^{Chapter 7:}
Data

^{Chapter 7:}

^Data

Much of the scepticism surrounding carbon markets is linked to the inconsistent availability of reliable data. Trusted, transparent data is the cornerstone of a well-functioning market, yet current infrastructure falls short in several critical areas. Many registries still operate through analogue, paper-based systems, with outdated platform capabilities that make it difficult to locate, let alone evaluate, project-level data. This lack of accessibility hampers transparency and trust.

The landscape is fragmented: registries, carbon credit rating agencies (CCRAs) and monitoring, reporting and verification (MRV) bodies often apply divergent methodologies to similar project types. These competing approaches result in inconsistent carbon accounting and hinder fungibility. On the reporting side, buyers face confusion due to the proliferation of standards, each with its own position on the use of credits, further complicating efforts to assess quality and impact.

From a market structure perspective, ratings may help address the fundamental issue that carbon crediting methodologies represent a set of minimum requirements and rules which projects must follow to generate credits

7.1. Introduction: the importance of good data in the carbon market

The foundation of a functioning market rests on the availability of good data. Core data principles of accuracy, integrity, reliability, transparency, completeness and timeliness are essential qualities for fostering trust among market participants and ensuring market confidence.⁸¹

The importance of good data is especially applicable to VCMs, where many buyers harbour concerns over reputational risk. The market has, in recent years, been a subject that has drawn attention in the media for the wrong reasons. The Guardian’s 2023 investigation into Verra’s REDD+ programmes found that Verra was substantively over-issuing carbon credits. Journalists questioned evidence of additionality, overstatement of baseline scenarios, and a lack of monitoring post-issuance (although Verra has responded refuting the findings⁸²).⁸³ C-Quest Capital settled its case with the SEC and DOJ for involvement in defrauding its investor, via double counting.⁸⁴ These risks could be greatly mitigated with two key ingredients: high-quality, transparent data, and robust market infrastructure.

A lack of both has contributed to a key shift in market dynamics, from a largely spot market towards one that is dominated by offtake agreements. In 2021, the mix of traded value was 97% spot and 3% offtake, but this has now flipped to a 32% to 68% swing in favour of offtakes.⁸⁵ One reason for this change is that certain large buyers, who are purchasing carbon credits as part of their net zero ambitions or targets, are conducting their own due diligence processes instead of relying on the registries and validation and verification bodies (VVBs). Inconsistency in a project’s data quality has been a driving factor in the huge differences in carbon credit pricing.

_⁸¹_{DAMA International}_⁸²_{Verra Response to Guardian Article on Carbon Offsets - Verra}_⁸³_{Revealed: more than 90% of rainforest carbon offsets by biggest certifier are worthless, analysis shows | Carbon offsetting | The Guardian}_⁸⁴_{Jones Day;}_{The climate report}_⁸⁵_CDR.fyi_;_{Ecosystem Marketplace - Making the Priceless Valuable}_{; EY analysis}

An example is reforestation projects, where lower-integrity credits generally sell below US$1 a tonne, whereas high-integrity credits can sell much higher, with a transaction of US$120 a tonne reported, even though each project is (in theory) sequestering the same commodity – carbon.^86,87

This can be seen even for projects held under the same registry (and thereby should be conforming to the same standards). The Woodland Carbon Code (WCC), for example, holds UK-based, nature-based removals, and the price spread on its registry is high.

Table 4: UK Woodland Carbon Code data showing the difference between highest and lowest prices paid for their credits (spread price)

	2020	2021	2022	2023
No. WCC units sold	251,594	237,571	213,936	162,403
Volume weighted price (nominal)	£11.01	£15.13	£19.28	£23.30
Spread price	£130.59	£27.76	£40.00	£37.50

Source: WCC

High-quality data is key to unlocking growth in the market. As a start, it can drive more efficient decision-making and better market liquidity. Addressing the data quality challenges present in the market should help to mitigate reputational concerns and build credibility and integrity. As confidence in the data grows along with supply integrity, so demand for carbon credits should rise.

_⁸⁶_{Ecosystem Marketplace; study}_⁸⁷_{Woodland Carbon Code}

7.2. Improving carbon emission removals and reductions measurement

A central issue facing VCMs is the lack of standardisation around estimating and measuring a project’s carbon emission removals and reductions. Sellers typically go to a registry, which verifies, registers and issues carbon credits against a carbon project. The volume of carbon credits issued depend on the verification of the project design document (PDD) submitted by the project developer, which contains the calculation of estimated carbon removed or avoided by the project. The issued credits (excluding buffer) are subsequently sold to buyers.

