April 3, 2023

What We’ve Learned from Building Our First Climate Action Portfolio

TIME CO2 Portfolios

The article discusses lessons learned from building TIME CO2's first climate action portfolio, called Planet. Here, we share a few of our many insights and learnings from the journey.

There are hundreds of local, regional, and global organizations working hard on climate change. I know this because I’ve worked at a few of them. So how difficult could it be to build a climate action portfolio with high-quality projects that cover carbon removal, carbon emissions reduction, nature protection, and climate innovation? Turns out, it’s pretty hard. TIME CO2’s first portfolio, Planet, is the product of extensive research, advice from dozens of experts, and months of hard work. At TIME CO2, we've undertaken extensive research, consulted dozens of experts, and spent months working on our first portfolio, Planet, which is transparently documented on our website. Here, I share some of our lessons learned from building the Planet portfolio.

1. Quality is a gradient, not a binary

Calls for quality in carbon markets paint the concept of ‘high-quality’ with a broad brush, as if there’s some universally-accepted definition of quality. It was critical for us at TIME CO2, therefore, to be clear about what we mean by quality openly and transparently. For us, quality is a function of non-negotiable climate impact (evaluated through additionality, permanence, and leakage criteria), demonstrable positive benefits for nature and communities (not just doing no harm), and robust project design and delivery (read more about our quality criteria here).

While the reality is that each buyer has their own criteria for “high-quality,” some issues should justifiably be considered elimination criteria, and others require thinking very carefully about tradeoffs. Can measurable and certified benefits to vulnerable communities compensate for a moderate over-estimation of climate impact? Can a removals project with short-lived soil carbon storage be considered as legitimate as permanent carbon removal, especially when the supply of permanent carbon removals is scarce today? 

If a project would have gone ahead even without the carbon credit revenue (such as a renewable energy project that also had government subsidies and power purchase agreements in place), then its additionality and therefore the climate value of the carbon credits is highly questionable. If you come across a project that issued 500% more credits than its true climate impact, there was probably an intentional inflation of a baseline to generate more credits than impact achieved —which in our view is unacceptable. But some project shortcomings may be redeemable when taken in context, such as a minimal amount of over-crediting (where buyers might choose to buy a higher volume and claim less), or buying 2 or 3x of the shorter-duration carbon storage projects.

Ultimately, each project we picked had a combination of a strong climate impact, high chance of credit delivery and quality project execution, and quantified benefits to nature and communities. I was inspired to know that supporting putting (bio)oil back underground could create green job opportunities for former oil and gas workers. I was proud to support innovations that captured potent methane gas and turned it into fuel. And humbled to learn from the wisdom of an all-woman community association protecting their mangroves in Ecuador.

2. The projects with the highest carbon impact are often the ones you’d least expect

Most carbon credits are generated from avoided emissions rather than removed emissions, and shockingly cost as low as $1-3 per ton of CO2. Carbon markets currently have no systematic mechanism to differentiate between a ton of avoidance and a ton of removals, and these are also treated equally when claimed as offsets. As a result, price per ton has been the main differentiator among credits, with little to no correlation between price and quality.

That places the onus of due diligence on buyers, who often prioritize projects based on co-benefits to communities and the broader environment.

While a triple win is always favorable, some of the least charismatic projects tend to be the ones that add the most additional value. These include the destruction of ozone-depleting substances and nitrous oxide (N2O) emission reductions at adipic acid production facilities. The photos and stories aren’t the most appealing, but these projects are unequivocally additional and worthy of funding.

3. Beware of fuzzy science

The field of carbon removals is buzzing with activity. We learned that while it's easy to get carried away with the excitement, it’s critical to interrogate and examine the underlying assumptions in many new removals technologies. Our due diligence process found that many estimates are based on lab findings rather than empirical estimates. Some make dangerous generalizations. As a result, we delayed consideration of some prominent removal companies from our portfolio and look forward to seeing methodologies improve to keep up with the latest scientific methods.

4. Third-party verification is important and not a given for many projects

Many new removals technologies are not standardized, and use their own methodologies and registries. This means that the project implementation, as well as the monitoring, reporting, and verification, is sometimes all done by the same party. In many cases, buyers accommodate these new technologies by manually auditing or visiting project sites to verify outcomes. But not all buyers have the time, resources, or capability to do so.

