1.
Figure 1: Global GHG emissions (GtCO2e) per year to achieve net zero
Source: World Resources Institute (2019)
Carbon offset markets
The logic of carbon offsetting holds that emissions can be offset either by directly removing carbon from the atmosphere, or by avoiding emissions that would otherwise have been produced. Organisations can purchase an offset equal to one tonne of CO2e emissions, balancing out one tonne of emissions. Carbon offsetting thus presents an opportunity to achieve carbon-neutrality despite retaining some non-zero level of GHG emissions. The voluntary carbon market also helps to direct private finance towards climate mitigation, since money from carbon offset purchases can provide essential financial support for projects that protect and restore vital ecosystems.
A study from Berenberg estimates that the global carbon offset market could be worth $200 billion by 2050, compared to $0.6 billion in 2019[4] and $1 billion in 2021[5]. This is far smaller than the value of mandatory carbon permit markets (including the EU ETS[6]), which stood at $44 billion in 2018[7]. The carbon offset market currently represents just under 300 million tonnes of CO2e, or less than 1% of global emissions[8], though this is set to grow as more countries begin transitioning to net zero.
Carbon offsetting projects either reduce GHG emissions compared to a hypothetical baseline scenario, or they remove existing emissions from the atmosphere. Projects involving renewable energy generation, protecting forests from deforestation, or increasing energy efficiency of buildings or industrial processes are examples of projects reducing emissions. Tree planting, methane recapture, or wetland restoration extract emissions from the atmosphere. In 2021, around 90% of offsets sold were from emission reductions[9].
Criteria for carbon offsets
Offsets must meet requirements to ensure that carbon emissions really are avoided or reversed[10]:
- Additionality: provably additional to existing efforts – cannot be a project that would have occurred (in the same scale) even in the absence of the offset project.
- No double counting: reductions should only be recorded once.
- No leakage: reducing emissions in one place should not lead to higher emissions elsewhere.
- Permanency: impact of projects should not be reversed in the future.
- Verification: the emissions reductions of the carbon offset projects need to be monitored and verified, ideally by an accredited and independent third party.
Carbon offset market inefficencies
The main issue in voluntary carbon markets is that there is no single verification mechanism, raising concerns over the verifiable contribution of offsets. For example, Compensate found that only 10% of the offsets on the market are delivering the verifiable action they promise[11]. Instances of outright fraud have been discovered, where offsets have been sold by projects failing to achieve negative GHG emissions. In California, CarbonPlan researchers discovered that $400 million worth of offsets were sold without absorbing a single tonne of CO2e[12]. Monitoring is made difficult by the fact that many carbon offset projects are located in different countries or regions than the companies purchasing the offsets. Among the various third parties that verify carbon offsets, companies cannot always distinguish real offsets from fraudulent ones. Companies may also have little incentive to pay a higher price for higher-quality verification when there is no enforcement mechanism and hence no tangible reward for doing so.
If carbon offsets lose widespread trust due to quality concerns, the voluntary carbon offsets market will fail to produce emissions offsetting or drive capital to credible carbon removal and reduction efforts. To prevent precisely this, there are efforts to ensure common frameworks are used and enforced across offset projects. Among the most common standards are the Verified Carbon Standard (VCS), the Gold Standard, and the Climate Community and Biodiversity Standards (CCBS).
The role of Earth Observation in carbon markets
Even if common frameworks are used to certify offsetting projects, frequent monitoring is costly and often difficult to implement. This is especially true of projects that are in remote locations or spread over large areas, as they require lots of personnel or equipment such as drones to monitor. If trees in forest protection or tree planting projects burn down, are cut down, or die from infestation before reaching a certain size and age, the project fails to capture its target amount of carbon equivalents. Emissions are then not actually offset.
To improve monitoring and hence the credibility of verification, space-based technology can provide a solution through Earth Observation (EO). The ease and low marginal costs of extending the geographical coverage of a remote sensing satellite to a new area result in highly scalable monitoring. Space-based EO solutions support consistent, wide-area, scalable, repeatable monitoring that allow regular change detection as well as hot-spotting over hard-to-reach areas. These solutions have consistently been shown to be more cost-effective than conventional terrestrial methods (e.g. aerial or in-situ surveys) for mapping and environmental monitoring[13], proving to be up to seven and twelve times more cost-effective than non-space-based solutions for agriculture and forestry applications, respectively[14]. These capabilities can also be directed to identify additional land suited for restoration.
