ACR’s Approach to Non-Permanence Risk Mitigation

Not only is the protection, conservation and restoration of forests critical to meet the Paris Agreement climate targets, but these actions are also among the most readily deployable, affordable and scalable available today.

Forests store 861 billion tonnes of carbon (source) and sequester 7.6 billion tonnes of carbon dioxide annually (source), which represents approximately 20% of total global emissions. Research has shown that forests and other nature-based solutions to climate change have the potential to sequester one-third of global emissions annually (source).

At ACR, we often get asked about “permanence” of forestry projects and how we can effectively mitigate the risks of sequestered and credited carbon being re-released to the atmosphere.

ACR has robust, enforceable systems in place to mitigate non-permanence risks to ensure the integrity of the credits ACR issues.

Carbon market “permanence” and “reversals”

In the context of carbon markets, “permanence” refers to the perpetual nature of emissions reduced or removed from the atmosphere and the risk that the atmospheric benefit will not be permanent. This risk is not relevant for some project types for which the emission reductions or removals are permanent once they occur and cannot be reversed (such as in a project that destroys refrigerants).  

In forestry and other nature-based projects (also known as “Agriculture, Forestry, and Other Land Use” or AFOLU), there is an inherent potential for emissions to be re-released into the atmosphere. When carbon associated with previously issued credits is re-released to the atmosphere prior to the end of a carbon project term, it is termed a “reversal.” Reversals can result from unintentional events occurring prior to the completion of a project, such as fires, pests, diseases, or floods, or through intentional actions, such as forest conversion or overharvesting. In these cases, well-designed risk mitigation mechanisms can ensure that any potential re-emission is quantified and compensated for to maintain the integrity of issued carbon credits and the fungibility in the market with offset credits that do not have reversal risk.

Projects registered with ACR must commit to measure, monitor, report, and verify (MRV) the project activity for a legally binding minimum project term of 40 years. This meaningful project timeframe is aligned with scientific reports that have assessed the critical role of the AFOLU sector in all 1.5°C-consistent pathways to achieve Paris Agreement targets and reach net zero emissions by mid-century.

At ACR, reversals must always be reported, quantified, and compensated, to maintain the integrity of the credits ACR issues. However, ACR has separate and specific mechanisms to address unintentional and intentional reversals.

ACR manages a diverse buffer pool for unintentional reversals

Reversals attributed to natural disturbances are considered “unintentional;” when they occur, they are compensated for by cancelling credits from the ACR Buffer Pool.

ACR requires that prior to each issuance, projects with reversal risk undertake a comprehensive reversal risk analysis via the ACR Risk Tool (with an updated version under development). The result of the analysis is a volume of credits that must be deposited (i.e., “Buffer Pool contribution”) to a reserve account managed by ACR and held for the sole purpose of unintentional reversal compensation. The buffer pool approach to unintentional reversals works similarly to an insurance mechanism where all participants contribute but few make claims.

The ACR Buffer Pool balance represents approximately 20% of credits issued from ACR projects that require a Buffer Pool contribution to compensate for unintentional reversals.

ACR allows buffer pool contributions from a variety of project types, including forestry, grasslands, transportation, refrigerants and industrial projects, like landfill gas. Similar to any risk mitigation mechanism, diversity in the makeup of this pool adds resilience. A larger and more-diverse credit pool, in terms of geography, project type, and reversal risk, is better.

Many of the credits in the ACR buffer pool are permanent emission reductions (i.e., credits that do not carry a risk of reversal). Including non-reversable credits in the buffer pool is a conservative and environmentally robust approach, especially in the context of mitigating large and widespread natural disturbances. Because the ACR Buffer Pool is managed across the entire AFOLU portfolio, the inherent diversification adds further assurance and stability to this mechanism for reversal risk mitigation.

It is important to note that ACR has yet to experience an unintentional reversal from its AFOLU portfolio (nearly 80 projects) that required compensation from the Buffer Pool. Many ACR projects are large and geographically and ecologically diverse. As a result, only the most catastrophic disturbances would cause reversals. Small and localized disturbances that may occur are typically overcome by annual forest growth; they do not cause overall carbon stocks to decline during the reporting period to the extent that it would constitute a reversal. In addition, ACR has a large and growing volume of credits issued to aggregated or programmatic projects, which by definition have a wide geographic spread and inherent diversity, decreasing the likelihood of a single catastrophic event causing a reversal. 

While it is unlikely, if the quantified volume of an unintentional reversal were to exceed the cumulative buffer contributions from the project, ACR would assess a penalty in the form of an additional buffer contribution and replace the remainder of the outstanding balance from the Buffer Pool.

If ACR has to cancel credits in the Buffer Pool due to an unintentional reversal, ACR will refer to the following set of criteria in determining the cancellation of Buffer Credits for relevant reversal events:

• Reversals for CORSIA Eligible carbon credits will be compensated with CORSIA Eligible carbon credits in the Buffer Pool.
• Reversals for projects that contributed AFOLU credits will be compensated with AFOLU credits in the Buffer Pool.
• Reversals for projects that contributed non-AFOLU credits will be compensated with credits with a vintage within 5 years of the affected GHG Project start date in the Buffer Pool. If there are none or if the full amount does not fit this criterion ACR will select from the most recent vintages available.

As an additional conservative measure, ACR does not refund Buffer Pool credits. At the end of the project’s crediting period, ACR cancels an equivalent volume of unused buffer pool contributions to compensate for potential future reversals.

Project proponents must fully compensate for intentional reversals

Reversals attributed to management decisions and other willful activities – such as over-harvesting, forest conversion, or discontinuing MRV before the end of the minimum 40-year project term (Early Project Termination) – are considered “intentional” by ACR.

For intentional reversals, ACR requires that the project proponent compensate for all credits associated with the carbon loss event by replacing those credits for cancellation by ACR. For Early Project Termination, this includes compensation for all credits that have ever been issued to the project. This commitment is solidly reinforced with a legally binding contractual agreement, signed by the project proponent prior to carbon credit issuance.

Legally binding contractual agreements, if possible, are the strongest mechanism to mitigate the risk of intentional reversals from projects.

Protecting, restoring and sustainably managing forests is essential to stay on track to meet Paris Agreement climate targets. ACR has strong, legally enforceable systems in place to mitigate reversal risks of forestry projects, which ensures the integrity and fungibility of the credits we issue.