Until a few months ago, chasing carbon neutrality was a demonstrably Good Thing for businesses committed to reaching net zero emissions by 2050.
Then things got messy. Fiercely contested allegations that the majority of nature-based carbon credits were less effective than they first seemed pushed prices and trading volumes down.
The tension has reached particular highs in the EU, which plans to ban “climate neutral” claims by 2026 unless companies can prove they can achieve this without the need for offsetting (where each tonne of carbon emitted is purportedly cancelled out with a tonne of carbon avoided or captured).
But elsewhere there are shoots of hope that the voluntary carbon markets could help direct much-needed funds to developing countries and incentivise forest protection.
In a speech at Climate Week NYC, for example, US Treasury secretary Janet Yellen unveiled a set of net zero principles that included a reference to high-quality carbon credits as “potentially important channels” for unlocking capital needed to limit average temperature rise to 1.5C.
And the Securities and Exchange Commission, in its draft climate disclosure rule, has outlined proposed requirements for companies to disclose details about the quality of carbon credits they have bought, to help build trust and integrity.
Read on for my story about the conundrum faced by companies when the credits they have already bought are called into question. (Kenza Bryan)
A change in corporate approaches to carbon
What impact should the suspension of a single carbon credit project have on the corporate world’s approach to net zero?
For years, companies such as McKinsey, Air France and Bayer have been buying carbon credits from Southern Cardamom, one of Cambodia’s largest nature restoration projects.
This project claims to have prevented carbon dioxide emissions of around 3.9mn tonnes a year, thanks to its protection of rainforests, grasslands, lakes and coastal mangroves since 2016.
But its permission to issue carbon credits was suspended in June, after Verra, the largest accreditation body for carbon credits, received allegations of human rights abuse at the project site by Human Rights Watch.
The allegations, which Verra is still investigating, come on top of more fundamental concerns raised over the quantifiable impact of carbon credits. Critics question whether methodologies used to reduce emissions through forest preservation are strong enough to justify “cancelling out” companies’ own emissions to help them reach net zero by 2050.
The Wildlife Alliance, which operates the project with the Cambodian government, did not respond to requests for comment.
Joshua Tosteson, president of Everland, which markets credits from the project, told Moral Money the project had “meaningfully and unambiguously advanced human rights and forest protection in an extraordinarily challenging operating environment”.
For sustainability teams, the problem is that until recently, buying any carbon credits was seen as a positive step. In the case of the Southern Cardamom project, many of the companies listed as buyers of the credits have used these to cancel out their annual emissions for 2021 or 2022. None of the companies I contacted would tell me whether human rights issues were enough to cancel the offsets and buy new ones.
Air France, which bought at least 78,000 credits in the past three years, has said the company buys credits because of the legal obligation to do so on domestic flights, and that it is “closely monitoring developments” on the project.
Bayer, the German conglomerate, said it thought nature-based climate protection solutions were “important”, but that it would mainly cut 42 per cent of its emissions by 2029 compared with 2019 thanks to efforts in its own supply chain.
McKinsey, another of the buyers, still highlighted the credits on its website last week, saying these had helped more than 16,000 people build better livelihoods. It declined to comment.
The Big Three consultancy has more skin in the carbon credit game than most companies. Alongside Alphabet, Meta, Shopify and Stripe, it has pledged to spend nearly $1bn on carbon removal credits before 2030.
It has also helped design initiatives that promote the use of carbon credits, including the Africa Carbon Markets Initiative. Activists have argued this could lead to foreign companies profiting from the continent’s natural capital, with too few safeguards on human rights issues linked to projects on the ground.
Chris Lang, editor of Redd-Monitor, a website focused on carbon credits, said that buyers should have done more due diligence before using carbon credits with “flawed methodology” or human rights issues. “What they should now be doing is reducing their emissions.”
As more projects come under fire, companies must decide whether to push ahead with carbon neutrality claims, which require relying on voluntary carbon markets, or to ditch those goals altogether, given that few industries can reach “true” zero emissions in their own supply chains.
Ben Rattenbury, vice-president for policy at Sylvera, a carbon data provider, said he was reassured by Apple’s unveiling this week of a “carbon neutral” watch despite recent controversies. “This idea that carbon credits overall are rubbish is misplaced,” he added.
The solution for some has been to focus on quality, by investing in projects before they even start issuing credits. The difference between the benchmark price for voluntary carbon credits based on nature projects and the higher spot market price for individual high-quality projects is widening, with one deal between a company and a project priced at $30 in June, compared with what the CME data group says is the $2.20 benchmark price.
Others, like the start-up Oneshot.Earth, are buying a variety of credits, but discounting the “offsetting power” of some of these based on the methodological risks around them. While all credits purport to cancel or avoid the emission of one tonne of carbon dioxide, it might ascribe just half a tonne to some.
A final solution is education. Richard H Lawrence Jr, chair of both the Asia-focused asset manager Overlook Investments Group and of the non-profit Carbon Mapper, hopes to see a climate equivalent to the gruelling qualification known as the Chartered Financial Analyst programme: a qualification to become a Chartered Carbon Analyst.
And the Partnership for Carbon Accounting Financials, a standard-setting group led by banks, said last week it had launched a programme to train 2,500 professionals in carbon accounting.
Training could help companies seek the highest-quality credits and build trust, Lawrence said. “We have to spot the dirty secrets [poor-quality carbon credits] that scheisters take advantage of, but at the same time we have to educate the board of directors.” (Kenza Bryan)
Smart read
Burning Man seemingly fell victim to climate change this year, after festival-goers were trapped for days at the Nevada desert campsite because of heavy flooding in the surrounding area. So it was interesting to see the New York Times compare the city’s recent Climate Week to “Burning Man for the climate geeks”, replete with breath workshops, ice-cream giveaways and eco-friendly wine. It takes optimism and community spirit to address the crises of the day, activists argue in the piece.
Read the full article here