An Uncomfortable Climate Feedback Loop

Make that the decades ahead. Per recent United Nations Environment Programme data, wildfires are likely to increase by 14% by 2030, 30% by the end of 2050, and 50% by 2100. Like so many uncharted climate eventualities, however, the numbers could be higher or sooner — in this case, due to an uncomfortable feedback loop at play:

1. Longer and larger wildfires lead to higher emissions (as of last week, Canadian fires had released 249 million tons of carbon: c. 0.1% of the remaining global carbon budget).
2. Higher emissions fuel climate change, heralding hotter conditions.
3. Hotter conditions dry out forests, meaning longer and larger wildfires.

The Feedback Loop of Unaddressed Impermanence Risk

In fact, buffer pools may not be of much use even in the event they do escape destruction. Take, for instance, the 40,000-hectare project in Canada that recently lost 100 hectares to fire, none of it covered by the relevant buffer pool. Bloomberg Green reports that the covering registry relied on “the historical likelihood of an event occurring” to guide its policies, by which logic the developer assessed fire risk to be zero. Far from an outlier, this is a typical methodological feature that “critically undermines” buffer pool policies. Incredibly, Bloomberg Green reports that no registry takes into account the growing fire risk associated with climate change.

If backwards-looking data and flimsy modeling leaves impermanence risk unaddressed, another dangerous feedback loop will ensnare carbon markets, specifically:

1. The greater the permanence risk, the lower the confidence in and capital for carbon markets — and the fewer the forestry projects.
2. The fewer the forestry projects, the smaller the total capacity of nature-based carbon sinks — and the faster the net emission increase.
3. The faster the net emissions increase, the higher the frequency and force of natural disasters — and the greater the permanence risk.

How Do We Get To A Functioning Carbon Market?

Here at Oka, The Carbon Insurance Company™, we believe passionately that a functioning carbon market can pump the brakes on the climate crisis. Yes, those wildfire projections for 2030, 2050, and 2100 might be underestimates, symptomatic of an optimism bias that blinkers us to the exponential rate of climate change; equally, however, they could be overestimates, symptomatic of a pessimism bias that blinkers us to the incredible potential of nature- and technology-based solutions. But realizing the incredible potential of nature- and technology-based solutions requires capital, and capital is contingent on market confidence.

In either eventuality — be it an under- or overstated climate crisis — the carbon market doom loop is bad news. By failing to protect credit purchases when the associated project is antagonizing and being antagonized by the natural disasters it was designed to solve, buffer pools could prove an existential threat to carbon markets and a major obstacle to climate progress. 

Good risk-mitigation mechanisms, on the other hand, have the reverse effect. Carbon Credit Insurance can accelerate confidence and capital in forestry projects, thus scaling the capacity of nature-based carbon sinks, thus reducing net global emissions — and so improving the outlook for climate and carbon market alike.