Though it adds to project costs, TIME CO2 believes that third party verification or auditing should be included for all projects. And where it may not be offered, we work with suppliers on timelines to establish verification. Otherwise, the market is being held up by an honor system that will not be able to earn the trust required for the market to scale.

5. Negotiating a legal agreement for carbon is a key step of the process

Carbon is regulated as a commodity in the United States (where TIME CO2 is based), and while all purchase agreements include common elements, standardized templates don’t yet exist for the purchase and sale of carbon credits. All master purchase agreements need to include terms addressing pricing, timing of delivery, amount of prepayment, disbursement schedule, reporting requirements, and volumes, as well as legal terms of liability in the event of default. Developing and negotiating these agreements is often the most onerous process, because of the unique needs of the buyer and seller.

We also created a completely different template (what we called a “Sustainable Outcome Agreement”) to account for projects with expected carbon mitigation outcomes that would not be generating credits, and otherwise often overlooked and underfunded, e.g. protection of existing carbon stocks and innovation projects. Building this new type of agreement was a lengthy but important step of our process, and enabled us to include a more diverse set of projects in the portfolio.

6. Carbon credits must be retired after purchase

The retirement of a carbon credit is perhaps the most important part of its life cycle. Retiring a carbon credit means that it can never be traded again, and the claim stays with the buyer who retired the credit. This prevents double (or even triple) counting and claiming of the impact of the credit. Tokenization of retired carbon credits, therefore, was recently prohibited by credit registry Verra. We thought carefully about how to create a system that could guarantee the retirement of credits in our portfolio via transparent publication of the ‘chain of custody’ of every credit we purchase, and ultimately decided to ask our supplier partners to retire credits on behalf of our customers automatically upon purchase by TIME CO2.

7. It's critical to establish precedence for inclusivity

At what point do criteria become overkill and stifle innovation? We found that we need to strike a balance between stringent requirements and trusting our suppliers. If we wait for a perfect solution, we rule out a lot of innovation or exclude newer market participants. 

For example, some of our projects that involve Indigenous People or local communities had to go through a process called free, prior, and informed consent (FPIC), allowing these communities to give or withhold their consent to a project that might affect them or their territories. With our timeline sometimes unable to account for an unpredictable amount of time needed for FPIC to take place before approval, we sometimes include FPIC as a milestone in our project timeline, with the project start and funding disbursement taking place after FPIC has been fulfilled. 

Further, we tailor each agreement to accommodate diverse projects and technology readiness levels while ensuring successful project completion. In some cases we include conditions in the legal agreement requiring suppliers to submit documentation and follow-on proposals to ensure steady progress toward outcomes on the monitoring, reporting, and verification (MRV) protocols. A clear requirement for our protection projects, for example, is that funding is contingent on no more than 5% loss of the aboveground biomass levels (and therefore amount of aboveground carbon) being protected.

Our approach is to work with project developers to constructively address our concerns rather than disqualifying entire project types.

8. We can innovate outside of the carbon market without undermining it

There are good things about the carbon market. Markets help to reduce the cost of decarbonization. They have brought structure to climate investment project types, stimulated research, and inspired a whole new industry. The carbon market should and will grow. But, it’s not the only vehicle through which we should look to address climate change. And exploring options outside of the carbon market doesn’t mean we don’t believe in it.

The future of climate action demands radical solutions unencumbered by legacy systems. This insight led to the design of our portfolio with its unique blend of projects and impacts both leveraging the carbon market, and including projects outside of it to integrate nature-based and community-led solutions. There’s a lot more innovation out there, and we hope to help scale those innovative ideas to be the climate beacons of the future.

We invite you to keep following our journey as we continue to bring you the highest quality, science-backed Climate Action Portfolios.

Want to learn more about TIME CO2?

Shyla Raghav

Co-Founder, Chief Portfolio and Partnership Officer, TIME CO2. UC Irvine & Yale grad. Has shaped climate programs at World Bank, UN, and Conservation Int'l.