# Mitigating credit reversal risks in nature-based solutions *2024-09-08 — note* Many of the questions around our recent [Nature Sustainability commentary on NbS credits](https://anil.recoil.org/papers/2023-naturecredits) revolve around _how_ to finance new projects if credible credits need to be ex-post. Our latest paper published in Carbon Management on *"[Mitigating risk of credit reversal in nature-based climate solutions by optimally anticipating carbon release](https://anil.recoil.org/papers/2024-nbs-risk)"* tries to address this. The problem with selling ex-ante (future) carbon credits for (e.g.) a deforestation avoidance scheme is that project reversals can happen in the future ("deforestation has increased") thus rendering any credits issued previously useless. On the flip side though, an overly conservative view of the future ("the entire forest will disappear overnight!") is clearly so conservative that it doesn't serve the best interests of the project developer. So ideally, a project would make realistic but conservative ex-ante predictions that is safe for both project developer (who gets more funds upfront) and a carbon credit purchasers (who needs to account for impermanence of nature credits). Our paper shows how to do this by calculating a "release schedule" to predict future drawdowns, and then issuing extra credits when the release at some future date is less than predicted by the release schedule. We use verified ex-post observations to construct these release schedules, and design them to bound the risk of the project becoming negative overall (that is, net drawdown is negative) and thus failing. The paper evaluates this process with both theoretical and real projects to assess how well it balances the tradeoff between generating permanent nature credits and bounding the risk of project failure in the future. As a nice side effect, our method removes the need for buffer pools entirely, which do not currently base the sizing on an empirical assessment of reversal risks, and are usually cancelled at project end (wasting potential credits). Read the full open access paper, lead expertly by [E.-Ping Rau](https://www.plantsci.cam.ac.uk/staff/dr-e-ping-rau) [Srinivasan Keshav](https://svr-sk818-web.cl.cam.ac.uk/keshav/wiki/index.php/Main_Page) and [David Coomes](https://coomeslab.org), that just came out in Carbon Management for details: [Mitigating risk of credit reversal in nature-based climate solutions by optimally anticipating carbon release](https://anil.recoil.org/papers/2024-nbs-risk) There's still plenty of future work to be done -- we focus on avoided deforestation projects in this paper, but afforestation projects could also be modelled on similar principles. Do get in touch if you'd like to help assess our methods\! Synopsis: Mitigating credit reversal risks in nature-based solutions with predictive release schedules. Words: 355 ## Related - [Paper published on ex-ante forecasts of nature-based solutions](https://anil.recoil.org/notes/2024-nbs-risk-2) (note, 2024-08-31) - [Nature-based credit markets at a crossroads](https://anil.recoil.org/papers/2023-naturecredits) (paper, 2024-08-01) - [Mitigating risk of credit reversal in nature-based climate solutions by optimally anticipating carbon release](https://anil.recoil.org/papers/2024-nbs-risk) (paper, 2024-08-01) --- Canonical: https://anil.recoil.org/notes/mitigating-nbs-risk-paper Type: note Tags: 4c, :2024-nbs-risk, conservation, economics, forests, nbs, carboncredits