The Voluntary Carbon Market: Is it effective?

Verra has sold one billion carbon credits since 2009, each representing one tonne of carbon dioxide removed permanently from the atmosphere, of which 40% are rainforest carbon offsets. They are one of the leading certifiers of carbon credits, with 88 countries worldwide relying on them for guidance.

Although Verra has strongly rejected claims made by the investigation, an old problem with the voluntary carbon market is reopened: A total lack of cohesive regulation, which could threaten to undercut the $2 billion industry.

Verra launched its own study in response to the Guardian’s, citing a lack of transparency, unrepresentative synthetic controls, and using unsuitable data such as low-resolution satellite imagery.

Business is deeply concerned by this finding that destroys the reputation of carbon offsets with customers and thus threatens to void their claims of providing a way to be green and sustainable; they are the first to clamour for more stringent regulations on the sector.

In any case, carbon offsetting is a controversial matter in combatting the climate crisis: On the one hand, it helps to generate crucial funding for renewable energy research and development. On the other, it’s easily exploited, and allows companies to greenwash their products.

To understand it as it stands now, it’s worth having a look at the concept’s history.

How carbon offsetting was born

The quantification of carbon offsetting has been a contentious subject since its conception.

Carbon offsetting can be linked back to the 1997 Kyoto Protocol under the United Nations Framework Convention on Climate Change (UNFCCC), which came into force in 2005. This established legally binding emissions reduction targets for the European Union (EU) and 37 other industrialised countries, known as Annex I countries.

The mechanisms under which participating countries may hit these targets include Joint Implementation, the Clean Development Mechanism, and, crucially, Emissions Trading.  With this, the concept of a cap-and-trade carbon market was created that “allows countries that have emission units to spare – emissions permitted them but not “used” – to sell this excess capacity to countries that are over their targets” (UN language).

Other carbon credits of one tonne of CO2 may also be transferred under the scheme. These are removal units (RMUs), which are on the basis of land use, land-use change and forestry activities like reforestation. An emission reduction unit (ERU), generated by the joint implementation project, or a certified emission reduction (CER) generated from a clean development mechanism project.

Although it is clear that one carbon credit equals one tonne of carbon dioxide, quantifying carbon offsets is a difficult matter: It is both hard and controversial to identify exactly how many extra emission units are available, or what is exactly meant by having “emissions units to spare.”

Especially when dealing with deforestation, it is hard to quantify how much forest might be “saved,” seeing as once the forest has been saved, it becomes a hypothetical notion.

These controversies have taken their toll. In 2000, COP6 was suspended as parties failed to reach an accord over the proposed measure by the United States that human activity in carbon sinks, such as afforestation, reforestation, and tackling deforestation should count towards emissions targets.

Although the meeting reconvened in 2001, by then America had withdrawn from the Kyoto Agreement under the Bush administration. An accord was reached allowing afforestation, reforestation, and tackling deforestation to count towards emissions targets.

This has opened up another system on the sovereign and voluntary carbon markets where companies may buy carbon credits from other countries, often developing, by sponsoring carbon avoidance or sequestration projects, to offset local carbon emissions.

Without US participation, the EU’s Emissions Trading System (EU ETS) defines itself as the world’s first and biggest major carbon market.

The difference between “sovereign” and “voluntary” carbon markets.

The UNFCCC has a carbon offset platform, where an organisation can buy carbon credits to compensate for greenhouse gases.

This includes a catalogue of UNFCCC-certified climate-friendly projects implemented in developing countries. They are rewarded with CERs for each tonne of greenhouse gas they help reduce, avoid or remove.

The prices of the CERs are set by the project developers, who receive the full profits from the sale of units directly.

This market is known as a “sovereign” carbon market because it is regulated by a government or a regional inter-governmental entity such as the EU.

However, as consumers have begun to favour ‘greener’ options, this has given rise to the “voluntary” carbon markets (VCMs), which are supposed to be self-regulating. Although the current value of the market is over $2bn, it is expected to rise sharply over the next decade, with some estimating a value of $50bn by 2030.

A number of bodies on the market have aimed to provide certificates of standard to carbon credits being traded on the VCM – a brokerage business that is very lucrative for those involved – including Verra. Verra is a non-profit that manages and develops carbon offset standards, including the Verified Carbon Standard (VCS).

