Carbon credits and offsets don’t have a great track record, but the funds they raise are a vital part of fighting deforestation.
At the UN’s Cop26 climate summit in Glasgow in 2021, governments around the world made a surprising new commitment to saving the world’s forests. The $12 billion commitment to protect and restore forests was hailed as a historic step: “the largest public climate finance commitment of its kindsaid Lord Goldsmith of the United Kingdom.
Protecting forests, which store an estimated 400 gigatons of carbon, is essential to averting the worst damage from the climate crisis and keeping global temperatures within 1.5°C of pre-industrial levels.
Deforestation rates, despite serial pledges to reduce them over the years, remain staggering, and the impacts of global warming are now exacerbating the problem, drying out swaths of remaining forest and losing their ability to store carbon, in a cycle vicious.
Commitment to protecting forests
But achieving the commitment to protect forests will actually cost about US$393 billion a year through 2055. The amounts committed by governments and multilateral development banks so far are “A drop in the oceansays Nat Keohane, president of the US Center for Climate and Energy Solutions.
That’s why many climate experts pin their hopes on global carbon markets to provide the funds needed to stop and even reverse deforestation in the most vulnerable countries.
Globally, voluntary carbon markets (so called because they are not regulated by governments, which in some regions issue licenses or credits to companies to produce carbon) are worth only around $2 billion a year today, fueled mainly by companies seeking to offset their greenhouse gas emissions through the purchase of carbon credits.
But, according to consultancy McKinsey, they have the potential to provide a much larger steady stream of revenue, of more than $50 billion a year by 2030.
Basic Carbon Offset Funds
These funds will be essential as governments are unlikely to provide the necessary amounts. “We need to use every channel we can to get funding” Keohane says. “We cannot leave anything on the table. We know we won’t be able to reach even 2°C if we don’t end tropical deforestation”.
The big problem is that, so far, carbon credits and offsets don’t have the best track record. “There have been legitimate concerns about the voluntary marketsaid Keohane. “Quality has been uneven”.
That’s an understatement. For nearly two decades, there have been numerous cases of malpractice, from the outrageous – projects that never existed, forests being cut down, trees that died or were being counted double or multiple times – to legal but disreputable ones, such as companies that resell at high prices remuneration based on “hot air”, carbon credits granted almost free by governments.
When it comes to forests, there are additional layers of complexity. Carbon credits are awarded to keep forests standing that would otherwise be under threat of destruction, a concept known as “additionality”.
But it is often difficult to say whether a forest is under real threat, and this is even more complicated because some projects allow a limited amount of logging to take place in areas where carbon credits are claimed, an apparent contradiction but justified on the grounds of basis that revenue from credits alone is not enough to compensate for the loss of timber value of the forest.
Transparency in carbon capture projects
Annette Nazareth, a lawyer with experience regulating public markets, is now co-chair of the Integrity Council for Voluntary Carbon Markets (ICVCM) and hopes to set things right by providing “transparency and credibility” to the markets.
“We need more standardization of what high quality credit looks like“, said. “We want to remove uncertainty and create a high integrity market so there is a lot more trust and companies can invest.”.
The new technology is expected to help. High resolution images of rainforests from satellites are now so advanced that experts can look below the forest canopy and locate almost down to the level of individual trees, to check the condition and health of the forests and try to reduce fraud.
But Keohane says it’s critical to also address the demand side, to ensure companies aren’t using offsets as a card to “get out of jail“, so that they continue to emit as much as before, while claiming carbon neutrality by buying cheap credits. “Carbon credits must be complementary, not substitutes [para reducir las emisiones]“, He says.
Robust standards to better control carbon offsets
A robust standard would ensure that companies demonstrate that they are taking steps to reduce their emissions and that offsets only cover a smaller and decreasing proportion of their emissions.
Nazareth believes that the system of norms that will emerge from the ICVCM will be “as a regulator”. But the system is voluntary, not overseen by governments, so why not?
That would take too long, she says. Governments have not acted for more than three decades, so unless companies are encouraged to act, it will be too late. “Time is essential“, she says. “We don’t have the luxury of waiting”.
And this is the crux of the problem. It may never be possible to tell whether a tree would have been felled had it not been for the protection provided by a carbon credit, or to prevent all the scammers from making a quick buck off a non-existent project, or to kill all the greenwashing companies.
Worst of all, waiting for more perfect ways to keep the world’s increasingly threatened and fragile forests standing may be an unattainable luxury.