Carbon offsets, a purported solution to climate change that has been plagued by greenwashing, are making a comeback at the COP27 climate summit.
The idea that companies should pay for credits that match their carbon footprint with reductions achieved elsewhere—by forest conservation, renewable energy farms, or other climate-friendly activities, often in poor countries—is being touted at the conference by high-level officials from around the globe. In the first days of COP27 hosted by Egypt, offsets have emerged as one of the main ways to raise money for climate adaptation which wealthy governments have failed to provide. That’s in spite of a long history of problems with carbon credits that includes shoddy accounting, fraudulent marketing claims, and human rights abuses.
To do this, the US is linking up with NGOs, foreign governments, had multinational corporations. On Nov. 9, US climate envoy John Kerry, flanked by executives from Pepsi and Microsoft, announced a plan to create a new platform for carbon credit trading called the “Energy Transition Accelerator.” US companies will be able to shop for certified offset credits derived from clean energy projects in developing countries, which will in turn reap a new source of financing to underwrite their transition away from fossil fuel-fired electricity. The program should be operational within a year, Kerry said.
“Our intention is to put the carbon market to work to speed the transition from dirty to clean power,” he said.
As more companies set voluntary decarbonization targets, the market for carbon offsets has exploded. In 2021, it grew to $2 billion, four times its size in 2020. By 2050, the total volume of CO2 traded is projected to grow to 5.2 billion tons, forty times higher than this year, according to Bloomberg. So although carbon credits like those the US plan will offer are already available to companies through other channels, there’s likely to be more than enough demand to support another marketplace.
Kerry emphasized that the plan is “not in lieu of any other financial commitments,” anticipating the criticism that the US government plans to dump financial responsibility for carbon reductions in developing countries on the private sector. Climate financing from the US has fallen far short of its historical contribution of greenhouse gases. Kerry acknowledged that “some past abuses have discredited the use of carbon credits, [but] mistakes of the past shouldn’t prevent us from driving capital to where it’s needed.”
The credits will only be available to companies that commit to eliminating their net greenhouse gas emissions entirely by 2050, set science-based interim goals, report regularly on their progress, and are not fossil fuel suppliers (sorry, Exxon).
But the devil is in the details. The plan “does not close the door to misleading uses of carbon credits,” argues Gilles Dufrasne, lead global carbon markets analyst at the think tank Carbon Market Watch. “More detailed rules are needed to ensure that this new initiative will not serve greenwashing campaigns.”
African countries want to seize the carbon market
Some offsets in the US market will originate in African countries. African governments were already lining up to participate in the days before Kerry’s announcement. On Nov. 8, African countries including Nigeria, Egypt, Kenya, Malawi, Gabon, and Togo, along with sponsors including the US Agency for International Development, the Bill and Melinda Gates Foundation, and the carbon trading platform Verra, launched the Africa Carbon Markets Initiative (ACMI).
By 2030, the initiative aims to ramp up carbon credit production in Africa 14 times to 300 million tons of CO2 per year. It estimates $6 billion will flow to the continent providing a critical stream of funding for clean energy and conservation.
“We’re a minute player right now in the global carbon market, but no one else has the [natural] resources we have,” said economist Bogolo Kenewendo, Botswana’s UN special climate representative and a member of the ACMI steering committee. “This is about unlocking finance to enable a green development pathway. It’s not a blank check for companies [in developed countries] to emit.”
Not everyone is convinced. “It’s just an excuse for rich countries to continue emitting, and helps wealthy parties delay making tough decisions,” said Gareth Phillips, division manager of climate change and green growth at the African Development Bank.“It’s not net-zero for the world, and it’s not a long-term solution.”
One big problem, he said, is double-counting: Are carbon offsets sold by one African country counted toward the original country’s net emissions, or those of the company buying the credit? Without a much better accounting system, it’s likely to wind up on both ledgers. Another issue is speculation as banks and traders often buy and flip credits for higher prices, leaving only a sliver of profit for local communities. Finally, challenges from corruption to securing rights to profit from sovereign assets like forests must be resolved.
The UN’s anti-greenwashing panel shrugs at carbon offsets
Anna Lehman, climate policy director for Wildlife Works, a nonprofit developing forest-based carbon credit projects in Africa whose projects will be part of the ACMI, says groups like hers are helping African governments ensure the proper accounting of their carbon credits. She says it will be the responsibility of corporate buyers of carbon credits not to make misleading claims—for example, claiming to be “carbon neutral” if credits are already tallied on the national ledger of the country they originated in.
COP27 isn’t providing much help on that front. A Nov. 8 UN report on countering corporate greenwashing only gave general recommendations that companies should buy high-quality, third-party-certified carbon credits.
But that “will not be enough to end greenwashing,” said Dufrasne of Carbon Market Watch. “They encourage companies to purchase carbon credits and have no language against making claims like ‘carbon neutrality’ or similar misleading advertisements,” he said. “Today’s free-for-all situation must end as consumers and citizens are being misled into thinking that companies are doing much more than they actually are.”