Earlier this year, major companies like Disney, Shell, and Gucci discovered they had acquired essentially worthless carbon credits. A detailed investigation revealed that Verra, the largest issuer of voluntary carbon credits, had sold credits tied to forests that were not at imminent risk of destruction, effectively devaluing these credits. The aftermath included the resignation of Verra's CEO and significant revisions to the organization's verification processes. Unfortunately, this is not the first instance where voluntary carbon credits have faced scrutiny, and it likely won’t be the last.
Evaluating forest health and potential for carbon sequestration is a complex task. Foresters must physically traverse the land, measuring tree dimensions, which demands significant time and labor. Excessive timber cruising would drive up the cost of carbon credits, making them less viable in the market.
Among the various types of carbon offsets, forest-related ones are particularly popular. Stopping deforestation is cost-effective and appealing for marketing. This positions it as a favorable option for many companies.
To bring structure to the chaotic realm of carbon credits, organizations like Verra and others have emerged over the last two decades, focusing on verifying the authenticity of these credits for their clients. However, the Verra incident highlighted the need for companies to conduct their own due diligence, similar to investors assessing where to allocate their funds.
Leveraging AI for Forest Assessment
This need for transparency was pivotal for Jonathan Horn when he founded Treefera last year. Previously an investment banker at Citi, Horn was impacted by the 2008 financial crisis and the questionable roles of rating agencies at that time. "A significant issue during the crash was the reliability of the data underlying the assets," he noted.
For carbon credits to hold value, buyers must trust the amount of carbon stored in trees and the potential for future sequestration. Even though organizations like Verra provided a streamlined approach to this process, the recent scandal revealed vulnerabilities in the system. Horn and co-founder Caroline Grey aim for Treefera to address some of these gaps.
"We aim to provide transparent datasets for both buyers and sellers in the market," Horn stated. "We are not involved in credit trading and have no vested interest in determining the quantity of credits that should be issued. Instead, we prioritize making data available so that others can make informed choices."
On Wednesday, Treefera announced that it has secured a $2.2 million pre-seed funding round, led by Concept Ventures, along with contributions from Twin Path Ventures, January Ventures, and Greg Lavender, CTO of Intel.
The startup is developing an AI-enabled data platform that offers insights into specific forests and their corresponding carbon credits. Treefera harnesses data primarily from high-resolution satellite imagery and drone-based lidar, which can provide detailed information about tree size and health. In addition, Horn mentioned that they are collaborating with initial partner clients to gather further data, with a focus on North American forests.
Treefera plans to utilize AI to "expand and scale" its dataset, filling in spatial and temporal gaps. Accurately capturing and conveying uncertainty in its measurements will be essential, Horn emphasized, explaining that "When customers recognize the risks and uncertainties, they'll be able to price them effectively. The market excels at that."
"The carbon market needs to function smoothly to protect trees and support reforestation," Horn added. "We are working to restore trust in decision-making within our niche and enhance transparency."
Addressing Market Challenges
The voluntary carbon market has become increasingly complex. Despite efforts to establish stricter standards, incidents like the Verra scandal demonstrate that significant ambiguities remain. By enhancing visibility into forest metrics, Treefera aims to empower carbon credit buyers, enabling them to validate claims and advocate for stricter standards.
There are favorable conditions for Treefera. Carbon credit buyers constantly seek high-quality offsets, and sophisticated buyers won't solely depend on organizations like Verra. This means they’ll look for independent data sources, free from conflicts of interest in carbon credit development or sales.
Furthermore, Treefera has the potential to deliver the data these buyers need. The volume of remote sensing data has increased dramatically, and its costs have dropped significantly. By integrating lidar technology with high-resolution imagery—typically capturing the visible to near-infrared spectrum—Treefera can provide a detailed overview of forest conditions.
However, ensuring the scientific accuracy of this data remains crucial. Horn stated that Treefera relies on "fundamental science" to derive forest measurements from remote sensing data. This is promising, as ecologists have employed remote sensing for forest studies for decades, refining numerous tools and models.
Nonetheless, modeling natural variability can be challenging compared to on-the-ground assessments. Treefera’s commitment to disclosing uncertainty levels is a substantial positive step. Hiring an ecologist in a senior role could further enhance the company's understanding of uncertainties and ways to mitigate them. Given that Treefera has only just completed a pre-seed funding round, there is ample room for growth.
The next several years will be pivotal for Treefera as it seeks to execute its strategy, and for the broader voluntary carbon market as well. Following the recent scandal, the industry must prioritize transparency and reliability. While demand for certifications similar to Verra’s will remain, there will also be an increasing push for verification of those certifications.
If Treefera can deliver scientifically sound data, it could become the resource many companies need for effective carbon credit assessment.
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