For forest projects, combining satellite remote sensing and Geographic Information Systems (GIS) provides a powerful tool for the accurate estimation of forest cover and forest carbon content, enabling the verification of data presented by the carbon offset projects. Following acquisition of forest cover data, changes can be detected and quantified by investigating the difference in forest cover between consecutive years. Artificial Intelligence and machine learning tools can facilitate analysis of satellite data to measure and report carbon stocks in trees, vegetation, and soil to measure permanence, additionality, and leakage for forests, wetlands, mangroves, and other environments. There are different satellite measurements that are useful for carbon stock mapping, including synthetic aperture radar (SAR), light detection and ranging (Lidar), optical, or a combination of these[15]. Figure 2 shows the estimated carbon stocks for orchards in Thailand from collected data on height and diameter for a number of trees combined with Landsat 8 imagery.
Figure 2: Estimated carbon stocks of orchards in Thailand
Source: Technology for Wildlife Foundation (2019)
There are over 900 EO satellites currently in orbit[16] that could provide such data. Most are government agency satellites, including the Sentinel satellites from the Copernicus programme, or NASA’s LandSats. There is also an increasing supply of EO satellites from private companies such as Planet or Maxar. Planned missions like the 2023 Biomass satellite, the world’s first satellite to study the forests in 3D, can provide further information about the state of the world’s forests[17]. Biomass is part of ESA’s Earth Explorer missions, a range of smaller research missions each dedicated to specific aspects of the Earth’s environment. The satellite will carry a novel P-band synthetic aperture radar, designed to deliver crucial information about the state of the world’s forests at a spatial scale of 200m. Whereas previous satellites have only used L-band frequency, the P-band frequency is low enough to ensure penetration through the entire canopy, even in dense tropical forests. This enables 3-D mapping of forests and biomass density[18].
One complication is that the data volume generated from EO missions and their various sensors requires extensive data acquisition, handling, and analysis capabilities to obtain useful insights from satellite imagery and remote sensing. Most participants in the offset market, including buyers, sellers, and verification intermediaries, currently lack the in-house technical capabilities required to monitor and verify the legitimacy of carbon offsets using satellite information.
There are already existing partnerships between the European Space Agency and companies that intermediate between projects and businesses that want to purchase offsets. Some technology start-ups focus on providing easy-to-use web-based interfaces that facilitate access to satellite imagery without needing in-house data analysis. Examples include Earth Blox[19], which partners with Google and Planet. Other companies offer additional verification of projects using satellite imagery on top of existing verification frameworks. The Gold standard, VCS, and CDM usually audit carbon offsets every 3-5 years. Using EO would allow quarterly or annual auditing and reporting, improving the accuracy of monitoring and accountability for projects that may otherwise not uphold their promised emission reductions.
However, the key to ensuring trust in voluntary carbon markets are common principles for verification and monitoring of carbon offsets. EO alone cannot ensure trust and accountability within voluntary carbon markets if there are no enforceable standards to ensure compliance. Thus, the role for EO as a tool for verification and monitoring is contingent on the development of common principles that hold companies selling or buying false offsets accountable.
Earth Observation: a solution waiting for standards
Carbon offsetting will not single-handedly provide the solution to the climate crisis; a keen focus should always be maintained on lowering overall emissions. However, offsetting can provide a vital tool for remaining emissions that cannot (yet) be avoided, especially for hard-to-abate industries or during the transition to zero-emissions technologies like green hydrogen. Offsetting the remaining emissions, while simultaneously working on lowering gross carbon emissions, may provide the pathway we need to achieve net zero by 2050 and help direct finance toward much-needed protection and restoration of ecosystems such as forests, wetlands, mangroves, or coral reefs.
Current issues surrounding carbon offsets relate mainly to insufficient monitoring and the lack of a standardised verification mechanism. Space-based Earth Observation (EO) solutions support consistent, wide-area, scalable, repeatable monitoring, change detection, and hot-spotting over hard-to-reach areas and have consistently been shown to be more cost-effective than conventional terrestrial methods such as aerial or in-situ surveys for environmental monitoring.[20] These characteristics mean that EO can improve the accuracy, cost, and scalability of carbon offset verification and monitoring.
With voluntary carbon markets expected to grow from $1 billion to $200 billion between 2021 and 2050, verification and monitoring becomes increasingly important to ensure trust in the market as well as making sure that GHG emissions are actually offset. The potential for space in the monitoring process increases as the quality and coverage of EO satellites and the variety of sensors improve. With developments in both the public and private sphere of EO, accompanied by a growing number of intermediaries to handle the growing volume of data, the role for space in the domain of carbon offsetting could grow significantly over the coming years.
However, the main issue that the voluntary carbon market faces is the lack of standardised principles and a widely accepted and trusted verification process, including continuous monitoring requirements. Hence, the potential for EO as a tool for verification and monitoring is contingent on the development of a common framework that ensures credibility and trust.
Greta Dohler is a former employee of London Economics’ Space team. She is currently pursuing an MPhil at the University of Oxford. The Space team can be reached at: [email protected] or you can visit the team’s webpage here to view previous editions of Space in Focus.
