Murky World of Carbon Offsets Faces Greater Scrutiny

Lambert here: I’m loving the idea that there’s an “Integrity Council for the Voluntary Carbon Market.” No red flags there!

By Matthew Green, global investigations editor at DeSmog. He has previously worked at Reuters and the Financial Times. Originally published at DeSmog.

Proposals to boost transparency in the carbon offset market could shine a light on brokers who buy credits cheaply from Indigenous communities before selling them to companies at inflated prices. 

The measures form part of a wide-ranging package drafted by the Integrity Council for the Voluntary Carbon Market, a governance body aiming to boost the quality of carbon offsets. The proposals were published this week, beginning a 60-day public consultation.

Major emitters such as banks, airlines and oil companies are flocking to carbon markets to help meet net-zero targets by financing projects that tackle carbon dioxide (CO2) emissions elsewhere. Each carbon credit represents a tonne of CO2 that has either been reduced at source or removed from the atmosphere – often through schemes to protect tropical forests or other ecosystems. 

Critics of carbon offsetting have long argued that much of the money spent by companies on carbon credits ends up in the hands of “carbon brokers”, rather than Indigenous and other local communities stewarding the project sites.

The proposed new standards on financial disclosure would aim to level the playing field by revealing how much of the income generated by carbon credits flows to project developers, brokers and local people.

“When a buyer in the carbon market purchases a credit, the actual project developer may be getting five dollars a tonne. But the ultimate price in the voluntary carbon market might be $20. Where is the mark-up going?” Pedro Barata, co-chair of a 12-member expert panel that drew up the proposals, told DeSmog.

The proposed new disclosure standards were not intended to pry into individual transactions to work out which intermediaries might be “making a killing”, Barata said. But some market participants wanted access to more information about the amount of revenue reaching project developers and communities.

“That’s a controversial issue, but we’re not shying away from that controversy – we’re putting it out there with a formulation and asking people: is this correct, is this worthwhile, can we extract information that is actually going to improve the working of the market?” Barata said.

Carbon Credit Rush

Surging demand pushed the value of the carbon markets where companies buy offsets above $1 billion for the first time last year — more than double their value in 2020, according to Ecosystem Marketplace, a nonprofit provider of environmental finance data.

Known as the Core Carbon Principles, the Integrity Council’s draft proposals are designed to tackle the many pitfalls that plague the fast-growing offsetting industry, from land-grabs in developing countries to the risk that forest projects can literally go up in smoke.

It is hoped that companies who want to show they are serious about tackling climate change will only buy credits generated by projects that adhere to the principles – envisaged as a “gold standard” quality assurance stamp. 

The 124-page draft document contains a wide range of options that may be revised and whittled down following the public consultation. The final version of the Core Carbon Principles is due to be approved by the Integrity Council’s board, chaired by Annette Nazareth, a former commissioner with the U.S. Securities and Exchange Commission, by the end of the year.

[Lambert here: Sadly, I can’t get this interactive chart to work properly in our page layout. But you can resize and search the chart at the original.]

‘Predatory Aspects’

The role of the finance industry in steering the Integrity Council has raised concerns among climate campaigners who fear that banks and brokers may ultimately prove the biggest beneficiaries of plans to rapidly expand the trade in carbon offsets.

Mark Carney, a U.N. climate envoy and former governor of the Bank of England, who launched a widely criticised forerunner initiative to the Integrity Council, serves on the Council’s advisory panel. BlackRock, the world’s largest asset manager, and the Institute of International Finance, a Washington DC-based financial services lobby group, are also represented.

“The so-called ‘Integrity Council’ is heavily-weighted by people who have zero experience of understanding the predatory aspects of offsets on the ground,” said Tom Goldtooth, executive director of the Indigenous Environmental Network, a coalition of indigenous and grassroots environmental justice activists. “It is dominated by banks and polluters that have terrible track records of ignoring Indigenous Peoples’ demands and who do not have a clue what a real solution to climate change looks like.”

DeSmog reported in March that the organisation had failed to fill three board posts reserved for representatives of Indigenous and local communities. Francisco Souza, a Brazilian economist and member of the Apurinã Indigenous Peoples of the Brazilian Amazon has since taken up one of the posts. There are also several indigenous representatives in the advisory panel. 

William McDonnell, the Integrity Council’s chief operating officer, said the organisation was in discussion with various Indigenous groups to fill the remaining posts.

“There’s a very real prospect of further appointments to the board. I expect that to happen this year,” McDonnell told DeSmog.

Other campaigners argue that incremental improvements to the quality of carbon offsetting projects will do little to mitigate the risk that companies will use the practice as an excuse to continue polluting.

“No matter how ‘high’ the standards are, offsetting simply isn’t a substitute for action to rapidly and dramatically cut carbon emissions,” said Charlie Kronick, senior programme advisor at Greenpeace. 

Despite the scepticism, Barata, the co-chair of the Integrity Council’s expert panel, said his colleagues had laid out robust proposals to ensure communities shared the benefits of offsetting projects. These include a possible levy on carbon credits to help implement the Paris Agreement by channelling finance to assist vulnerable countries to adapt to climate damage.

“On the environmental and social safeguards, we’ll never be able to please everyone. But I certainly think that we have done a good job in terms of putting the bar high,” Barata said.