Integrity problem of carbon credits overhyped, say market players

TAKE a chill pill on carbon credits’ integrity issues. That was a common theme among several carbon market participants that emerged over a two-day conference.

Skepticism over the quality of carbon credits purchased to offset emissions has become so loud that it has kept buyers on the sidelines and dampened demand, resulting in lower trading activity at a time when confidence and trust need to be built in a nascent and growing market, they said.

The environmental integrity problem has plagued both compliance and voluntary carbon markets since its inception. A valid concern among critics is whether credits produced and bought actually result in the actual reduction or avoidance of greenhouse gas emissions. Otherwise, it is just greenwashing.

International standards to accredit carbon credits have been set up by various bodies to try to address these concerns, the two most popular ones being Verra and Gold Standard. However, other standard-setting initiatives have also popped up in recent years over growing integrity concerns.

Because carbon markets are now getting a second lease of life after prices crashed following the Global Financial Crisis in 2008-09, this desire to make it perfect has led to an impossibly high bar for what qualifies as a high-integrity carbon credit, said Mikkel Larsen, chief executive officer of carbon trading platform Climate Impact X.

“And that’s all fine in trying to create a market like that. But we cannot, at the same time, then say that we want money to flow to the countries which are ultimately trying to protect standing forests... We will not have all those things in place that we expect from developed countries. But we only allow those to be high-quality,” said Larsen, who spoke on Thursday (Dec 8) at a panel held at the Asia Climate Summit.

In a separate panel, Riza Suarga, a project owner and developer, as well as the president of the Indonesia Carbon Trade Association, said that the bottlenecks for carbon credit suppliers lie with standard-setting bodies and registries, more than government regulations.

The time to register, get credits certified and issued by existing organisations is getting longer, which leads to higher consultant fees. While he has been approached by startups interested to disrupt these international standards, buyers still prefer credits certified by Verra and Gold Standard.

“We need to have something much, much simpler. Everybody wants the high-integrity, high-value, trustworthy projects... I want to save the forest, I want to expand, I want to do more projects. But please give me some guidance, the easiest way to do it,” said Riza on Thursday.

Riza was among several panellists who called for greater harmonisation of carbon credit certification frameworks globally. The proliferation of these standard-setting bodies has created confusion about what type of credits are good enough for corporates looking to participate in the market.

Gordon Bennett, managing director of utility markets at Intercontinental Exchange, said the many voices debating the integrity of carbon credits, coupled with accusations of greenwashing, have had the unintended consequence of causing corporates to now choose to stay on the sidelines rather than take any action to compensate for their emissions, a phenomenon which the industry has termed greenhushing.

“I think there’s been a few own goals, in terms of how there is a lot of discussion about what’s quality. Ultimately, quality is in the eye of the beholder,” said Bennett, who was at the same panel as Larsen.

However, other panellists have said that these skeptics have overinflated issues around integrity and are doing more harm than good for the environment, with Bennett going as far as likening them to anti-vaxxers, in an analogy where he compared environmental and carbon markets to be like the Covid-19 vaccine for climate.

“So the industry needs to do a better job in trying to explain the force for good, not just environmental markets, but also financial markets.

“If you can’t allocate capital for what is, for all intents and purpose, trillions of dollars of infrastructure, then you’re not going to get to net-zero. So, we kind of need to do a better job as an industry to defeat the anti-vaxxer mentality that all carbon credits are bad,” he said.