First the strategy, then the certificate

Whether we’re printing postcards, booking our next holiday flight or mailing a birthday gift – these days, we can buy countless products and services that claim to be climate-neutral. The underlying mechanism enables greenhouse gas emitters to offset their emissions by purchasing mitigation certificates in climate projects based around activities such as forest replanting, expansion of renewable energies or utilisation of landfill gas. But can this genuinely cancel out the harmful climate impacts of corporate and individual action? Not really, say experts from the Oeko-Institut. In their view, what is needed instead is an approach based on climate responsibility, with appropriate pricing of greenhouse gas emissions.

The market for carbon credits – or carbon offsetting – has surged in recent years. According to a market survey by the German Environment Agency (UBA), the volume of allowances sold and retired in Germany almost doubled from 22.1 million tonnes of carbon dioxide equivalent (CO₂e) in 2017 to 43.6 million tonnes CO₂e in 2020. Indeed, from 2016 to 2020, it increased more than sixfold and a further rise is expected.

But is it a sensible approach? “Using carbon credits may make sense, but only if every effort has already been made to reduce emissions as far as possible. Any emissions that can be avoided must truly be avoided,” says Martin Cames, a Senior Researcher and climate expert at the Oeko-Institut. “In practical terms, this means that we must develop strategies showing how we can act in a climate-compatible manner – both as individuals and in corporate and other institutional settings. Private citizens have more influence here than they might think – when choosing an electricity supplier or mode of transport for their next holiday, or when voting for a party that is committed to mitigating climate change. We should always ask ourselves what we can do to protect the climate.” As he sees it, companies need a long-term overarching strategy. “They need a transparent, publicly accessible roadmap showing how they intend to reduce their emissions to zero, with monitoring to track whether they are reaching their goals. It's not an easy journey – it takes time, as well as financial and human resources.” But as Martin Cames points out, there is only limited potential to absorb CO₂ from the atmosphere. “This must be used for those emissions that simply cannot be avoided – from agriculture, for example.” And he also recognises the possibility of rebound effects: “If someone can ease their conscience by buying carbon credits, they may decide to take more frequent flights in future.”

The adoption of the Paris Agreement also poses further challenges for the concept of voluntary offsetting – because every country now has climate targets to reach. As a result, reductions achieved through carbon credits are claimed not only by the end buyers but also by the countries where the projects are implemented. “This issue can be addressed under Article 6 of the Agreement, but implementation is still a work in progress. This kind of double counting puts a question mark over climate neutrality or offsetting of emissions,” Martin Cames explains. “That’s another reason why we should be rethinking the offsetting model.” On top of that, there are numerous problems with the quality of the traded certificates – as the article “Carbon offsetting in crisis” on p. 8 reveals.

Green claims

The voluntary use of carbon credits is currently an unregulated area both in Germany and at EU level. However, the EU’s new Green Claims Directive shall at least set standards for environmental claims relating to goods and services. “This could mean that in future, certain phrases, such as advertising claims about climate neutrality, will no longer be permitted or are restricted,” says Martin Cames.

As part of its “Study on existing initiatives to inform potential climate-related delegated act(s) under the Green Claims Directive” on behalf of the European Commission, the Oeko-Institut is currently investigating how greenwashing around offsetting can be avoided, what can be done to ensure that consumers are not misled, and which options exist to regulate the market. “In the study, we are looking at what are known as delegated acts, which the European Commission can use to supplement elements of legislation. There is scope here for more specific climate-related provisions,” explains Lambert Schneider, Research Coordinator for International Climate Policy at the Oeko-Institut. “For example, the Commission could stipulate which information must be provided and which conditions must be met when making certain environmental claims.” Based on an analysis of existing initiatives in the voluntary carbon market, the project team is developing specific recommendations for these delegated acts.

In addition, as part of the EU Horizon project “Achieving High-Integrity Voluntary Climate Action (ACHIEVE)”, the Oeko-Institut and numerous project partners are currently looking at frameworks to support voluntary contributions to climate change mitigation. The use of carbon credits is a key focus of attention here. “We are analysing not only the integrity of carbon credits but also how they are used. The aim is to produce specific recommendations showing what can be done to reform the voluntary carbon market,” Lambert Schneider explains.

Climate responsibility

From the Oeko-Institut’s perspective, effective climate action involves much more than offsetting. One mechanism which may have positive impacts here is the principle of climate responsibility: instead of compensating for remaining emissions through purchases of mitigation certificates, as with offsetting, these emissions are multiplied by a carbon price necessary to achieve the objectives set in the Paris Agreement. “The resulting climate budget can be used to fund innovative climate action based around e-fuels, for example,” says Martin Cames. But what exactly is an appropriate price? “The spectrum ranges from the price of emission allowances in the emissions trading system, currently 50-60 euros per tonne of CO₂, to the costs of the damage caused by greenhouse gas emissions, which the German Environment Agency (UBA) estimates at more than 200 euros per tonne of CO₂. We would like to see companies competing with each other over the best approaches here. Through the pricing mechanism, they would thus demonstrate to what extent they are genuinely willing to take responsibility.” The Oeko-Institut itself is keen to take responsibility as well. “We have already embarked on the task of embedding the principle of climate responsibility. We can see that this is not an easy road to travel, but it is one which we will – and must – pursue.”

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National and international climate policy is central to economist Dr Martin Cames’ work. His areas of expertise include flexible mechanisms in international climate action such as emissions trading; greenhouse gas trends and projections; and instruments for reducing emissions in international maritime transport and aviation.