Behind the scenes

«South Pole sells valid credits only»

7.3.2023

Translation: Katherine Martin

With every 10th purchase, our customers offset their climate footprint with carbon credits from South Pole, the world’s leading climate company. Over the last few weeks, some media outlets have claimed that not all of this is above board. We decided to ask South Pole CEO Renat Heuberger himself.

For some weeks now, the media has been awash with criticism of «Kariba», an African forest protection project South Pole had been commissioned to develop – and one that’s benefitted from CO₂ compensation payments generated by Digitec Galaxus. On 21 February 2022, for instance, Swiss newspaper «Der Bund», wrote: «As international research recently revealed, forest protection projects in particular are based on forecasts that are sometimes massively overestimated. Kariba, too, was overestimated by 50 per cent, as South Pole admits. The organisation has stopped selling credits from the project for the time being.» We asked Renat Heuberger, founder and CEO of South Pole, whether these and other statements were true.

If the articles published by some media outlets are to be believed, investigative journalists have got wind of a scandal. They say, for example, that South Pole sells carbon credits for forest protection projects, even when no CO₂ has been compensated. Or, to put it another way, that South Pole is hoodwinking customers and lining its own pockets in the process. What do you say to that?

South Pole only sells externally certified emission reductions. Each credit confirms the reduction of one tonne of CO₂ emissions. All of the calculations are transparent and the project documentation is publicly available.

By the way, as a project developer, we ourselves can’t issue credits. The only ones who can do that are organisations like VERRA. Since we were founded in 2006, South Pole has hardly paid out any dividends, instead investing virtually all of our surplus in further growth and additional projects. We value informed critique and take it very seriously. But this «scandal» is nothing of the sort. The real scandal is the misleading reporting being done by some elements of the media. It harms climate protection efforts as well as the communities on the ground, whose prospects of a better life are improved thanks to these projects.

Doesn’t a general conflict of interest arise with forest protection project developers when, for instance, too many certificates are deliberately issued based on an incorrect deforestation forecast?

There’s a fundamental misunderstanding here. South Pole, as a project developer, has to follow the certifier’s methodology to the letter in order to forecast how many credits a project could generate. South Pole can’t influence how many credits are issued, let alone determine that number. There’s no such thing as «too many credits being issued» as the VERRA methodology renders that impossible. This is because every forest conservation project has to recalculate the deforestation rate assumed in the original model every 10 years. In the future, this will even have to be done every 6 years. If the modelled rate is too high, the project will receive fewer credits in the subsequent period, or vice versa. This self-correction is an integral part of the given mechanism – we don’t have any wiggle room.

Let’s move on to the Kariba forest conservation project. The press has lampooned one of your first forest protection projects in Africa, and hasn’t held back on dishing out some hefty accusations. Some reports suggest, for example, that «worthless» credits have been sold. Is this criticism justified?

South Pole only sells valid credits that correspond to an equivalent CO₂ reduction. The criticism is also an unfair blow to the people of northern Zimbabwe, who’ve been benefitting from the project for over 10 years and have massively reduced deforestation in the region.

A projection is required for every climate protection project, not least so that an assessment can be made of whether it’s capable of generating the desired impact. Again, South Pole can’t influence these emission reduction projections – we have to follow the certifier’s methodology.

How do you explain the criticism in the media?

The fundamental misunderstanding is this: in 2011, a forecast estimated the project could potentially reduce up to 36 million tonnes of CO₂. This figure came from a model required by the methodology specified by the certifier. In reality, the project then reduced about half of that figure over the 10 years. Which is no problem whatsoever. The methodology even assumes these kinds of fluctuations will occur and corrects them over the lifetime of each project. Even if more credits had been sold than emissions reduced over the 10-year period, it’d still be perfectly fine. The self-correcting mechanism would balance that out over the coming years of the project’s lifespan.

It’s also important to distinguish between credits issued by the certifier and those sold by companies like South Pole. We didn’t sell 36 million credits. It was actually only about 23 million. Everything has been done above board – every single credit is genuine. Every Digitec Galaxus customer who has offset the CO₂ generated by their purchases is a part of this impressive success story in Zimbabwe.

Are today’s projects still set up according to the same standards they were ten years ago?

The methodologies introduced 10 years ago are of high quality and still in use today. However, there is a change on the horizon. Under the Paris Agreement, most countries will directly provide the Forest Reference Emission Level (FREL), i.e. an official prevailing deforestation rate in the country, in the future. We welcome this step; since states are the ones that will be providing the calculations, it will make it impossible for anyone to accuse us of «miscalculating».

During long-term investment projects, such as tunnel or dam construction, there are always miscalculations and massive cost overruns. This is because the basic conditions are constantly changing. Does this also apply to forest conservation projects? If so, why?

Clearly, such a thing is possible in forest conservation projects. Probable, even. Changing political and legal frameworks, complex ownership structures and so on can all lead to delays. The important thing for Digitec Galaxus customers is that South Pole only sells credits that actually correspond to a real emission reduction of exactly one tonne of CO₂. If the project is delayed or implemented to a lesser degree than planned, we also sell fewer credits.

As project developers, what specific factors do you take into account when calculating the CO₂ reduction potential?

