The voluntary carbon market & offsetting

Carbon credits in the Voluntary Carbon Market (VCM) entail a cash transfer from one entity seeking credit for a decrease in emissions to another company proposing to achieve this emissions reduction. Sellers use them to pay for emission-reduction activities, and buyers use them to boost their environmental credentials. Credits can lead to a net decrease in global emissions in situations where purchasers continue to act as they otherwise would have and sellers act as they would otherwise. The fundamental idea is that offset credits are a means of transferring a net climate benefit from one party to another. The utility of offsetting rests on the premise that it is predominantly unimportant where GHGs are reduced because they mix everywhere in the atmosphere (in some cases, local emissions impacts cannot be ignored in cases where secondary pollutants are generated by the initial emission).[i] If an organisation either stops an emission-causing activity or makes it possible for an equivalent emission-reducing activity to take place somewhere else in the world, the consequences of reducing climate impact are the same. The second alternative is meant to be easier and more affordable for companies to pursue, thanks to carbon offsets.[ii]

From 2020 to 2021, the VCM annual spend has risen from $520 million to almost $2 billion; this highlights the considerable reliance being placed on such credits by organisations as they begin to implement highly ambitious net zero targets.[iii]

Source: Ecosystem marketplace

Issues facing the voluntary carbon market

Theoretically, carbon credits allow companies to demonstrate to customers and investors how they support and adhere to net zero. But for now, companies buying carbon credits for "offsetting" claims risk losing money by buying dubious or dishonest credits, and their reputations could suffer as a result. Businesses expressed similar worries during Voluntary Carbon Market Integrity Initiative’s (VCMI) interactions with them about the challenge of evaluating the validity of "offsetting" choices and the possible severity of reputational harm from being thought to have purchased subpar carbon credits. Interviewees were concerned that, regardless of their veracity, the prevalence of greenwashing could erode consumer confidence in claims of high integrity.[iv] ZCA has discussed the issue of carbon credit integrity and some innovations that seek to ensure it.

The probability that the sequestered CO₂ represented by a carbon credit may be released again in the future as a result of anthropogenic or natural disturbances is referred to as the permanence of a removal. In order to achieve the desired climate consequences, removals must be permanent. Carbon credits should result in the long-term storage of GHG emissions to fully "balance" corporate emissions that are discharged and remain in the atmosphere. There is very little chance of CO₂ release during engineered removals that make use of geological or geochemical storage, such as injecting CO₂ into underground rock formations. These types of removals can securely hold CO₂ for many millennia when properly carried out, making them effectively permanent. [v] Although often less permanent, biological removals can last a very long time. For instance, removals made possible by planting trees can be preserved for generations with the right maintenance and robust defence. Nevertheless, they continue to be in danger of reversal due to environmental change (drought, fire, pests, and sea level rise) or intentional deforestation should regeneration objectives shift. Peatland restoration and blue carbon increase both require similar principles. Ecosystems that are linked and biodiverse are typically more adaptable to change.[vi] Despite the more assured permanence of engineered solutions for offsetting, ZCA has discussed before how these engineered offset solutions can propagate further greenhouse gas generation.

Solving the carbon markets problems

The UK’s Climate Change Committee (CCC) released their report Voluntary Carbon Markets and Offsetting. Their work outlines the challenges facing carbon credits and offsetting but also rightly highlights their value; harnessing financial flows and championing the role of nature-based solutions are all benefits of an effective offsetting program, but with the current issues, progress must be made.[vii]

The conclusions of the CCC report are as follows:

• The government must take action. If further government action is not taken, there is a risk that VCMs will continue to expand without the proper quality controls or guidance in place. This would mean businesses would rely on carbon credits rather than direct emissions reduction, and it would be a missed opportunity to ensure that only high-integrity carbon credit projects are bought and sold. Most crucially, this might hinder efforts to reach net zero in the UK and elsewhere while also diminishing the legitimacy of even the most responsible net zero targets and declarations made by organisations and governments.
• The top aim is ensuring that businesses minimise emissions. Achieving emission reductions is the first step for businesses. Carbon credits shouldn't be used as a way to put off taking direct action, either now or in the future, but rather as an additional step. The Government is helping the VCMI project to offer advice on business claims using carbon credits by supporting it in a practical way. The Government must reinforce certain components of the guidance for it to be effective before making sure it is properly regulated.
• Prior to scaling VCMs, maintaining and updating standards should be a priority to allay integrity concerns. According to the CCC, it will be difficult to ever guarantee the permanence of some carbon credit initiatives. There is a need to ensure that any emergent land-based regulations covering other ecosystems are as robust as the comparatively strong standards for woodland and peatlands in the UK and continue campaigning for equally robust standards internationally. Governance structures that provide expert monitoring include a growing evidence base, and pinpointing unintended repercussions brought on by both old and new markets will remain crucial. They ought to be planned to encourage ongoing cooperation throughout the UK.

So the use of carbon offsets and carbon credits is booming; but their role as a keystone in many net zero plans means that weaknesses in carbon offsets are by extension weaknesses in the pursuit of net zero. Does your organisation use carbon offsets? Do you feel like the concern is unwarranted? Do you think the deferral of responsibility in high emissions areas, which instead of reducing their emissions offset them, leaves local people at an unfair risk from secondary pollutants? Let us know in the comments below.

References

[i] UNCTAD- An Implementation Guide to the Clean Development Mechanism

[ii] Carbon Offset Guide- Understanding carbon offsets

[iii] Ecosystem marketplace- Ecosystem Marketplace’s State of the Voluntary Carbon Markets 2022 Q3

[iv] VCMI- Summary of Interviews Conducted During the Inception Phase

[v] Nature- Estimating geological CO2 storage security to deliver on climate mitigation

[vi] USDA- Increase resilience by preserving biodiversity

[vii] CCC- Voluntary carbon market and Offsetting

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