Tonne-year accounting has attracted a lot of enthusiasm, as well as questions, as an approach for quantifying the climate benefits of a carbon offset project. Let’s break down what it is, how it is enabling urgent action and accountability, and where it originated.
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Defining tonne-year accounting
Tonne-year accounting is a method for quantifying the climate impact of a carbon project, of any length, in single-year increments. Tonne-year accounting (also called ton-year accounting) can be applied to all types of climate offsets, including nature-based and engineered solutions, enabling the quantification of climate impact across varying timeframes. Carbon offsets are typically denominated in tons, but leave out the element of time or the duration of storage for that ton. Tonne-years is a more granular unit that enables buyers of carbon offsets to compare the impact of everything from 1,000, 100, to 1-year carbon projects– translating all of them into the same unit with a time dimension. One unified language no matter what type of project you’re evaluating. In an already confusing carbon credit market, simplifying anything is a welcome move for carbon buyers.
What tonne-years is not
Tonne-years or tonne-year accounting is not a way to define a carbon offset project or the duration that a project may continue. It is simply the unit of measure of carbon storage on a per-year basis, just like the kilowatt-hour is the unit we use to describe how much energy-kilowatts– are sustained over a period of time, one hour.
How tonne-year accounting is applied to carbon credits
One tonne-year is the impact of holding 1 tonne of carbon out of the atmosphere for one year. Carbon credits have traditionally been denominated as one tonne of carbon held for 100 years. Using tonne-years, that same credit could just as easily be expressed as 100 tonne-years. Those tonne-years can be delivered one year at a time for 100 years, as with a typical carbon credit, or all stacked up in one year, as shown below. The climate community has yet to come to a consensus on how many tonne-years stacked up vertically has the equivalent impact to one credit delivered over 100 years, but estimates range from about 30 to 100.
Discount rates to incentivize near-term impact
In economics, the “time value of money” is the time-honored idea that a sum of money today is worth more than the same sum of money later. This concept accounts for the fact that you can actually use it now and that there is a risk you might not actually get the money later. Financiers and economists use a discount rate to estimate this phenomenon. This same concept can be applied to the time value of carbon by applying a discount rate to the benefits of carbon offsets. The higher the discount rate, the greater value we place on near-term action, which avoids costly damages later. Using a discount rate along with tonne-years as the base unit of measuring climate benefits, we see that it takes a fewer number of tonne-years today to avoid future damages than it would if we waited to act on climate action.
Through the use of discount rates to accelerate action today, society is more likely to meet 2030 and 2050 climate goals and mitigate societal impacts of warming. Discount rates can be used to value the effects of economic and/or social damages associated with carbon emissions but not to value physical quantities of carbon. For example, the commonly cited Social Cost of Carbon uses a discount rate of 3% to estimate the costs of damages created by each ton of CO2 emitted. Understanding exactly what is being valued is key to fairly and appropriately incentivizing the climate outcomes society needs. No matter how you value near-term action, it must be used in combination with decreasing emissions and advancing permanent solutions for long-term climate stabilization.
Why tonne-year accounting matters
As multiple experts have said, the choice of a time horizon in carbon projects is a policy decision, not a scientific one. Tonne-year accounting allows climate solution developers to focus on what matters, measurable impact on the climate, instead of arbitrary lengths of time. This unlocks critical innovation for the planet. For example, if you bundle all your tonne-years into one year, you can deliver a massive impact today when we are in a climate emergency. Then you can do that year-over-year at high amplitude until you’ve decreased net emissions and removed more carbon from the atmosphere while we wait for more permanent solutions to be widely available.
Transparency in nature-based solutions will benefit greatly from using tonne-year accounting to put all carbon credits on equal footing. Nature is inherently unpredictable, with increasing vulnerability to fire, pests, and climate change itself. Tonne-year accounting enables a more accountable approach to carbon credits. Using tonne-year accounting, you have a yearly measurement, quantification, and crediting of impact, which enables ex-post crediting– the delivery of credits only after the impact has been delivered. This means credits only represent real impact, not projected impact.
Carbon buyers are tasked with meeting their climate goals with high integrity offset choices at prices they can afford. Yet the current opaque and increasingly complicated carbon credit marketplace does little to help them understand what they are really buying. Tonne-year accounting provides a singular foundational language for carbon buyers to understand the impact made by various carbon credits with various project lengths. Apples-to-apples comparisons can now be made by carbon buyers when comparing the amount of climate impact and price.
Where tonne-year accounting is in use
Tonne-year accounting is not a new concept, but has garnered little attention until recently. Born out of the Kyoto protocol by the IPCC, the approach has seen a variety of applications. Climate Action Reserve (CAR) currently uses it in their forestry and agriculture projects, and Canada recently introduced it to their federal program. NCX adopted tonne-year accounting because of its ability to unlock urgency and accountability in forest carbon. Several academics, industry experts, and start-ups are also championing the use of tonne-year accounting to push for innovation that will lead to scalability in nature-based solutions.
Tonne-year accounting has the potential to bring accountability, urgency, and precision to carbon markets. As society works to meet its climate goals and sustainability professionals wade through disparate and confusing carbon offset options, one thing is clear– we can’t do this without tonne-year accounting.
Learn more about how NCX is using this accounting approach in our Forest Carbon 2.0 blog post.
Don’t miss a deeper dive with expert scientists on November 2, 2022 during The How, What, and Why of Temporary Carbon Storage webinar. Register now.