When doing our calculations, we have to adhere to the certifier’s methodology very precisely. In addition, only the crediting organisation issues credits. We and other project developers have no opportunity whatsoever to apply our own rules. Plus, all calculations are 100% transparent for everyone to see. In the case of the Kariba project, both the calculation methodology and the project documentation are publicly available.

What are the greatest uncertainties when projecting CO2 reduction potential?

This varies depending on the project type. Of the nearly 1,000 projects in our portfolio, fewer than 10 are currently forest conservation projects. Regarding the Kariba Forest Conservation Project, the greatest uncertainty was how high the deforestation rate would be in the reference area, i.e. outside the project. This rate depends on a multitude of factors, some of which are unpredictable. For example, until 2019, President Mugabe pushed deforestation hard with decrees that resulted in many farmers being forced off their lands and settling in the Kariba region. After Mugabe’s death, the deforestation rate in the reference area decreased. Political changes like that can’t be modelled, which is precisely why the methodology includes a post-correction mechanism.

How is controlling done for forest protection projects? How do you ensure that your estimates aren’t completely off the mark after a few years, allowing, as has been claimed, for the sale of credits that should never have made it to market in the first place?

Controlling consists of various processes. First off, project performance is verified externally every 1–2 years. Both satellite data from and direct measurements taken in the project area are used for this. The question being addressed is how much CO₂ is stored in the forests and soils and to what extent the project activities have contributed to reducing or avoiding CO₂ emissions. These complex and expensive verifications are carried out by qualified, independent auditors from organisations such as TÜV SÜD.

In addition, a baseline review takes place every 10 years. And in the future, this will be done every 6 years. The current methodology checks how high the deforestation rate was in the reference area, i.e. outside the project. These calculations are also very complex and usually take at least a year to complete. This is because the process requires a complete set of data from a huge area of Zimbabwe, spanning at least one full dry season and one full rainy season.

Has there been a controlling failure in the case of «Kariba»?

Quite the opposite – the controlling has worked perfectly. As planned since the beginning of the project, we began reviewing the project’s baseline i.e. re-baselining in July 2022. When this process indicated that deforestation in the reference area was lower than predicted by the model, we suspended the sale of additional credits. Why? Because we knew we’d receive fewer credits for the project in the future, which is exactly what the methodology dictates. Over the lifetime of a climate protection project, it isn’t possible to issue and sell more credits than the actual amount of CO2 offset. If we’d sold «too many» credits, we simply wouldn’t receive any new credits for the project in the future. This bears no consequence for customers of South Pole, i.e. also for Digitec Galaxus and its customers.

VERRA, which has been criticised by some media outlets, issues credits. Is this organisation still viable in light of the media’s allegations?

VERRA is the only organisation to date that’s been able to issue credits for highly complex large-scale forest protection projects at all. At the moment, there’s simply no other alternative. Carbon credits for forest protection projects can’t be issued without VERRA. In the short term, the only alternative would be to stop standardised measurements and certifications and donate money to Africa through environmental organisations, as was done in the past.

Is there anything wrong with doing that?

Carbon markets are much more likely to bring transformative benefits to disadvantaged countries – which often have complex circumstances – by providing more stable, long-term revenues for local communities and development projects.

Critics are calling for an independent monitoring body to keep a close eye on credit sellers, including South Pole, and stop questionable deals. What’s your take on that?

That’s something we’d very much welcome. In our industry, transparency and credibility are the most valuable assets of all. In the past, the UN itself was the controlling authority for climate protection projects abroad under the Kyoto Protocol. A set of rules under UN control was also adopted in the Paris Agreement. Unfortunately, these plans haven’t yet been implemented. We’ve been in contact with governmental organisations for many years and have promoted this implementation and solution. But to abandon climate protection projects because of this, in the meantime, would be fatal.

«Zeit Online» reported that some South Pole employees had resigned due to dissatisfaction. Is that correct?

No, that statement doesn’t reflect reality. In our most recent engagement survey, employees expressed that their work at South Pole inspires them and that they identify with South Pole’s mission, vision and purpose. Values such as diversity and innovation are also drivers of South Pole’s success. We currently employ around 1,200 people from over 30 different countries, and our experts are proud to work at South Pole.

What would be your proposal to ensure climate protection projects are monitored transparently and credibly?

The control mechanisms of the climate protection projects we plan or support are already extremely transparent. In contrast to the CO₂ reductions of a traditional environmental organisation, every single one of our projects, including all details, can be found in a publicly accessible database. We appreciate getting concrete pointers on where we could improve. But it saddens me that this very transparency is being used by journalists who don’t understand the mechanisms properly in order to write misleading reports.

Let’s look ahead for a moment. The buzzword «carbon capture and storage» has been causing a furore in the industry for some time. How would you rate the potential of this technology?

To achieve the net zero target, we need all sorts of solutions, and we need them very quickly. In this respect, we also very much welcome carbon capture and storage projects. In 2022, we launched the NextGen CDR Facility for exactly that. We’re delighted to have large companies such as UBS, Swiss Re, BCG, LGT and Japan’s Mitsui as the first investors.

Thank you for this open discussion, Renat.

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Tobias Billeter

Head of Corporate Communications

Tobias.Billeter@digitecgalaxus.ch

Making sure employees and media know what's up at Digitec Galaxus is my job. But without fresh air and a lot of exercise, I basically stop functioning. The great outdoors provides me with the energy I need to stay on the ball. Jazz gives me the tranquility to tame my kids.

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