Earlier this year, Disney, Shell, Gucci and several other big companies discovered that they had purchased carbon credits that were essentially worthless. A collaborative investigation alleged that Verra, the world’s largest issuer of voluntary carbon credits, had sold credits for forests that were not at risk of destruction, essentially wiping out the value of the credits. Fallout ensued. In the months that followed, Verra’s CEO resigned and the organization rewrote its verification methodology.
This wasn’t the first time that high-profile voluntary carbon credits had been called into question, and it’s unlikely to be the last.
Characterizing a forest is hard work. To get a truly accurate assessment, foresters have to walk through the landscape, measuring trees the old-fashioned way. It takes so much time and labor that too much timber cruising would increase the price of any associated carbon credit beyond what the market can bear.
While there are many different types of offsets, forests are a favored option in many cases. Stopping deforestation is relatively cheap and sounds good in marketing copy. For many companies, it’s a win-win.
Verra and numerous other certification organizations have arisen over the last couple decades in an attempt to bring order to the sprawling and often unruly world of carbon credits, doing the hard work of verifying them for their customers.
What the Verra scandal illustrated, though, was that while certifications are helpful, companies should probably be performing their own due diligence, much like investors do when deciding where to place their money.
Using AI to analyze forests
That parallel was on the top of Jonathan Horn’s mind when he founded Treefera last year. Horn had been an investment banker at Citi when the 2008 financial crisis hit, and the rating agencies’ role in the crash left an impression. S&P, for example, awarded Lehman Brothers an A rating just days before the firm’s collapse. “A lot of the problem that we had in the crash was related to the reliability of the data that was underpinning the actual asset,” he told TechCrunch+.
For a carbon credit to be valuable, buyers need to be confident in the amount of carbon the forests’ trees contain and how much more they’re likely to sequester in the future. Organizations like Verra offered a simple way to do that, though the scandal exposed some cracks in the system. Horn and his co-founder Caroline Grey hope Treefera can fill in some of them.
“We want to be providing transparent datasets to both the buying and selling sides of the market. We’re never involved in credit trading; we don’t have any skin in the game in terms of saying how many credits should be originated,” Horn said. “There are plenty of people in that space who are doing whatever they can to make that as good as possible. We’re making data available to people so they can make their own decisions.”
On Wednesday, Treefera said it raised a $2.2 million pre-seed round led by Concept Ventures, with participation from Twin Path Ventures, January Ventures, and Greg Lavender, Intel’s CTO.
The company is building an AI-enabled data platform for companies that want to know more about specific forests and their associated carbon credits. Treefera sources data primarily from high-resolution satellite imagery and drone-based lidar, which can offer insights on tree size and health. Horn said the company is also sourcing some additional data from its initial partner clients. The startup will be focusing on the U.S. and Canada to start.
Treefera plans to use AI to “expand and scale” its forest data, Horn said, to fill in spatial and temporal gaps. Capturing and describing the uncertainty in its measurements and estimates will be a key part of the product, he added. “Once customers understand risk and uncertainty, they’ll be able to price it. The market’s very good at that.”
“Protecting trees and encouraging reforestation needs the carbon market to be functioning, and functioning effectively,” Horn said. “We’re trying to restore, in our own small space, some trust in how those decisions are being made and make that as transparent as possible.”
What the market needs
It’s no secret to close observers that the voluntary carbon market is a bit of a mess. We’ve seen valiant efforts to set more rigorous standards, but as the Verra scandal showed, the gray area remains uncomfortably broad. By improving visibility into forest metrics, Treefera clearly hopes that transparency will give carbon credit buyers the leverage they need to both validate claims and push for more stringent standards.
There are a few things working in the company’s favor. For one, carbon credit buyers are always on the hunt for high-quality offsets, and sophisticated buyers are unlikely to rely on an entity like Verra alone. That means they’ll be hunting for independent data sources — ones that are not entangled with the development or sale of any carbon credits.
Two, Treefera has a good shot at providing that data. The amount of remote sensing data has exploded in recent years, and its cost has fallen considerably. By combining lidar with high-resolution imagery (usually covering the visible to near-infrared part of the spectrum), the company could get a very detailed picture of what’s happening with trees in a forest.
The trick, though, will be ensuring that the data is scientifically accurate. Horn said Treefera is relying on “fundamental science” to extrapolate forest measurements from remote sensing data. That’s a good sign — ecologists have been using remote sensing to study forests for decades (I used to be one of them), and they’ve developed a wealth of tools and models.
But as any ecologist knows, there is enough variability in the natural world to make modeling an uncertain proposition compared with on-the-ground sampling. Treefera’s willingness to disclose its uncertainty levels is a significant step in the right direction, though it would also behoove the company to hire an ecologist in a senior position. Such a person would no doubt bring a wealth of expertise, helping the company to understand not only the nature of those uncertainties but also how to narrow them further. There’s still plenty of time, of course, given that the company has only just raised a pre-seed round.
The next few years will be critical not only for Treefera, which has to execute on its plan, but also for the broader voluntary carbon market. After getting rocked by scandal earlier this year, the onus is on the industry to improve its transparency and trustworthiness. There will still be demand for certifications like the kind that Verra offers, but there’s also going to be more desire to check the work that goes into them.
If it can provide scientifically rigorous data, Treefera could be the answer many companies are looking for.
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