The calculation of a project’s estimated carbon impact is conducted using a registry’s self-published methodology for a given project type. Often, for a project type, there are multiple methodologies developed by different registries. As of Q1 2024, 567 methodologies were identified, the number is expected to be even higher today⁸⁸. This means that, due to divergences in methodology and requirements, the registry or methodology that a developer uses can have a material impact on the carbon measurement. Such a variability undermines trust and creates uncertainty about the reliability of these estimates. It also provides an incentive for sellers to ‘shop around’ for the methodology that gives the highest volume of carbon credits. Markets should have one methodology per project type, which should be endorsed by a standards body, ideally the ISO and the ICVCM. Carbon markets should benefit from regulation around these methodologies, which are analogous to ‘models’ in financial markets. These models should be documented, validated and subjected to regulatory scrutiny, for example via Prudential Regulation Authority (PRA) ss1/23, which would go far to address the issue of trust.

_{⁸⁸ EY analysis, 2024}

Additionally, strategies to mitigate the risks associated with project delivery are inconsistent, leading to differences in projects’ environmental and financial outcomes. Registries can utilise a combination of mechanisms to manage risks and address permanence, but there is no standard. For example, in addressing permanence, the WCC typically requires long-term (e.g., 100 years) lease lock-ins with land suppliers for nature-based solutions (NBS) projects. This has stricter rules than, say Verra, which typically require 30-100 years, depending on the project type. A popular tool to manage risk is a buffer requirement, where developers are required to place a percentage of their credits into a buffer pool. These are held in an account with the registry to mitigate impacts of events, such as a reversal, and cannot be sold or traded. Again, requirements differ by registry. Certain insurance requirements provide an effective tool for creating permanence within carbon projects. For example, the WCC requires insurance for re-stocking where projects involve harvesting.⁸⁹

Indeed, in a detailed study of four projects across three registries, methodologies for calculating key components such as baseline emissions, leakage or additionality varied significantly.⁹⁰ Standard input data, for example, the conversion factor for Carbon to CO₂e, varied due to methodologies citing different source material. There was also discrepancies in the use of observed or standard input data. For example, comparing across reforestation projects, some relied on historical deforestation data, whilst others used data from predictive models. These resulted in differences in the final carbon impact value, ranging from slight to significant.

Recommendation

The market should prioritise standardisation and develop a consensus on which methodologies to use. A clear, agreed-upon methodology per project type, endorsed by a standards body such ISO or the ICVCM, and further endorsed by governments, would help to ensure consistent and comparable data across the market, improving the market's overall integrity.

Going further, regulatory bodies such as the PRA, should provide regulation around these methodologies.

_⁸⁹_{The Woodland Carbon Code | Woodland Carbon Code}_{⁹⁰EY analysis, 2024}

7.3. Enhancing registries through reliable data

Carbon credit registries play a crucial market role, tracking the issuance and retirement of carbon credits – in addition to owning project methodologies. Typically operating as non-profit organisations, they are facilitate the transaction of carbon credits between buyers and sellers.

Yet, their function to provide security and track ownership is at times undermined by data challenges. Analysis of four projects across three registries revealed a host of data issues. Left unaddressed, they are a risk to the buyer at a project level and an inhibitor of growth at a market-wide level.

1. Carbon project data

The registry requests project data from a project developer, which includes application of a relevant methodology, completion of a project design document and other relevant documents.

Documentation practices: There is a lack of standardisation in the way that PDDs are written, even for projects of the same type across registries. For instance, one PDD may be significantly more detailed than another, leading to inconsistencies in the understanding of project specifics. Projects have a significantly varying number of documents attached to them on the registry, with some projects attaching documents referenced in PDDs, and others opting not to. Furthermore, on some registries, documents are not ordered in a particular way, with multiple versions of the same document in the same place, making it difficult for a buyer to navigate to the correct version.
Data inaccuracies: Several instances of data inaccuracies were noted. For example, variations in buffer percentages, which act as insurance against reversals, have been observed between different documents of the same project, raising concerns over data accuracy.
Data format inconsistencies: Discrepancies in data formats were identified, for example, some projects using ‘,’ and others ‘.’ to indicate a decimal point.

These examples of poor data practices in PDDs can impact the credibility of a carbon credit, and hinder buyers’ and other interested parties’ efforts to verify project assumptions or assess the reliability of its emissions reductions or removals. Unreliable data increases financial risk, as buyers purchase credits based on asymmetric or inconsistent information. It can also complicate due diligence process for buyers and intermediaries alike. Additionally, it can also undermine fungibility across projects and registries, limiting the development of a liquid market. The development of market standard data models, possibly open source, could increase market transparency.