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Footnotes
[1] Greenhouse gases contribute to the greenhouse effect. The Kyoto Protocol covers six GHGs produced by human activities: emissions of these gases taken together are measured in terms of carbon dioxide equivalents (CO2e) on the basis of their global warming potential. Source: EEA Glossary
[2] IPCC. (2022). ‘Climate Change 2022: Mitigation of Climate Change.’ Available at: https://www.ipcc.ch/report/ar6/wg3/
[3] Net zero, or carbon neutrality, means bringing GHG emissions as close to zero as possible, with any remaining emissions re-absorbed from the atmosphere, oceans or forests or through direct carbon capture. To keep global warming to no more than 1.5°C, emissions need to be net zero by 2050. Source: United Nations. Germany and Sweden have set legally binding net zero targets for 2045; France, the UK, Denmark, Spain, and Hungary set theirs for 2050. Source: https://commonslibrary.parliament.uk/global-net-zero-commitments/
[4] S&P Global. (2020). ‘Global carbon offsets market could be worth $200 billion by 2050: Berenberg.’ Available at: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/natural-gas/051320-global-carbon-offsets-market-could-be-worth-200-bil-by-2050-berenberg
[5] Hale, T. (2022). ‘The carbon offset market is falling short. Here’s how to fix it.’ Financial Times, May 5, 2022. Available at: https://www.ft.com/content/32b1a051-7de6-4594-b31b-753e78aefde1
[6] In the EU, certain industries are obliged to limit emissions according to a certain allowance under a mandatory cap-and-trade system. This so-called EU Emissions Trading Scheme covers the power generation sector, energy-intensive industries (including oil refineries, steel works, production of iron, aluminium, metals, cement, paper, glass, chemicals), and intra-EEA aviation. Source: European Environment Agency. (2022). Available at: https://www.eea.europa.eu/publications/the-eu-emissions-trading-system-2
[7] S&P Global. (2020). ‘Global carbon offsets market could be worth $200 billion by 2050: Berenberg.’ Available at: https://www.spglobal.com/commodityinsights/en/market-insights/latest-news/natural-gas/051320-global-carbon-offsets-market-could-be-worth-200-bil-by-2050-berenberg
[8] Hale, T. (2022). ‘The carbon offset market is falling short. Here’s how to fix it.’ Financial Times, May 5, 2022. Available at: https://www.ft.com/content/32b1a051-7de6-4594-b31b-753e78aefde1
[9] Grantham Institute. (2022). ‘What are carbon offsets?’
[10] McKinsey. (2020). ‘How the voluntary carbon market can help address climate change’. Available at: https://www.mckinsey.com/business-functions/sustainability/our-insights/how-the-voluntary-carbon-market-can-help-address-climate-change
[11] Compensate. (2021). ‘Only a few carbon projects meet basic criteria for climate integrity, human rights and more.’ Available at: https://www.compensate.com/articles/whitepaper-carbon-projects-sustainability
[12] CarbonPlan. (2021). ‘Systematic over-crediting of forest offsets.’ Available at: https://carbonplan.org/research/forest-offsets-explainer
[13] London Economics. (2019). Value of satellite-derived Earth Observation capabilities to the UK Government today and by 2020. Available at https://londoneconomics.co.uk/wp-content/uploads/2018/07/LE-IUK-Value-of-EO-to-UK-Government-FINAL-forWeb.pdf
[14] London Economics. (2019). ‘Economic evaluation of the International Partnership Programme (IPP): Cost-effectiveness Analysis.’ Available at: https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/833420/UKSA_IPP_Cost_Effectiveness_Analysis_-_FINAL_for_web.pdf
[15] Goetz et al. (2009). ‘Mapping and monitoring carbon stocks with satellite observations: a comparison of methods.’ Carbon Balance and Management, 4(2). Available at: https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2667409/
[16] Geospatial World. (2021). ‘How many satellites are orbiting the Earth in 2021?’ Available at: https://www.geospatialworld.net/blogs/how-many-satellites-are-orbiting-the-earth-in-2021/
[17] UK Space Agency. (2021). ‘Case Study: Biomass.’ Available at: https://www.gov.uk/government/case-studies/biomass
[18] EO Portal. ‘Biomass monitoring mission for carbon assessment.’ Available at: https://directory.eoportal.org/web/eoportal/satellite-missions/b/biomass
[19] See https://www.earthblox.io/
[20] London Economics. (2019). ‘Value of satellite-derived Earth Observation capabilities to the UK Government today and by 2020’. Available at https://londoneconomics.co.uk/wp-content/uploads/2018/07/LE-IUK-Value-of-EO-to-UK-Government-FINAL-forWeb.pdf