Sylvera’s approach to ARR carbon ratings

As of April 2022, over 52 million credits have been issued from ARR projects, making up ~3% of the total credits issued to date in the voluntary carbon markets (VCMs). In addition, there are ARR projects registered in 49 countries, with ~40% of issued credits coming from South America.

Sylvera's ARR framework covers projects across geographies, registries and methodologies. Our initial ARR carbon ratings covered over 30% of issued ARR credits, as well as some pre-issuance projects.

By the end of 2023, we rated 70% of the issued ARR credits. What about the other 30%? ARR credits follow a power law distribution, where there are a few projects that have large issuances and a long tail of projects with very small issuances.

More significantly, however, a large portion of the projects on the long tail have insufficient data, which means that Sylvera is not able to conduct a comprehensive assessment of quality. The most common type of data missing is a shapefile (the geographic boundary of the area for which credits are being claimed), and Sylvera has made repeated requests to developers to share this fundamental information.

Unfortunately, in many cases we have received no response, which makes it impossible to fully evaluate the integrity of a project. After all, if you don't know where the trees have been planted, how can you be confident these projects are delivering the carbon benefits they promise?

How Sylvera thinks about ARR carbon credit quality

Sylvera develops project-type specific frameworks to capture material attributes of carbon projects and create comparable quality metrics that enable users to transact with confidence.

Our carbon credit ratings for ARR projects synthesize data from diverse sources including: project documentation, multimodal remote sensing data, climate modeling, historic weather data, socioeconomic data, media sources, government policy documents, academic publications, and proprietary machine learning models. These data sources inform our sub-indicators that roll up into our Sylvera rating and core scoring pillars.

Sylvera rating

Our Ratings are derived from a combination of carbon, additionality, and permanence scores.

These three core pillars are combined in a series of matrices to ensure that underperformance in one area does not get overshadowed by high performance in others. 

Carbon score

Our carbon score validates whether the project has delivered on its claims to reduce carbon emissions by comparing Sylvera detected tree coverage and loss events with data reported by the project. We leverage proprietary machine learning (ML) models and satellite data to track the performance of the project area, utilizing canopy height as a proxy for forest growth and loss.

Additionality

Additionality assesses the likelihood that carbon revenue enabled the implementation of project activities that delivered carbon removals. If project claims regarding carbon sequestration would have occurred without revenue from the sale of carbon credits then they are not additional. We also assess over-crediting risk, or the extent to which a project's issuance volume is justified, by leveraging our proprietary ML models and satellite data. 

Permanence

Permanence measures the risk that the carbon stock of the project will not remain intact for an atmospherically significant time period. We have designed an additive risk model that analyzes the likelihood and severity across 6 pillars of risk: pests & pathogens, fire, anthropogenic (human), flood, storm & wind, and drought. 

Co-benefits

Co-benefits are scored from 1 to 5 and are a useful quality heuristic, but their score is not included in the overall Sylvera Rating as they do not influence the carbon impact of a project. We assess the environmental impact of project activities on biodiversity over time, and community impact through the lens of the United Nations Sustainable Development Goals (UN SDGs) and its core carbon principles.

Learn more about how we use machine learning in ARR assessments.

Insights into Sylvera's ARR carbon credit ratings

Our assessments reveal, in general, that many ARR projects are not high quality and, therefore, do not contribute much to the low carbon economy through world needs.

There are systemic additionality issues impacting a significant volume of credits on the market. This is because carbon prices have not been sufficiently high to incentivize high quality ARR projects that meet additionality criteria. While there are some high quality REDD+ projects at low offset prices, high quality ARR projects come with elevated capital and operating costs associated with planting, restoration, and maintenance activities. (Though, costs aren't as high as for engineered carbon removals.)

A large volume of the current ARR credits on the market are not financially additional and have tenuous permanence. Projects that do not require carbon revenue to be sanctioned are not additional, as these projects do not represent a climate benefit above a business-as-usual scenario. 

• A carbon project is very unlikely to be additional, for example, if it is planting eucalyptus in a region where timber companies operate eucalyptus plantations without revenues from the sale of, and the plantations are not remote (far from roads or in a higher cost area). 
• Tenuous permanence, or risk to long-term carbon sequestration, is seen in single-species (monoculture) planted forests due to enhanced susceptibility to climatic variations, such as drought, as well as pest and disease outbreaks.

ARR project case study

Here is a snapshot of one ARR project in Uruguay that we have recently assessed and rated. The project receives an overall rating of C and particularly low scores for Additionality and Co-benefits.

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The outlook for ARR carbon projects

The tides in the carbon market have shifted.

Booming demand along with a waning supply of the cheapest carbon credits in the market will likely encourage developers to set up more high quality projects. Doing so will have two benefits: it will help developers receive better scores from ratings agencies and allow them to charge higher credit prices.

Crucially, carbon credit buyers may also be incentivized to enter into long-term offtake agreements to secure credits, enabling developers to cover the high up-front costs associated with truly additional ARR projects. 

There are high quality ARR projects in development, but they will be significantly more expensive than the available credits on the market today. And there will be limited supply. Savvy buyers, who have operated in the VCMs for a while anticipated this credit crunch, have moved upstream, securing their volumes before credits make it to the general market.

What's more, the SBTi requires all offsets to be removals credits, but given the shortage of high quality removal credits on the market, buyers are left wondering how they can deliver credible climate commitments when there's such little high quality supply.

Promoting removals over avoidance credits ignores the complex realities of carbon credit quality, and applying superficial quality criteria to credit assessments opens buyers up to reputational risk and greenwashing claims. Moreover, it actively reduces our chance of staying below 1.5°C.

Strengthen your ARR investment portfolio with Sylvera

As mentioned, Sylvera conducts independent assessments to determine the quality of ARR projects. We use a rating scale that ranges from AAA to D, with AAA being the highest score a project can receive.

Our Project Ratings make it easy for corporate buyers and investors to conduct due diligence, identify risk factors, pinpoint high quality credits, and make smart buying decisions. Our platform is also loaded with proprietary data we collected using the latest geospatial tools and methodologies.

The result? You get the quality credits you need while meeting your company's unique climate goals. Plus, you have peace of mind knowing you made informed decisions. Request a demo to learn more.