Making Sense of the Media Buzz on Carbon Credits

Austin Whitman
January 27, 2023
Carbon credits were recently the center of a media flurry. We summarize our thoughts and analyses here to help you make sense of it all.

Carbon offsetting took a hit last week from a Guardian report about a set of tropical forest carbon projects alleged to have failed massively. The coverage followed the thread of John Oliver’s recent episode on carbon offsets. At times, it even tried to offer the same dramatic flair with words like "worthless", "phantom", and "scary.” 

Climate Neutral depends heavily on the voluntary carbon market. Climate neutrality is only possible by purchasing carbon credits that "balance out" emissions, tonne for tonne. The basic premise—and promise—of climate neutrality is to accelerate the flow of money into climate mitigation projects today, while work begins on complex reduction projects.

And so, when we see these reports, it prompts the question: if not all carbon credits balance out emissions tonne for tonne, how can we best ensure that climate neutrality achieved by our certified companies actually accelerates decarbonization? 

It is disappointing we have to ask this question at all. But it’s neither the first nor the last time someone has surfaced doubts about carbon credits’ efficacy. So we take it as a reminder of the need to continue to reexamine our certification Standard so that it best supports our mission. Unlike the many services firms that offer carbon neutrality badges, we have no internal biases toward one type of carbon credit project over another. We have no inventory to sell, no long-term offtake contracts, and no captive partnerships. For this reason, we have few constraints on our freedom to adapt our requirements to reflect new information.

It’s not always obvious to people, but we’re an independent nonprofit, and we have no financial stake in individual carbon credit sales. But we do have a massive stake in the success of the voluntary carbon credit market overall as a way to channel climate finance to high-impact projects that immediately mitigate carbon pollution. As do the tens of thousands of corporate claims of carbon neutral shipping, carbon neutral flights, headquarters, factories, events—none of it is possible without a well-functioning carbon credit market.

Something much bigger than the integrity of corporate claims is also at risk if carbon credits are doomed to underperform: the whole net-zero movement. Without a highly-functioning carbon market that delivers measurable climate benefits, there is simply no plausible path to achieve the decarbonization science demands. We admire the work that target-minded companies aim to do in the years ahead. But we’re pragmatists, and what we’ve seen is that individual companies—especially smaller ones—have a steep hill to climb in meeting carbon reduction goals. Climate neutrality is a basic foundation to account for residual emissions the whole way up that hill.

Understanding the Recent Report

It's not news that it's challenging to do forest carbon credits well. Since 2008, an entire website (now Substack) has dedicated itself to pointing out flaws in the specific type of projects, known as REDD+, that the Guardian article reviews. Within the last couple of years, we have seen similar coverage from ProPublica, Bloomberg, and other outlets. 

So does the latest research shed new light, or is it the same old story? 

Past the catchy headlines, we see old light shining on new information. We also see refreshingly thoughtful responses from key players in the market—standard-setters, brokers, rating firms, and others whose job is to establish credibility for the market as a whole. 

The chorus of rebuttals seem to show that the claim “the market is broken!” overstates the extent of the findings. Some projects in some categories do underperform, but they represent a small share of the market overall. It is unfortunate to know that the promised climate protection is not being delivered. Yet, climate change is a big picture challenge—the biggest there is. To achieve the decarbonization science urgently demands, there will be some risk in the portfolio. The key is to factor that risk into responsible carbon offsetting programs.  

From our corner of the market, Climate Neutral Certified companies purchased fewer than 2% of credits from the allegedly broken projects in 2021. If those projects generated only two tonnes of climate benefit for every five purchased, 0.8% of all credits were compromised. That amount falls well within the margin of error of any corporate carbon inventory, which determines the tonne-for-tonne purchase amounts. Portfolio diversity is important in carbon credit purchases, just as it is in investing.

What’s Needed is More Market Participation

So, is it wise to stop investing in the carbon market? Quite the opposite. The market’s biggest underlying challenge is that it’s far too small to support the infrastructure needed to operate well—let alone to provide enough capital to bend global emissions downward.

If this seems counterintuitive, it may be because the volume of media attention suggests there's already a lot of money at stake and that carbon credits have become big business. That's simply not true—yet. Even after rapid recent growth, the entire voluntary carbon market is only worth a couple of billion dollars. That's 1/250th the top-line sales of Amazon, and about equal to the revenues generated last year by La-Z-Boy.

As net-zero-aligned offsetting programs expand, and scrutiny generates new market rules and oversight, outcomes will improve. The recent carbon market growth is a relatively new phenomenon. Yet in just a short time, we have seen a proliferation of new technology platforms, verification frameworks, and monitoring tools. Like all innovations, their success depends not just on the quality of the initial idea, but the existence of a market to sell into.

Claims Integrity is also Critical

Long before the clarion call of "net-zero by 2050" existed, prior to the current climate revolution and before the advent of Shopify’s carbon neutral shipping, some people took exception to the idea that companies should be able to buy carbon credits at all because they were an imperfect cover for climate pollution. At that time, there were few norms about what constituted a legitimate offsetting program.

Now, it’s 2023. Norms have changed, and the integrity of climate neutrality claims depends on much more than an offset purchase. And while the worst-case tales of carbon market scams have mainstream rhetorical power, the voluntary market is capable of delivering real, verifiable GHG mitigation.

In a couple of weeks, Climate Neutral will begin our annual 2023 Standard review process by engaging our external advisors and stakeholders. The purpose of our Standard is to further cement the expectations and norms around climate neutrality and the integrity of our certified brands’ claims. On our discussion agenda, we will include the question of whether recent research should inform changes to our Standard. We will open up the process for general input and encourage you to subscribe to our email list below for updates.

Our underlying goal remains to align the priorities of consumer brands with the priority of climate protection. Each depends on the other. We’re as resolved as ever to push them both forward rapidly toward the net-zero future.

For more reading on the recent coverage, we recommend:
The Guardian: Carbon Offsets are Flawed, But We Are Now In a Climate Emergency 
Everland: The Science Behind the Guardian Piece is Fatally Flawed
Source Material Article
Verra’s Response

Pachama’s Response

South Pole’s Response

Ecosystem Marketplace on the Carbon Market

Compensate’s Perspective

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About the Author

Austin Whitman
CEO, Change Climate

Austin Whitman is the CEO of The Change Climate Project. He started working on climate and clean energy 19 years ago and believes companies and individuals can make a huge difference for the climate if they're just shown how. When he's not engrossed in organization-building, he's probably with his family or being an amateur at one of his many hobbies.

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