2. Carbon credit ownership data

Ownership tracking is critical to prevent double counting, especially with the increasing complexity of secondary market trading, where carbon credits are traded between buyers and with intermediaries. Inaccurate or incomplete tracking can lead to multiple claims and an inability to trace back to source, ultimately undermining market credibility. The market is fast-evolving and registries relying on traditional, manual processes for tracking credits may struggle to deal with high-volume, real-time data exchanges. Registries, or custodians of carbon credits, should evolve their capabilities to accommodate the increased complexities of ownership tracking in a secondary market. Digitisation should be prioritised, with each carbon credit ideally having unique identifiers, which should help with tracking.

Tracking retirement data is just as important, not least because it helps to prevent double counting of credits. Credit retirement activity is high, with 164 million credits retired in 2023.⁹¹ Yet a significant percentage of credits are retired anonymously; almost half of credit retirements remained anonymous in 2024, raising concerns about accountability and sustainability claims.⁹² Lack of transparency prevents stakeholders from understanding the true carbon impact of market transactions, reducing the overall effectiveness of the carbon market.

Recommendation

As the legal and accounting treatment of carbon credits becomes clearer, registries should evolve their capabilities to accommodate additional data requirements. This will likely require collaboration with other market participants, including governments, to help ensure that registries can manage the growing complexities of carbon credit ownership and transaction tracking.

Market standard data models should also be encouraged and actively developed. And registries should prioritise digitisation and centralisation of registry data, to facilitate greater accuracy and transparency.

_{⁹¹ BloombergNEF:}_{Carbon Offset Demand Hits Record in 2023 Off Huge December | BloombergNEF}_{⁹² Sylvera:}_{The State of Carbon Credits 2024}

2. Carbon credit ownership data

Tracking retirement data is just as important, not least because it helps to prevent double counting of credits. Credit retirement activity is high, with 164 million credits retired in 2023.⁹³ Yet a significant percentage of credits are retired anonymously; almost half of credit retirements remained anonymous in 2024, raising concerns about accountability and sustainability claims.⁹⁴ Lack of transparency prevents stakeholders from understanding the true carbon impact of market transactions, reducing the overall effectiveness of the carbon market.

Recommendation

_{⁹³ BloombergNEF:}_{Carbon Offset Demand Hits Record in 2023 Off Huge December | BloombergNEF}_{⁹⁴ Sylvera:}_{The State of Carbon Credits 2024}

7.4. Strengthening verification

Verification plays a critical role in helping ensure that carbon credits represent real, additional and permanent emissions reductions. Currently, there are three different players that can be involved in the verification process: validation and verification bodies (VVBs); monitoring, reporting and verification providers (MRVs); and carbon credit ratings agencies. Each offers differing approaches and proprietary methodologies (with differing degrees of transparency), whilst performing somewhat overlapping functions around verification. This highlights the issue of ‘competing sources of truth’, which can lead to confusion and a lack of trust in the verified data, particularly when that data is saying different things.

1. Validation and verification bodies (VVBs)

VVBs are responsible for assessing and confirming that carbon projects meet the required standards and methodologies (validation), and that carbon credits generated represent real, additional emissions reductions (verification).

Yet, whilst VVBs verify that carbon credits follow established processes and project design adheres to the correct methodology, they do not scrutinise the data in the design documents to confirm its reliability and accuracy. With verification, once a project has been registered and is generating credits, the frequency for verification is often either five or 10 years, which leaves large time periods where project performance is not tracked. This means that, in the event of a project reversal, it could take up to 10 years for that data to be updated in the registry to reflect this.

Where other verification providers (such as carbon credit ratings agencies) flag a reversal or a loss of credits before a VVB does so, this information does not always flow through and get reflected on the registry, indicating a lack of communication and interoperability between parties.

2. Monitoring, reporting and verification providers (MRVs)

MRVs do not conduct formal validation or verification of the project’s design or methodologies; instead, they continuously monitor carbon projects, using real or near-real-time data, often through technologies such as remote sensing, machine learning and predictive analytics, frequently in combination. They are third-party providers that work to provide data for both project developers, intermediaries and buyers.

Despite a clear need for digital methods to monitor performance, there remains inconsistencies in data standards and a lack of transparency in the models used by MRVs. With providers employing differing approaches and methods for verifying project performance, different results can be confusing. There are MRV providers that are more digital in nature (also known as digital MRVs, or dMRVs), harnessing cutting-edge AI technology to conduct verification, whilst others lean more towards manual methods, such as ground-truthing and on-site visits.

Where dMRV distinguishes itself is in its capability of monitoring near to real-time, which is helpful for tracking project performance and identifying issues such as catastrophic events (like a wildfire), in a timely manner. What’s important is that these findings are fed back through the value chain.

