REDD+ and the common knowledge game
In mid-January UK newspaper The Guardian and German weekly magazine Die Zeit published the results of an investigation into rainforest carbon abatement credits, jointly carried out with SourceMaterial, a non-profit journalism organisation focused on investigating climate change, corruption and democracy.
The researchers analysed the performance of REDD+ credits issued by Verra, the largest verification body, concluding that “more than 90% of rainforest carbon offsets by biggest certifier are worthless.”
Although there is reason to dispute some of the methods used by the researchers to arrive at their conclusions, the broader sentiment conveyed by the articles is reasonable. That a significant proportion of carbon offset projects tackling deforestation fail to deliver the emission abatement numbers they claim (see The signal and the noise: Pricing the carbon credit risk curve).
The impact of the article was not in exposing where REDD+ projects fall short, most participants in the voluntary carbon market (VCM) would have already been aware of the inherent risks in signing off on nature-based carbon abatement projects. No, the impact of the article was making that awareness ‘common knowledge’.
To understand why, we have to consider the three types of knowledge – private, public and common. Private knowledge is the information locked up inside our heads, while public knowledge is information that everyone knows. However, making sure that everyone knows the truth (public knowledge) isn’t enough for a narrative to spread. People only change their behaviour when a narrative becomes common knowledge. Common knowledge is when knowledge (it can be either private or public) reaches a state when everyone knows that everyone knows that everyone knows it to be true.
The classic example of the common knowledge game is the fable of The Emperor’s New Clothes. Everyone in the crowd possesses the same private information — the Emperor is walking around butt naked. But behaviour doesn’t change just because private information is ubiquitous. Nor would we expect behaviour to change because a couple of people whisper their doubts to each other, creating pockets of public knowledge that the Emperor is naked.
The only thing that changes behaviour is when the little girl announces the Emperor’s nudity so loudly that the entire crowd knows that everyone else in the crowd heard the news. That’s when behaviour changes. It’s only when that transition to common knowledge happens that behaviour changes. And it can change very fast. Scandals come to light in the media through the narrative of a victim, or someone brave enough to shout loudly enough. In game theory this person is known as the missionary.
As human beings we have great trouble in understanding how change actually happens. We like to believe we live in a world where small changes have a direct linear impact on outcomes. That is not how the narrative machine works. Narratives have their own structure. Narratives don’t correspond to linear change; they involve and require distinct jumps and changes in behaviour. Understand that structure and you will begin to see them everywhere.
Now that the REDD+ flaws are out in the open, everyone knows that everyone else has heard the same story. There can be no hiding. Any skeletons left in the closet must now be cleared out.
The purge has begun…
In the past week, standards body Verra has suspended the registry account of New Ireland Hardwood Timber (NIHT) after it was exposed by an investigation by the Australian broadcaster ABC. The article alleges that NIHT has been commercially logging a forest in Papua New Guinea since 2020, while at the same time selling carbon credits meant to protect it from deforestation. In the past week the country’s Climate Change Development Authority has also been raided by the country’s fraud squad.1
Meanwhile in India, shares in carbon credit developer EKI Energy Services (more popularly known as Enking International), crashed over 40% after its auditor raised serious red flags as to how it had been recognising revenue from carbon offset projects. In April 2022 it claimed to have traded more than 100 million credits and announced it was aiming for 1 billion credits by 2027. In the past few months the Indian developer, who has been in business since 2008, announced separate deals with oil major Shell and financial institution DNV to develop nature based projects. At the time of writing, EKI's share price is down more than 80% from its January 2022 peak.2
As I’ve argued in an earlier article, simply because a carbon offset project is in a position to issue credits does not mean that the carbon project has a 100% chance of success. Carbon offset projects operate in the real world. Their success or failure in avoiding emissions or removing carbon from the atmosphere is subject to significant uncertainty.
This is especially the case for REDD+ projects, operating in remote corners of the planet, often in places where it is difficult for independent, on the ground checks to be made. Bad actors like to operate in places like this, in the shadows, where the line between legal and illegal is subject to interpretation.
Their exposure is now common knowledge, and with that hopefully the foundations for renewed, sustainable growth in the market for REDD+ credits can begin. As despite their flaws, the protection of land vulnerable to deforestation depends upon them.
https://www.abc.net.au/news/2023-02-14/carbon-credits-projects-papua-new-guinea-logging-four-corners/101936714
https://carbon-pulse.com/191465/
https://www.business-standard.com/article/news-cm/eki-energy-slumps-after-q3-pat-drops-76-yoy-auditor-raises-red-flags-123021300783_1.html
https://carboncredits.com/eki-energy-create-1-billion-carbon-credits-2027-net-zero-2030/
https://economictimes.indiatimes.com/industry/renewables/eki-shell-float-jv-for-nature-based-solutions/articleshow/90420962.cms?from=mdr
https://carbon-pulse.com/187335/