Forest Carbon Credits: Solution or Distraction in Voluntary Markets?

This is the first article in our five-part series on forest carbon credits and the voluntary market. Read Part Two, Part Three, Part Four and Part Five later this month.

At the outset of 2023, the voluntary carbon trade seemed poised to expand its reach, boosting the amount of carbon it sought to offset along with the trade’s value. Figures from 2022 suggested the market’s value had reached $2 billion, and current projections suggest it could grow to $10 billion or even $100 billion by 2030 — and into the trillions by 2050.

Proponents say this voluntary mechanism had begun to mature, providing climate action as well as desperately needed funding for forest conservation in places where government protections had fallen short. It also offered, they add, an avenue for individuals, companies and states to provide restitution for their carbon emissions and contribute to holding back climate change. What’s more, that $2 billion figure was proof that it was actually happening.

Then, on Jan. 18, U.K. newspaper The Guardian, German news weekly Die Zeit and nonprofit journalism outfit SourceMaterial published the first in a series of articles claiming that more than 90% of carbon credits from a set of forest conservation projects didn’t have a real impact on climate change. The benefits to the forests that were the source of the credits, as well as the value of the credits to the climate, were largely inflated, if not absent entirely, the journalists reported.

Such criticism isn’t new. Similar critiques have been around since the idea of offsetting emissions took hold in the late 1980s. A 2022 investigation by Bloomberg Green suggested many credits, mostly from renewable energy projects and sold to companies to offset their carbon emissions, were “junk.” A joint investigation by The New Humanitarian and Mongabay in September 2023 raised serious questions about the United Nations’ own claims to be almost entirely carbon neutral based on its carbon credit purchases.

Soon after The Guardian’s first story in early 2023, Verra, the world’s largest carbon credit certification body and a vociferous defender of carbon markets, mounted a counteroffensive. The U.S.-based nonprofit argued the reporters’ conclusions were incorrect. Verra and its supporters said the analysis relied largely on a scientific study that hadn’t been peer-reviewed. Verra also said that while its methodologies for calculating carbon weren’t perfect, neither were the alternatives presented in the study. (The paper in question has since been vetted by other scientists and published by the journal Science, though it remains the subject of controversy.)

Still, despite the group’s defense, Verra’s CEO stepped down in May. Verra began rolling out updated draft guidelines designed to increase transparency and “integrity” in the markets. The group says these updates had long been in the works and were not prompted by The Guardian’s investigation.

But in its aftermath, many corporations, already wary of carbon offsets due to fears they might be accused of “greenwashing” their operations, began to shy away. In June, Nestlé withdrew its pledges to make some of its brands carbon neutral amid fears of more lawsuits over alleged misrepresentation regarding its climate neutrality. Royal Dutch Shell decided to scrap planned investments of up to $100 billion in offsets. And lawsuits over claims of carbon neutrality against companies like U.S.-based Delta Airlines gained traction.

Many observers predicted 2023 would be a pivotal year for the voluntary carbon market.

“Where we are in 2023 is at an inflection point for the future of the role of carbon markets in overall climate mitigation,” said Frances Seymour, who was a distinguished senior fellow with the World Resources Institute at the time she spoke with Mongabay.

Others have seen the dissection of the market’s methods as further proof that it’s a distraction holding the world back from meaningful climate action.

Flawed as markets may be, “We need all the tools we can have in order to adapt, mitigate, reduce,” Robert Nasi, chief operating officer of the research organization CIFOR-ICRAF, told Mongabay, echoing a common sentiment among those worried about climate change, deforestation and biodiversity loss.

There’s near-universal agreement that ending the use of fossil fuels and the resulting release of greenhouse gases is imperative to avoid catastrophic climate change. But so much carbon has been released since the beginning of the Industrial Revolution in the 18th century that even a drastic overhaul of the world’s transportation, agriculture and power generation infrastructure won’t be enough to stay below a 1.5° Celsius (2.7° Fahrenheit) or 2°C (3.6°F) rise in the global temperature since then. Those figures are the key goals of the 2015 Paris climate agreement and the thresholds below which scientists say the world will avoid the worst effects of global heating.

Many say that’s where nature-based solutions such as forest conservation, with support from the voluntary carbon trade, can play their part. Voluntary carbon markets also retain the support of key players who see it as the most active approach to addressing climate change.