3. Carbon credit rating agencies

Carbon credit rating agencies are commercial organisations, which seek to address issues such as greenwashing and concerns around integrity. They do this by providing independent assessments and issuing scores or ratings for carbon projects and their credits, offering an additional layer of oversight. Buyers look to carbon credit ratings to inform them of the ‘quality’ of a carbon unit or project that they are investing in. This can form part of internal due diligence and/or risk management processes and help to select credits based on risk appetite. Each rating agency has its own proprietary methodology for evaluating project quality and impact. This often involves assessing risk against dimensions such as additionality, permanence, leakage (among others), to calculate an overall carbon score and rating.⁹⁵

The proprietary nature of these models can cause problems. Given that all models differ from each other, projects may be rated significantly higher or lower by different rating agencies, causing confusion and uncertainty. This is exacerbated by a lack of methodology transparency across agencies. Ratings are also reviewed on an ongoing basis; yet if a rating changes after purchase, there is no recourse to the ratings agency. Buyers and investors consequently may struggle to fully understand and depend upon its results.

There are two types of credit ratings: ex-ante and ex-post. Yet, ex-post rating of a carbon credit is inherently problematic because it undermines the binary nature of carbon accounting: either a tonne of CO₂e was genuinely avoided or removed, or it was not. Introducing gradations after issuance implies uncertainty where there should be none, eroding trust in the integrity of the credit.

Recommendation

To improve verification processes, the market should use digital tools as a standard. A combination of remote sensing, machine learning and predictive analytics should provide a baseline for MRV. There should be clear data standards, set by a standard setter such as ICVCM.

Methodologies and models for assessing carbon impact should be transparent and, ideally, consistent – rather than competing with one another. Through improved communication and interoperability across different types of verifiers (e.g., investing in APIs), to reduce inefficiencies and capture changes to a project’s performance, to help buyers manage risk and respond in a timely manner.

_⁹⁵_{The BeZero Carbon Rating methodology | BeZero Carbon}

7.5. Standardising reporting

The final stage of the carbon credit lifecycle is the reporting and disclosure of its use. Here, the user or purchaser of the credit faces an assortment of standards and guidance, the variety of which can cause more confusion than clarity. Each standard or framework provides guidance on carbon reporting, but their differing criteria and methodologies result in corporates needing to gather requirements and data to comply with each.

Table 5: A snapshot view of the high-level reporting requirements for carbon credits across multiple standards/guidance

Standard or framework	What they say on carbon credit disclosures	Mandatory or voluntary
Voluntary Carbon Markets Integrity Initiative (VCMI)	Requires companies to transparently report their use of carbon credits, ensuring that the quantity, quality and purpose of these credits are clearly disclosed.⁹⁶	Voluntary
Corporate Sustainability Reporting Directive (CSRD)	Emissions and carbon credits should be reported separately to enhance transparency.⁹⁷	Mandatory
Transition Plan Taskforce (TPT)	Companies should clearly define the role of credits in relation to interim residual emissions. Reporting should include governance, strategy, metrics and targets associated with these credits, as part of a company’s broader decarbonisation roadmap.⁹⁸	Voluntary
Task Force on Climate-related Financial Disclosures (TCFD)	Companies should disclose how they plan to integrate credits into their overall climate and decarbonisation strategy. This reporting should encompass governance, strategy, risk management and metrics related to credit integrity and their subsequent use.⁹⁹	Voluntary
European Green Claims Directive	Offers reporting guidelines that ensure transparency, by requiring evidence and separate disclosures for the use of credits against residual emissions.¹⁰⁰

_⁹⁶_{Voluntary Carbon Markets Integrity Initiative}_⁹⁷_Cloverly;_{Guide to EU CSRD}_⁹⁸_{IFRS (Transition Plan Taskforce resources)}

_⁹⁹_{Task Force on Climate Related Financial (TCFD) - aligned disclosure application guidance}_¹⁰⁰_Arbor:_{What is the EU's Green Claims Directive (GCD)}

A more standardised approach to reporting on the use of carbon credits can improve market effectiveness. For example, companies should transparently disclose how they plan to integrate credits into their decarbonisation strategy and this should include, and allow for, reporting against interim residual emissions.

Transparency in the reporting process should also be improved and the responsibility to do this largely sits with the C-suite of organisations, facilitated by the registries and other market infrastructure. In some cases, there is a lack of visibility around a company’s carbon credit purchases, strategy and intended purchases, with companies purchasing carbon credits, yet remaining silent on the topic in their annual sustainability reports.

A shift towards greater transparency is essential. Companies should aim to be more transparent with their stakeholders, acknowledging that their carbon strategies may evolve over time.¹⁰¹

Recommendation

Policymakers should work together with market participants to adopt a standardised reporting framework that will: (1) help to ensure that that carbon credit transactions are auditable in the future and (2) improve transparency and communication with stakeholders.

CEOs should be encouraged to transparently communicate their carbon credit purchases and strategies.⁹⁹

_¹⁰¹_{Sustainable Markets Initiative: Engaging CEOs: Voluntary Carbon Market Mobilisation Guide}