Picture of Pernille Holtedahl wearing a white top and colourful scarf around her neck.

Over the past few years, the voluntary carbon market has been thriving. But is it saving the planet, or simply giving organisations the right to pollute?

The case for caution

In January, an investigation by reporters at The Guardian Die Zeit and SourceMaterial alleged the majority of forest carbon offsets approved by Verra – the world’s leading carbon credit certifier – “[did] not represent genuine carbon reductions”.

Verra’s credits are used by leading companies across a range of industries to publicly claim they are mitigating their climate impact and, in some cases, that products and services are carbon neutral.

The focus of the investigation was Verra’s Redd+ schemes. These schemes, as reporter Patrick Greenfield explained at an event held by Imperial College Business School's Centre for Climate Finance & Investment and the Centre for Environmental Policy, work by identifying a project area for conservation, and then modelling the deforestation that would have occurred if the conservation project did not exist (based on a reference area that has already been deforested).

Companies using carbon credits to a material extent decarbonise at twice the rate of those that do not use them

However, when two independent groups of researchers analysed a sample of Verra Redd+ schemes, they found many were not preventing any deforestation at all, or were only doing so in very small amounts.

Specifically, according to the investigation, “credits from 21 projects had no climate benefit, seven had between 98 and 52 per cent less than claimed using Verra’s system, and one had 80 per cent more impact”. The journalists also noted that “in 32 projects where it was possible to compare Verra’s claims with the study findings, baseline scenarios of forest loss appeared to be overstated by about 400 per cent”.

The case for credits

At our event, Guy Turner, CEO of climate data and analysis firm Trove Research, responded to these findings, noting that “it’s inherently difficult to quantify carbon credits from avoided deforestation”, with different methods of analysis likely to produce different results. In line with this, Trove conducted its own analysis of Redd+ schemes to assess the accuracy of their carbon claims.

According to these figures, around 30–40 per cent of projects are significantly overcredited. This suggests there is a problem, but not at the same scale claimed by the journalists. Guy also noted that one of the major contributors to perceived overcrediting might be how the rate of deforestation changes over time – which is beyond the control of project developers.

Carbon offsets should not replace mitigation efforts when addressing the climate crisis

According to Trove’s analysis, many offsetting projects set reference levels from 2000–08, when deforestation in the Brazilian Amazon was high. It then fell significantly, which may go some way to explaining the overcrediting, as actual deforestation was lower than had been assumed. To avoid this issue in future, Guy suggested, a solution might be to use flexible baselines “so projects aren’t locked in at a certain level”.

This points to a need to find ways to improve the transparency, accuracy and integrity of carbon credits, rather than abandoning them altogether. In support of this, according to Trove, companies using carbon credits to a material extent decarbonise at twice the rate of those that do not use them. In other words, those using offsets also tend to aggressively pursue their own decarbonisation efforts.

Balanced approach

Verra is now updating its Redd+ methodology to make credit calculations more accurate, and the Integrity Council on Voluntary Carbon Markets is set to release new Core Carbon Principles later this year. 

It remains to be seen what impact these changes will have on the accuracy and usefulness of carbon credits. Either way, there is now widespread agreement that carbon offsets should not replace mitigation efforts when addressing the climate crisis.

In the meantime, the debate will continue. For now, perhaps the right course of action is to treat credits neither as a complete waste of time, nor as the be-all and end-all of corporate climate action. As Tommy Ricketts, CEO of BeZero Carbon – a company which rates offsets – noted at the event: “It’s really about educating the market and getting the debate to come up, so people can get an idea of what the risks are, and so that we can improve the schemes.”

Picture of Pernille Holtedahl wearing a white top and colourful scarf around her neck.

About Pernille Holtedahl

Research Fellow
Pernille’s primary research interest are models and incentive systems for increasing investments in nature, hereunder private investments. Her area of expertise is green finance, including fixed income instruments (green and sustainable bonds), carbon markets, investor trends and public-private financing of natural capital. She has a particular interest in the forestry, land-use and agriculture sectors. She has worked as an advisor and consultant on climate change, finance and sustainable development for 25 years and is the founder of Blue Maia Ltd. - an advisory firm. Pernille holds a PhD in environmental economics from George Washington University.

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