Carbon offsetting: Businesses held back investments last year over greenwashing exposés

The quantity and total value of carbon credits transacted globally fell year-on-year in 2022 and then again in 2023, with businesses deterred from investing due to accusations of greenwashing by large credit producers and verifying bodies.

Carbon offsetting: Businesses held back investments last year over greenwashing exposés

Stock image: Kenya, a base for many nature-based and fuel-related offsetting projects

According to new data from Ecosystem Marketplace, the overall carbon market transaction volume declined by 56% year-on-year in 2023. This marked a second consecutive year of decline from the market’s peak in 2021.

Based on research among both the buyers and sellers of carbon credits, plus intermediary bodies, Ecosystem Marketplace concluded that a key driving factor of the decline was scrutiny in the media on the credibility of offsetting projects.

As 2023 began, a coalition of news outlets including the Guardian revealed the results of investigative work into Verra, a leading carbon standard. They claimed that some 90% of the standard’s rainforest credits were “worthless” in terms of their climate impact.

Verra disputed the claims but nonetheless set out plans to improve additionality rules by summer 2025. Its CEO David Antonioli subsequently resigned after some 15 years at the helm.

The Guardian touted further investigative work into the sector later in 2023, in partnership with NGO Corporate Accountability. This concluded that more than three-quarters of the world’s most popular emissions offsetting projects were ‘likely junk’ and most others could also be ‘problematic’.

Other media investigations have focused on the potential for human rights abuses in carbon credit supply chains, plus weaknesses in plans to safeguard emissions reductions and removals as extreme weather threatens projects.

Taming the ‘Wild West’

In addition to being put off by negative press around carbon credits, would-be buyers also held off on investment in anticipation of key standards intended to enhance credibility in the sector.

These include the Voluntary Carbon Markets Integrity Initiative’s (VCMI) Claims Code, released in June 2023, and the Integrity Council for the Voluntary Carbon Market’s (ICVCM) Core Carbon Principles, finalised in March 2023.

Companies were only able to become ‘early adopters’ of the VCMI Claims Code from November.

Ecosystem Marketplace tracked particularly steep declines in the purchase of credits linked to renewable energy projects and forestry and land-use schemes. Credits certified by REDD+, the most popular platform for nature-based projects, lost 62% of their value year-over-year in 2023.

On the contrary, the volume of transactions for credits generated by energy efficiency, fuel switching, community renewable energy and agriculture projects grew in 2023.

“The entire voluntary carbon market is going through a transition focused on project additionality, integrity, and environmental and social co-benefits,” said report author Alex Procton.

“As a result, we are seeing shifting supplies of credits from different project types and regions of origin. It’s essential to pay attention to the green shoots today to understand which kinds of carbon market projects will be the most important for the climate action of tomorrow.”

Science-Based Targets Initiative

Ecosystem Marketplace’s report does note that, even with the VCMI and ICVCM resources, many businesses are still shunning offsets or waiting to invest due to “a lack of guidance from the Science-Based Targets Initiative (SBTi).”

Last month, in a move that sparked widespread debate and reportedly led to a rift within the initiative itself, the SBTi indicated that it could be more lenient in allowing businesses to use offsetting to meet emissions targets.

Further information is expected in full in July and the SBTi has reassured businesses that any conclusions will be based on thorough public consultations.

The data from Ecosystem Marketplace was released shortly after the US Government introduced its own principles for carbon markets, covering both buyers and sellers.

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