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Carbon Ratings

Pre-Issuance Primer: what you need to know about investing early in carbon projects

August 31, 2023

Corporates of all sizes are going upstream, or in other words, funding projects early in development before credits have been issued, to secure high-quality supply. Buyers are looking for independent assurance of over-crediting, additionality and permanence risks and are keen to understand delivery risk from early-stage projects.

Discounting provides carbon market participants one way to utilize average-rated credits available today and account for imperfection. Investment in upstream projects, on the other hand, catalyzes the growth of high-quality credit supply.

The stage of a project in the crediting lifecycle can create unique risks and opportunities. Here’s what you need to know.

What is the lifecycle of a carbon credit?

Different registries use different language to describe their documentation and crediting process, but the process is largely the same across registries. The diagram below outlines the general process of how a carbon credit becomes available for purchase and retirement. It is important to keep in mind that it can take years for a project to get from the initial ideation, planning and development phase to the stage where it can actually deliver credits to the market.

Sylvera uses the terms Pre-Issuance Projects and Issuing Projects to distinguish between projects that have delivered verified credits to market and those that have not yet

You may also encounter the terms ex-ante and ex-post. Ex-ante means “before the event;” in the context of carbon credits, the event is verification and subsequent release of credits by a registry. Ex-ante credits have not been verified or released to the market and, therefore, cannot be retired immediately. 

Ex-post means “after the event” and ex-post credits are those that have been verified and released by a registry. These credits can be purchased and retired immediately. 

In the pre-issuance phase, a project’s credits are entirely ex-ante. Based on the typical structure and cadence of the project lifecycle, an issuing project can have both ex-ante and ex-post credits. 

The first major piece of documentation a project typically creates is one that defines the project design—for example, which methodology and modules are used, additionality, location and other key data. In the early stages, the project developer will outline the expected volume of credits, typically defining the expected number of credits for each year of the project lifetime.

Projects can only issue verified credits based on emissions reductions or removals that have already happened. An issuing project will have periodic releases of credits, typically spread several years apart due to the cost of issuing credits and the required verification processes.

Sylvera’s carbon credit ratings are an ex-post assessment – in other words, conducted after the project has been up and runningof the quality of credits that have been delivered to market. Our assessments are updated at a regular cadence when new data is available, including when a project has a periodic issuance. 

Pre-issuance projects face unique risks. Corporate retirees, investors, and insurers are increasingly looking to invest in these early-stage projects. Upstream investments can provide confidence and a sense of control because they give buyers a more reliable supply of credits and an opportunity to improve the quality of projects. For financiers, it’s an investment opportunity that looks a lot like more traditional project finance.

How pre-issuance projects create high-quality supply

Sylvera’s mission is to incentivize investment in real climate action. There is significant capital locked up on the sidelines, waiting to be invested in pre-issuance carbon credit projects. By using our proprietary frameworks to assess pre-issuance projects, we help investors identify the merits and risks associated with these unique investments.

Upstream investments are essential to create the scale of high-quality supply needed to underpin corporate climate compensation and net zero action plans. Sylvera’s independent assurance built on rigor, depth, and data is the momentum needed to unlock capital and set the flywheel in motion. 

To learn more about Pre-Issuance assessments, download the primer or book a demo.
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About the author
Senior Technical Climate Consultant

Annalise Downey is a Senior Technical Climate Consultant at Sylvera, helping market participants define their carbon strategy and navigate the voluntary carbon markets. Annalise was brought in during the early days of Sylvera as a member of the ratings team, analyzing carbon projects and helping to develop project-type frameworks including REDD+ and ARR. Annalise brings experience in commercialization and new product development as co-founder of a subsea remote sensing company. She is passionate about bridging disciplines to develop data-driven and scalable solutions to tackle climate change.