Blog from Jane Marsh: The Dark Side of Carbon Credits and How We Can Improve Them

Many organizations are making sustainability pledges to help combat climate change. Some companies aim to become net zero — emissions balanced by the amount produced and reduced. However, lowering overall emissions can prove complex and many businesses utilize carbon credits to help them reach this goal.

Unfortunately, carbon credits are imperfect and many people believe refinements are vital to make it a viable option. Here is the dark side of carbon credits and how they can improve.

What Are Carbon Credits?

Carbon credits allow organizations to offset carbon or any other greenhouse gas emissions with the amount they purchase. One carbon credit equals one ton of carbon removed from the atmosphere. For example, if a company needed to offset 5,000 tons of carbon emissions, it could purchase 5,000 carbon credits.

Businesses usually rely on carbon credits when they can’t decrease their overall emissions naturally. The purpose of these credits is to discourage organizations from having high emission offsets. The money the carbon credits generate is used in projects to help further sustainability.

The Dark Side of Carbon Credits

One of the main issues people have with the carbon credit market is transparency. A change is necessary, one that provides buyers with verified evidence that the carbon credits they purchase are being put to good use.

People want to know the money spent on these credits fosters a better carbon footprint and decreases carbon effectively. Overall, they want assurance that their money is going to a good cause.

Unfortunately, how carbon credits work has allowed organizations to use them in greenwashing tactics. For example, they may claim a forest is in danger of being cut down when this is not the case. This makes the claim redundant and effectively takes credit for already-existing trees.

According to an investigation by The Guardian, Die Zeit and Source Materials, 90% of Verra’s forest carbon offset credits — the largest certifier in carbon credits — do not represent real carbon reductions. The investigation claims most of the forest carbon credits they sell are worthless and do not impact carbon reductions.

Many large companies such as Gucci, Disney, Shell and Salesforce use Verra for carbon offsets. If the finding of this investigation holds true, it puts many of these organizations at risk of involuntarily utilizing greenwashing tactics. This raises concerns about whether these carbon credits are helpful or effective.

Verra responded to the investigation, stating the findings were inaccurate, and mentioned they will implement new rules and regulations for generating forest carbon credits. The organization said that by 2025, all projects would follow these new regulations.

How Can Carbon Credits Improve?

A 2021 report by the Taskforce on Scaling Voluntary Carbon Markets (TSVCM) outlines six areas where changes are necessary to scale voluntary carbon markets.

1. The Core Carbon Principles and attribute taxonomy: 10 core carbon principles hold credits to specific standards to ensure they are of high integrity. In the report, TSVCM states independent third-party organizations should evaluate these standards and a taxonomy of additional attributes should be defined to aid with classifying credits.
2. Core carbon reference contracts: High liquidity in the core carbon contract with a transparent price signal will help produce growth in price risk management and supply-chain financing.
3. Infrastructure of trade, post trade, financing and data: With a resilient and flexible infrastructure in place, carbon credits can upscale, which enables the listing of reference contracts. Bettering the data infrastructure of carbon credits will allow businesses to make well-informed decisions and up the integrity of their credits.
4. Consensus on offset legitimacy: Creating an overall guideline for using carbon credits and offsets will ensure appropriate use and further the associated benefits. Proper guidance will verify the improper use of selling carbon credits does not eradicate the progress made with it. This furthers the market goal and outlook of achieving net-zero targets.
5. Market integrity insurance: With the rise of voluntary carbon credit markets, the risks of errors, misuse, fraud and money laundering increase dramatically. Proper channels should be in place to ensure market fairness, legality and transparency. Higher market integrity is required to align with the Paris Agreement goals to limit global warming to under 2° Celsius.
6. Demand signals: Clear and strong demand signals will provide the momentum to drive the development of carbon credit markets and ensure efficient upscaling. New point-of-sale options and simplified buyer experiences will further enhance demand signals.

The Future of Carbon Credits

The potential of carbon credit markets looks promising for the planet’s sustainable future. However, there are still many obstacles that need overcoming and aspects that need improving. If the factors mentioned in the report could be implemented, carbon credits would become an excellent and efficient method to reduce carbon emissions.

About the author: Jane works as an environmental and energy writer. She is also the founder and editor-in-chief of Environment.co