Mitigating risk of credit reversal in nature-based climate solutions by optimally anticipating carbon release

Nature-based climate solutions generate carbon credits by capturing and storing carbon, but their credibility is often questioned due to the variability and impermanence of carbon drawdown. By evaluating drawdown benefits from a social cost of carbon perspective, project developers can enhance credibility and estimate impermanence by conservatively anticipating drawdowns to be eventually released following a release schedule, and issuing additional credits when the actual release is less severe than anticipated.

This project demonstrates how using ex-post observations of drawdowns can help construct optimal release schedules that minimize the risk of credit reversals, which are situations where net carbon drawdown turns negative. Through simulations of both theoretical and real-life projects, this method is shown to balance the need for more permanent carbon credits with the need to limit the risk of reversals. The approach also incentivizes better project performance and offers a practical solution to scaling up nature-based climate solutions effectively.