Author: Lauren Foye, Head of Reports at Zero Carbon Academy
Carbon offsets could be worth $100 billion by the end of the decade, up from just $300 million in 2018. Yet, many environmental groups claim this can be seen as ‘greenwashing’, as fears around the legitimacy of carbon credits remains.
Carbon offsetting on the rise, as companies seek to balance the books
As businesses and individuals seek to cut carbon emissions, there is a growing move towards the implementation of ‘offsetting’. As the World Economic Forum discusses, in the past offsetting would likely have involved planting trees or investing in a reforestation project. Yet today businesses can instead “buy carbon credits to establish an ongoing programme of carbon offsetting, so that for every action – a new division or building, a new fleet of vehicles, or a flight and so on – you simply buy more credits to cancel out your emissions.”[i]
There are a wealth of examples as to how business may use carbon credits. For example, in the EU, airlines operating flights between EU member countries can use carbon credits to meet mandatory limits on their emissions under the EU Emissions Trading Scheme (EU ETS) which has been operating since 2005. Further, in Colombia, companies can pay their carbon taxes using carbon credits, and in May 2020, the US Treasury issued new rules requiring companies claiming carbon-capture tax credits to verify the amount of carbon captured by the schemes they invest in[ii].
“Companies can meet their climate targets by purchasing credits for their current emissions although some, like Microsoft, have committed to going further and using credits to compensate for all their historic emissions – in Microsoft’s case, going back 45 years.”[iii]
The number of offsets sold doubled between 2018 and 2020. Chart shows the number of carbon credits issued alongside the number of carbon credits bought
Source: Bloomberg[iv] referencing TSVCM
The practice is certainly on the rise, former governor of the Bank of England, Mark Carney previously stated that he believed the unified market for carbon offsets could be worth $100 billion by the end of the decade, up from about $300 million in 2018[v]. Carney himself is head of the Taskforce on Scaling Voluntary Carbon Markets (TSVCM). Launched in September 2020, the Taskforce aims to quantify the stock of existing voluntary offsetting schemes as well as ensure credibility and avoid issues such as double counting. Previously, Voluntary Carbon Market Forums (VCMF) chair Dame Clara Furse was quoted by Edie.net as saying: "Carbon credits are an important step in securing a path to net-zero. The work of the Taskforce has been essential in setting out a clear pathway towards significantly scaling voluntary carbon markets, whilst ensuring they are transparent, well-governed, verifiable, and robust.”[vi]
Some environmental groups argue offsetting is tantamount to ‘Greenwashing’
Greenwashing is a term which is gaining increasing attention in the Net Zero space, essentially, it relates to the action of a company or business to portray themselves or their products as being ‘green’ or ‘environmentally friendly’ when in fact this is not necessarily the case, and such information is potentially misleading. A such, carbon offsetting, and subsequently the purchase of carbon credits, has seen some environmental groups and NGOs label it as a tool for greenwashing. Their argument is that carbon offsetting is simply used to avoid addressing the real issues with pollution and carbon emissions. Further, issues exist around the standardisation and legitimacy of the credits themselves, with the industry open to fraudulent activity due to its lack of central regulation. Further, credits have different values in different jurisdictions, it’s also near impossible to guarantee the longevity of a project- say the planting of 50 trees, these may be destroyed by fire, pests or other causes before they have removed the required volume of Co2 from the atmosphere.
Carbonplace hopes to address legitimacy & standardisation fears
Branching off from the work by TSCVM, is a new platform launched in February 2022. The product called Carbonplace, follows on from a pilot in 2021 dubbed ‘Project Carbon’. The platform has been made to help address some of the legitimacy issues around the trading of carbon credits through voluntary schemes with “clear and consistent pricing and standards, amid persistent concerns around the credibility of credits and whether pricing trends could cause issues for organisations relying on offsetting to achieve net-zero commitments.”[vii] The platform will use credits which have been verified using new internationally agreed standards such as REDD+ and Gold Standard to provide legitimacy for companies seeking to utilise this form of offsetting. However, given UNFCC backed REDD+ utilises forestry-based carbon credits, concerns from environmentalists are likely to persist.
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