The Global Carbon Market's Credibility: Growing Trouble Signs

Monday - November 6 2023, 14:20 UTC - 1 year ago

The global carbon market is in trouble due to increasing evidence of its lack of credibility. Investigative stories have shown that its 'offsets' are often not what they are claimed to be and do not benefit the climate, and large companies have begun to back away from offsets. Data from the Voluntary Registry Offsets Database shows a sharp decline in demand for riskier credits, particularly UN-developed REDD+ forestry credits.

There are growing signs of trouble for the multibillion-dollar global carbon market, as investigative stories and studies continue to erode the credibility of the business world’s go-to tool for cleaning up climate emissions. The promise of offsets is that companies or individuals can balance out their greenhouse-gas pollution by paying other parties to prevent emissions or remove carbon dioxide from the air. For example, landowners might plant a bunch of trees or agree not to cut them down, offsetting pollution generated elsewhere. At least, that’s the idea.

But a bombshell New Yorker article earlier this month asserted that millions of carbon offsets generated by Kariba, a giant project that earned nearly $100 million for purportedly preventing deforestation in Zimbabwe, didn’t actually prevent deforestation and preserve the carbon in the trees and soil. On Friday, Bloomberg reported that South Pole, the company that sold the majority of those credits, has severed its contract with the company that developed the site. The news "raises the real possibility that the Kariba project could collapse," wrote the outlet, which had also highlighted problems with Kariba earlier this year.

Researchers and journalists (including me) have been steadily highlighting a litany of problems with a variety of offset projects for years. These projects often harm Indigenous communities and fail to deliver the promised climate benefits. And that’s when they don’t burn down in wildfires, wiping out years of carbon gains in days.

In recent months, corporations including Shell, Nestlé, EasyJet, and Fortescue Metals Group all announced they were backing away from offsets or the claims of carbon neutrality that relied upon them.

In a report last week, the advisory firm Carbon Direct highlighted a sharp decline in demand for offsets across the board. The firm analyzed the Voluntary Registry Offsets Database, maintained by the University of California, Berkeley, which contains data from the four major voluntary offset registries. Companies hoping to balance out their emissions can purchase carbon credits through these intermediaries, and then "retire" them to apply them against their emissions and ensure that no other party can count them against theirs. (This often, though not always, happens as a single step.) .

"People have simply slowed down what they’re doing and are being more careful and taking longer to get to ‘yes,’" says Matthew Potts, chief science officer at Carbon Direct. "And that’s a good thing." .

Some of the slowdown could be attributable to new methodologies among offset marketplaces, as well as a crypto-related offset bonanza that spiked in 2021 and then quickly fizzled out.

But according to Carbon Direct’s report, the declines indicate a broader trend: "a fundamental downshift in the demand for riskier credits," particularly the UN-developed REDD+ forestry credits that were the subject of a scathing study in September. The firm concludes that companies are backing away from credits that merely claim to prevent emissions, as when landowners agree not to cut down forests. The problem, as companies and critics have beseeched for years, is that these claims are often dubious, are difficult to audit in the real world, and turn out to be doubly pointless if the project that spawned them eventually fails, wiping out years of offsets in one fell swoop.