However, Verra faces criticism of having massively oversold carbon credits. Following this, the Gold Standard (another leading carbon credit certification standard) clarified that they did not issue REDD (Reducing Emissions from Deforestation and forest degradation) credits that Verra does.

These criticism are reminiscent of controversies around Fairtrade, the NGO that has been historically criticised for over-advertising the benefits that the fairtrade certificate offers to farmers.

Verra is similar in that it is an NGO that has been left to determine trade standards; a situation which is, perhaps, inherently vulnerable to exploitation, without any legislation to uphold it or verified independent system to monitor it and control the veracity of certificate claims.

To this end, the Integrity Council for the Voluntary Carbon Market (ICVCM) are aiming to bring in their own set of voluntary standards. The ICVCM aims to introduce global core carbon principles (CCPs) that will set the global standard for carbon offsetting. They will reveal these in March.

The ICVCM has an expert panel made up of twelve carbon market experts, supported by eleven subject matter experts in topics ranging from carbon sequestration science to the rights of indigenous peoples and local communities.

The standards are being developed by the Integrity Council’s Expert Panel which is made up of twelve leading carbon market experts with long-standing experience in the environmental and social integrity of carbon markets, supported by eleven subject matter experts in topics ranging from carbon sequestration science to the rights of indigenous peoples and local communities (IPLCs).

Following the implementation of the CCPs, high-value carbon credits will be issued a CCP label.

In short, the idea is to devolve to a group a respected, reputable experts the task of ensuring climate justice in carbon trading – without however the imprimatur of any government authority or the Law. This is an approach that is clearly open to future controversies.

The matter is also expected to be on the agenda for COP28, having been deferred from COP27. The conference is expected to clarify how carbon credits may be used to meet Paris Agreement obligations, as well as how voluntary and UN carbon markets will interact (currently, they don’t interact at all).

Carbon offsetting: a valuable tool, or a distraction from real change?

Although increased regulation will be a vital tool to making the carbon markets more reliable, growing them may not be the answer. They come with a huge number of social, political, and environmental problems attached.

On the plus side, in many cases they provide the funding necessary for sustainable development projects that are not to be found elsewhere.

On the minus side, they can serve to obscure a true vision of the climate crisis. Although regulations may be coming into play, it allows huge emitters of greenhouse gases to continue or even increase emissions and still label themselves as net-zero, as long as they spend enough money on carbon credits.

Carbon credits, although they are advertised as a last resort, they can obscure the urgency of reducing carbon emissions simultaneously.

This can particularly be the case for carbon credits that are sold for avoiding deforestation, as David Humphreys, professor emeritus of environmental policy at the Open University argues. Although they are treated as though they are sequestering additional carbon through these projects, really, they are maintaining carbon sinks rather than growing them.

This is undeniably an important work, but not one that can be used to justify additional carbon emissions.

Furthermore, the market issue is a potential problem of fighting fire with fire. On the one hand, carbon credits are not always expensive enough to counteract the opportunity cost of leaving land uncultivated.

Just as the Arctic industry boom for renewable energy has affected indigenous Sami reindeer herders in Northern Europe, the growing carbon offset market can come at the cost of people who live on land that is used as carbon credits.

Indigenous peoples in the Amazon rainforest have been severely exploited by “carbon pirates.”  

Although stricter regulation will help this issue, it is difficult to imagine governments and a voluntary market regulating carbon offsetting achieving intended goals quickly enough, in a way that respects livelihoods and is in line with climate justice. Carbon trading, ultimately, is unlikely to be an effective weapon in the fight against the climate crisis.

The ICVCM argue that they will “build integrity and scale will follow,” but it is difficult to see an instance where this claim has proved true. Regulating the carbon market more strictly is a necessary and worthwhile endeavour, from both independent boards like the ICVCM and governments such as the UN. However, it is difficult to understand how ICVCM will differ from others who have tried and failed.

As it stands, the unregulated carbon market is acting as a licence to pollute, and often benefits the brand images of the people who are causing the most harm to the environment. If we continue to offset carbon instead of phasing out fossil fuels, the invasion of sustainability projects may well turn into a new form of colonisation and exploitation of local communities, well-intentioned as it may at first appear to be.

As Wilfredo Tsamash, a member of the Northern Peru Awajun community said, “I do not think we should sell the credits to oil companies or mining firms. They are the ones doing the damage.”

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