“It’s great to have it because we have nothing else right now,” said Tim Christophersen, vice president of climate action with Salesforce, during a panel at COP28, the 2023 U.N. climate summit, held in Dubai. The U.S.-based company developed its own carbon credit marketplace in 2022.

But as the pressure on voluntary markets and the projects that feed into them increase, so have concerns about their viability.

“In order for that market to function … as a way of accelerating overall societal climate action towards net zero,” Seymour said, “we need to have demand and we need to have supply.”

On both sides of that equation, players are looking for ways to boost the integrity of the credit system. At the Dubai summit, a number of organizations that support voluntary carbon markets rallied around streamlining guidelines for companies, which they say will make it easier to buy “high-integrity” carbon credits with confidence.

In the push for “integrity,” the key certifiers, including Verra, have agreed to work together to make their standards more consistent. And the U.S. commodities regulator, the Commodity Futures Trading Commission (CFTC), has proposed its own guidelines for voluntary trading that observers say could further the push for higher standards.

But how did we get here? And what’s to come for voluntary carbon credits?

Origins

In 1997, leaders from 160 nations brokered the Kyoto Protocol, named after the Japanese city in which it was signed during that year’s U.N. climate conference (COP3). The Kyoto Protocol required the world’s industrialized countries to limit the amount of carbon they were releasing. Even though the U.S., the world’s largest emitter at the time, never ratified the accord, it was seen by many as the first global reckoning with how human actions were affecting the climate.

Widespread deforestation decimated tropical forests throughout the 1990s, fueled largely by demand from wealthy nations for timber, cash crops, meat and other products. The logging boom not only wiped out habitat for untold numbers of species and destroyed a vital resource for the 20% of the world’s people who depend on forests. It also razed a significant repository of carbon, releasing it into the atmosphere. Had the trees been allowed to continue growing, they would still be siphoning carbon from the atmosphere.

With the advent of the Kyoto Protocol and the Clean Development Mechanism (CDM), the idea arose that polluting countries could invest in emissions reductions in other countries. It would help industrialized countries meet their emissions targets, so the thinking went, while providing funds for sustainable development in other parts of the world. It also revolved around the idea of “saleable” credits tied to those emissions-reductions projects.

By the 2007 U.N. climate conference (COP13) in Bali, Indonesia, the concept of REDD had gained support. It was based on an idea introduced in 2005 by the Coalition for Rainforest Nations, a group that today includes about 90% of the world’s remaining rainforest. Short for “reducing emissions from forest degradation and deforestation in developing countries,” REDD involves integrating forest conservation into climate change mitigation. Later, the term REDD+ appeared, which added a focus on sustainable forest management to increase carbon stocks.

The original idea behind REDD was to reward countries for protecting their forests. As their forests and the carbon they contained expanded over time — provided they kept a lid on deforestation — they would receive payments based on the results, said Kevin Conrad, founder and executive director of the Coalition for Rainforest Nations, who was also an architect of an early version of REDD.

But others saw carbon markets as a nimbler solution, one in which REDD+ projects could contribute to emissions reductions immediately. The Bali Roadmap that arose out of COP13 called for “demonstration activities” to stimulate work on REDD.

“‘Demonstration activities’ was interpreted as ‘projects,’” Seymour said. “There was this huge flowering of conservation initiatives that were relabeled as REDD+ projects.”

Under this interpretation, newly tagged REDD+ projects proliferated in places with an imminent threat to forests — in a country or province losing forest to clearance for agriculture as the population grew, for example. Developers could argue that the “avoided deforestation” as a result of their work kept carbon from being released into the atmosphere — the “reducing emissions” part of REDD+. The voluntary market would then reward these results with credits that could be traded or sold, not payments as originally intended.

Then came the landmark 2015 Paris climate summit (COP21), at which countries submitted their individual emissions reduction goals, known as their nationally determined contributions. These NDCs would establish the basis for a U.N.-backed global carbon market as a tool for countries to use in meeting their self-determined goals. The Paris Agreement also acknowledged the importance of maintaining forests and other natural carbon sinks. A 2017 study concluded that “natural climate solutions” had the potential to contribute more than a third of the carbon emissions reductions required to keep the global temperature rise below 2°C.

The vision was that the trade in carbon credits, by “offsetting” or canceling out emissions elsewhere, could be a tool on the path toward net zero, in line with the effort to decrease overall greenhouse gas emissions.

