If you’ve ever been asked to tick a box on a website that offers a minimal surcharge to offset the carbon footprint of your upcoming plane ride or package delivery, you’ve witnessed the voluntary carbon market in action. If the prices of these surcharges, usually less than a pound, often seem too good to be true, it’s because they are.
This emerging market has faced increased scrutiny recently, and the results show that the cheap carbon offsets that businesses tend to buy are more effective for improving a company’s corporate image than actually reducing emissions.
What is the voluntary carbon market?
This largely unregulated market allows businesses to buy and sell emissions credits so that they can offset their GHG emissions instead of reducing them. Often, it is more cost-effective for a business to financially support carbon-cutting projects elsewhere than to reform any of their own carbon-heavy processes.
This voluntary carbon market operates separately from the public, government-mandated, and regulated emissions trading schemes that operate around the world, in places such as the EU and New Zealand.
As of 2021, this market is worth nearly $2 billion.
The trading of carbon credits operates via the same theory of “net emissions” that currently underpins the vast majority of thought and discussion surrounding the recording and calculation of emissions worldwide. The theory relies on the distinction between “gross” emissions and “net” emissions. Gross emissions are the total physical amount of GHG produced, while net emissions are what’s left over from the amount of GHG emitted and the amount taken out of the atmosphere or “sunk.”
Carbon trading functions on the assumption that there is no practical difference between reducing your emissions and reducing someone else’s emissions on your behalf.
However, this idea has been manipulated through a series of logical leaps that allow the market to thrive whilst the planet continues to flounder.
What is the problem?
The central issue with these basic ideas, all of which are technically true and useful, is that they allow a lot of leeway for creative accounting. The fact that the market has few independent regulators and authorities also means that there is little oversight over the methods of accounting being used.
The truth of any business’ self-reported carbon footprint relies on the simple operation of subtraction, but when there is money at stake, private industries will abuse even the simplest of accounting mechanisms.
Besides this basic lack of regulation, the other problem with this market is that the quality of the most popular carbon emissions credits is low.
You might have noticed an increase in the number of businesses making grand announcements about their new net zero ambitions.
"It's no longer enough for us to connect the world without making sure it has a future."
— United Airlines (@united) November 12, 2021
To the fossil-fuel industry:
In aiming for net zero by 2050, our chairman and CEO, Darren Woods, outlines how comprehensive roadmaps can help get us there. Read the full Advancing Climate Solutions 2022 Progress Report: https://t.co/EBdI2bO4DR pic.twitter.com/2L0mUcwIEE
— ExxonMobil (@exxonmobil) January 18, 2022
Companies worldwide have realised that consumers are becoming more eco-conscious about the environmental impact of their purchases and have started to advertise different environmental initiatives as a result. The value of the voluntary carbon market has quadrupled since 2020.
Related Articles: Are Major Corporations Doing Enough To Tackle Their Carbon Footprint? | Carbon Offsetting as a Tool to Reduce Emissions: A Last Resort? | The Road To Net Zero: A Guide To The Carbon Offset Ecosystem
However, recent investigations have shown that an average of about 40% of credits being traded are from renewable-energy offsets. This means that companies are investing money into projects that will generate renewable energy, like wind and solar farms, and receiving carbon credits for their financial contributions.
These types of carbon credits are relatively inexpensive; the average price of a renewable-energy offset last year was $2 per ton. In comparison, an offset generated by planting trees currently costs about $10.
The quantity of carbon that was supposedly offset by these types of credits in 2021 was comparable to the carbon footprint of Oman and Turkmenistan.
@AkshatRathi, @pogkas and I analysed hundreds of thousands of transactions & found almost 40% of the offsets purchased (retired) last year came from renewable energy projects. The volume of these junk offsets bought last year is equivalent to the emissions of some countries (2/7) pic.twitter.com/MCAMpGowJe
— Natasha White (@ntashawhite) November 21, 2022
Whilst private investment into the transformation of current carbon-heavy infrastructure is generally a good thing, it is not entirely clear if these investments are truly able to shoulder the burden of quickly decarbonising our economies.
Companies, including the likes of Delta Airlines and Etsy, rely heavily on these types of carbon credits in order to make claims of being “net zero.” In actuality, these businesses are still emitting more carbon into the atmosphere than is being removed within a relevant time frame.
The FIFA World Cup hosted by Qatar this year has also promoted itself as the first carbon neutral World Cup. In actuality, this claim is based solely on Qatar’s purchase of 1.8 million tons of low-quality carbon offsets rather than any meaningful changes to the infrastructure that supports the games and spectators.
Why isn’t this idea working?
One of the problems with this system is that there is virtually no distinction for accounting purposes between carbon offsets that remove carbon from the atmosphere and offsets that are intended to prevent future emissions, like renewable-energy offsets
There are some projects focussing on the former. However, credits sourced from projects that focus on carbon removal, which physically taken carbon from the atmosphere and store it in a semi-permanent way, are far more expensive than renewable-energy offsets. An Icelandic startup, Climework, will turn carbon dioxide into stone at the price of $600 per ton of sunk carbon.
In contrast, renewable-energy offsets are often founded upon convoluted logic that come with wide-open loopholes and lower price tags.
First, by offering a credit for investing in a renewable energy source, there is an assumption that building a wind or solar farm is, by default, replacing a hypothetical power station that would have run on fossil fuels. Building a solar farm does not de facto prevent the possibility of a separate coal power plant being built as well.
Second, the issuance of these credits assumes that the investment was necessary for the renewable energy project itself, which often isn’t the case. Credits can be generated by projects that were already going to happen with or without private funding. A company throwing money at a project that is already in the works is not creating a new source of renewable energy, but simply increasing the profitability of renewable energy that was already in the works.
Third, many credits assume that preventing carbon from entering the atmosphere provides the same net benefit as reducing the amount of carbon already in the atmosphere. Prevention of more carbon entering the atmosphere, whilst a worthwhile goal, is not equivalent to actually removing the carbon that is already contributing to the greenhouse gas effect and global warming.
Lastly, many separate private entities can contribute funds to a single project, and there is no systematised way to handle the subsequent issuance of credits. This can lead to double counting if multiple companies receive carbon credits from the same project that are not proportional to each company’s financial contribution.
These types of carbon offsets are cheap, and popular as a result. Large corporations across the world are currently using these credits that rely on shaky logic with no oversight as a replacement for decarbonising their own ways of working. Thanks to the multi-faceted ways in which a net zero claim can be accounted for on paper, they often do not correspond to any physical reality regarding the quantity of emissions generated by a company.
As long as this continues, companies will be able to market themselves as eco-friendly whilst making no progress to reduce their emissions in any meaningful way.
Editor’s Note: The opinions expressed here by the authors are their own, not those of Impakter.com — In the Featured Photo: Dirty footprints in the snow. Featured Photo Credit: Jason Leung.