Carbon offsetting in crisis

Christiane Weihe

It normally takes just one click – just before I complete my purchase. But does ticking the “offset emissions” box really benefit the climate? The short answer, in many cases, is “sadly not” – because many carbon credit schemes are not backed by actual emission reductions. The carbon credit market is in crisis: increasing numbers of studies show that many mitigation projects would have been realised even without the offset schemes or that the emission reductions are vastly overestimated. The Oeko-Institut is not only researching the quality of carbon credits: with the Carbon Credit Quality Initiative (CCQI), it has also launched a project that identifies quality risks and thus aims to contribute to a market reform.

Mitigation projects operating in the voluntary carbon market are required to register with offset programmes which, in turn, define the standards applicable to aspects such as project approval and how emission reductions are calculated. “Unfortunately, these standards are often quite inadequate,” says Lambert Schneider, Research Coordinator for International Climate Policy at the Oeko-Institut.

For example, a key quality criterion is additionality – in other words, whether a mitigation project was initiated solely as a result of the carbon credits or whether it would have been implemented even in their absence. “A robust appraisal of the emissions reductions actually being achieved is also extremely important,” says Lambert Schneider. “The same applies to permanence of the reductions. If a forest is replanted but is later destroyed by fire, the stored carbon is released, so there is no climate benefit.” Various other factors are also important in ensuring high quality. They include avoidance of double claiming of reductions, compliance with environmental and social standards, and the degree of care invested in independent project assessment.

To genuinely ensure quality, a mitigation project must perform well across the board. “Often, the carbon credits are poor-quality because only one of the factors is in place. For example, if there is robust quantification of emission reductions but the project does not offer any additionality, there is no benefit,” Lambert Schneider explains. “However, if the project offers additionality, but the reduction effort is greatly overestimated – and this often happens on a vast scale with projects to avoid deforestation, for example – then quality goes by the board.”

The Carbon Credit Quality Initiative

With the Carbon Credit Quality Initiative (CCQI), the Oeko-Institut, Environmental Defense Fund (EDF) and WWF-US have launched a project which is designed to help improve the quality of carbon credits. “We want to provide transparent information about their quality, so we have developed clear criteria and an assessment methodology,” says Felix Fallasch, one of the project managers. In a second step, the project team applied this methodology to a total of 11 different project types, including landfill gas utilisation, wind power and efficient cookstoves. The focus is on the five largest carbon crediting programmes: the American Carbon Registry (ACR), the Clean Development Mechanism (CDM), the Climate Action Reserve (CAR), the Gold Standard, and the Verified Carbon Standard operated by Verra. Also within the CCQI framework, the experts have developed an online tool which enables users to assess the quality risks for various types of carbon credit. A set of factsheets summarises this information in clear and accessible language.

As well as the CCQI, there are numerous other initiatives that focus on the quality of carbon credits. For example, the Integrity Council for the Voluntary Carbon Market (ICVCM) is currently developing a global meta-standard for the quality of carbon credits. “There are also several companies that assess individual mitigation projects, such as Calyx Global and Sylvera,” says Lambert Schneider (see interview with Donna Lee on p. 13).

Efficient cookstoves

The CCQI’s assessments bring to light many of the problems and challenges that have led to the crisis of confidence in the voluntary carbon market. Efficient cookstove projects are an example. These projects now account for a substantial share – 15 per cent – of the project pipeline in the voluntary carbon market and can improve quality of life for people in the Global South. The CCQI analysis shows that efficient cookstoves can contribute to several Sustainable Development Goals (SDGs). With more efficient combustion, indoor air pollution is reduced and less time is spent collecting fuelwood, particularly benefiting women and children. “These cookstoves also increase energy efficiency and reduce fuel costs while easing the pressure on forests, enabling them to function more effectively as carbon sinks,” Nora Wissner, a researcher at the Oeko-Institut, explains. Another plus point is that emission reductions from cookstove projects in rural areas are likely to be additional. However, these emission reductions are overestimated substantially. “Multiple problems arise simultaneously here,” says Felix Fallasch. “For example, the fraction of collected fuelwood that counts as non-renewable biomass – in other words, the amount that exceeds annual growth rates – is systematically overestimated. And studies have also shown that the new stoves are used less frequently than assumed because the old cookstove continues to be used alongside the new one.” What’s more, the permanence of reductions is not necessarily guaranteed. “Reduced use of fuelwood supports more carbon storage in forests. However, these forests may be destroyed anyway – through land conversion for agriculture, for example,” Felix Fallasch explains. And if a forest project operates in the same area as a cookstove project, there is a risk that it will claim the same emission reductions. “Systematic checks must be carried out to identify these overlaps.” To maximise the benefits of efficient cookstoves, the rules applicable under the carbon crediting programmes must be substantially improved.

No financial incentives?

A fundamental problem, as Lambert Schneider sees it, is that none of the market players has a financial incentive to improve quality – apart from possible reputational damage. “End buyers want to acquire credits at the most favourable price, project developers want to accumulate as many credits as possible as a way of generating revenue to fund their projects, the independent certification service providers don’t want to lose their customer base, and the carbon crediting programmes want to avoid yielding any market share to their competitors.”

So how can the existing problems be resolved? “Right now, the market trajectory is highly uncertain. Will it lose significance or will it continue to grow? Are the problems being talked down or will efforts be made to find sustainable solutions?” The voluntary carbon market is in crisis: quality, trust and credibility are at stake. “It needs a fundamental reform to ensure that it remains relevant in future and carbon credits are not used solely for the purpose of greenwashing,” says Lambert Schneider. Various developments could come into play here. “There is now very strong public pressure, including from end buyers, so this might get things moving. Many people are now willing to pay higher prices for higher-quality carbon credits.” Initiatives such as the CCQI and ICVCM and the new ratings platforms like Calyx Global are creating more transparency in relation to the quality of carbon credits and increasing the pressure on the programmes to improve their regulations. Many countries are also introducing legislation to curb greenwashing in the voluntary carbon market (for more details, see “First the strategy, then the certificate” on p. 6). The numerous lawsuits relating to misleading advertising that have been lodged against companies which adorn their products with “climate-neutral” labels send a further important message. “And the Oeko-Institut will also continue working on creating transparency in relation to existing shortcomings and identifying options for market reform,” says Lambert Schneider.

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Dr Lambert Schneider was a researcher at the Oeko-Institut from 2000 to 2009. After holding various posts at the United Nations and the Stockholm Environment Institute, he rejoined the Oeko-Institut as its Research Coordinator for International Climate Policy in the Energy & Climate Division in 2019. Here, his areas of work include the UN climate negotiations, international carbon market mechanisms, and quantification of greenhouse gas emissions.