In Conrad’s view, a U.N.-supported scheme is what’s going to bring about the required change.

“For us, that’s the future,” Conrad said. “That’s how companies are going to be involved — not buying voluntary credits on some voluntary standard that’s not part of any global regime [and] not included in NDCs, using standards that aren’t consistent, but by being compelled to buy credits coming out of the Paris Agreement that are part of the global accounting system.”

In late November 2023, Suriname became the first country to offer nearly 5 million carbon credits under Article 6 of the Paris Agreement through what are known as internationally transferable mitigation outcomes (ITMOs). Conrad sees the issuance of the ITMOs as a manifestation of the original intent of REDD, which was to reward countries for protecting their forests. Article 6 of the Paris Agreement allows the trading of emissions reductions and removals between countries, and it also envisions a global carbon market.

But proponents of the voluntary market see the focus on crediting and trading in Article 6 as support for voluntary trading, even though voluntary credits aren’t subject to the same requirements and oversight that a tool like ITMOs are. Since 2015, the number of credits offered and certified each year has increased. And lately, a jurisdictional system that moves closer to the countrywide accounting envisioned for a U.N.-backed market and the voluntary carbon trade have moved closer together.

A chorus of criticism

To Conrad, the surging unregulated voluntary market exacerbates problems like the double counting of emissions reductions and removals that can occur when projects and countries aren’t aligned on their carbon accounting. Criticism has also centered on how the voluntary market operates, what it means for the communities and forested countries where these projects were established, and, crucially, whether the emissions savings are actually doing anything to address climate change.

On one side of the debate, detractors say voluntary market-derived carbon offsets are an excuse for rich countries and companies to continue to pollute while providing little incentive for reducing emissions. Essentially, they argue, the relatively cheap alternative of buying carbon credits discourages these companies from investing in efforts to reduce their carbon footprints.

But to many supporters of the voluntary market, that’s not reflective of what’s happening. Offsets are just part of the climate strategy of the companies that buy credits, said Josh Tosteson, president of Everland, a company that does marketing for REDD+ projects.

“Those organizations that are most involved in offsetting are the ones that are doing the most and investing the most in decarbonizing their own operations,” Tosteson said. “This idea that somehow companies are going to use this as a smokescreen to not make the investments is just not borne out by the evidence.”

A recent survey of more than 100 companies by Sylvera, a U.K.-based carbon credit ratings and analytics firm, found that companies that invest in carbon credits are reducing their own emissions almost twice as fast as companies that don’t.

Still, companies are not fully accounting for the full range of emissions that result from their activities, according to a November 2023 study in the journal PLOS Climate. The study found that companies don’t often report the emissions that stem from parts of their supply chains they don’t directly control, known as Scope 3 emissions.

On the other side of the debate, supporters seem to contend that “carbon offsets are going to save the world,” said Nasi from CIFOR-ICRAF. “That is not correct.”

Despite the carbon market’s increasing value, the credits sold in 2022 represented 116 million metric tons of CO₂, just 0.3% of the year’s total global emissions from energy production.

The criticism leveled at offsets by The Guardian focused largely on the methodologies that project developers use to calculate the reductions in carbon emissions as a result of REDD+-driven cuts in degradation and deforestation.

“These projects, they exaggerated their baselines, and they’re not reducing as much deforestation as they claim to be,” Thales West, the lead researcher of the Science study on which The Guardian based many of its conclusions, told Mongabay in August.

Broader criticisms center on the idea of trading credits in markets as ironic and hypocritical, given that it’s this same model of capitalist extractivism in sectors like agriculture and timber that has largely driven deforestation and in turn contributed to much of the greenhouse gas emissions into the atmosphere. Since the mid-18th century, land-use change for those types of activities has been responsible for one-third of CO₂ emissions.

Human rights advocates argue that siphoning credits from less-industrialized countries to “offset” emissions from the Global North is a new form of colonialism, allowing carbon-intensive lifestyles and profit-making speculation in wealthy countries. It also potentially hamstrings the abilities of less-industrialized countries to develop economically and balance their own emissions.

Despite these issues, backers of the voluntary market say that acting now, however imperfectly, is imperative.

“Our obligation, first and foremost, is to quit dithering around and get the money down to the ground,” Tosteson said.