Making Money Out of Thin Air? Or Should We Axe the Voluntary Carbon Market?

Making Money Out of Thin Air? Or Should We Axe the Voluntary Carbon Market?
Photo by Eyoel Kahssay on Unsplash. Instagram: @eyoel_kahssay_photographer

By making standing trees worth more than dead ones, the concept of reducing emissions from deforestation and forest degradation and enhancing forest carbon stocks (REDD+) was expected to be a quick, cheap and easy way to lessen the climate impacts of land-use change. Ten years after REDD+ hit the global stage,  a recent report  contends that, although it has not been quick, cheap or easy, REDD+ is still a valid idea, more so now than ever. Still, the critics call for killing off REDD+ and similar carbon offsetting mechanisms.


Carbon offsetting dates back to the 1980s, when energy companies were looking for ways to grapple with the harms caused by fossil fuels. In 1997, the principle of carbon offsetting was enshrined in international law under the Kyoto Protocol. Through the United Nations’ Clean Development Mechanism (UN CDM), rich country governments struggling to meet their climate goals could compensate by financing “clean” development projects in poorer countries.

In this context of innovative new financing mechanisms for climate change mitigation, the Voluntary Carbon Market (VCM) emerged. Like the UN CDM, the VCM enables a flow of funds from those most responsible for climate change (rich countries) to those least responsible for it but most affected by it (poor countries).  The VCM started in the 1990s and grew slowly for two decades. After the 2015 Paris Agreement was signed, however, the VCM doubled in size within five years, with the largest demand for carbon offsets coming from private companies.

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Rapid expansion brought not only a multitude of standards and methodologies, but also, unsurprisingly, several projects of questionable quality. Shocking headlines alert the public to the fact that More than 90% of forest carbon offsets by biggest certifier are worthless and Rainforest carbon credit schemes (are) misleading and ineffective. Should this sound the death knell of the VCM?

Given the asymmetry between the causes and effects of climate change and lagging public sector funding from the Global North,  delegates at last year’s global climate conference, COP27, agreed to the creation of a Loss and Damage Fund to send public funds from rich countries to developing countries.  But  disputes about how the fund should work and where it should be housed remain unresolved just weeks before COP28, which starts later this month.

In light of these difficulties, would it not make sense to encourage companies to pay for mitigation of their climate impacts – rather than waiting for the world to agree on how to run the Loss and Damage Fund? Many environmentalist critics disagree.  The policy lead on global carbon markets for Carbon Market Watch, says “Offsetting should be axed”.  One environmentalist sarcastically compares the VCM to inviting unfaithful spouses to pay someone else to remain faithful, quipping “By paying Cheat Neutral, you’re funding monogamy-boosting offset projects.”

The argument against offsetting is that, by allowing companies to offset their carbon emissions, a  licence to pollute is granted. In fact, according to Verra, a standards setting body, whose Verified Carbon Standard (VCS) is the world’s most widely used, “Companies engaged in the market are overwhelmingly those (already) doing the most to reduce their own footprints”. For example, Italian energy company Eni states that 95% of its target to achieve net zero emissions by 2050 will be achieved by decarbonizing its operations, with only 5% made up of offsetting projects. Surely such good behaviour should be encouraged.

Furthermore, it seems illogical to argue that fossil fuel companies would produce less if the VCM disappeared. They would produce less if consumers bought less. The VCM may provide them with a ‘social licence to operate’, but they will continue to provide fuel for our cars and our homes until affordable and viable alternatives exist.  The Living Planet Report argues that fixing the supply side is a small change, but the real bang will come from changing demand.

There are admittedly serious challenges with REDD+ and the VCM. In addition to the existence of fraudulent projects, these relate to proving the counterfactual (what would’ve happened in the absence of an intervention), avoiding leakage (reducing rather than merely displacing deforestation) and ensuring permanence (as some GHG emissions remain in the air for centuries while a forest could be lost tomorrow). As ‘wicked’ as these challenges are, efforts are underway to address these

To that end, Verra is:

  • Updating baselines more often, so that estimates of future deforestation are more up to date;
  • Ensuring that emissions reductions achieved by projects ‘add up’ to a national or sub-national whole;
  • Creating a unified best-practice methodology now that the ‘pioneering’ days of REDD+ are over; and
  • Digitalizing monitoring, reporting and verification to enhance transparency.

With COP27’s Loss and Damage Fund stuck in limbo and governments inadequately funding climate action, existing public sources of climate finance are not going to solve the climate crisis any time soon. Voluntary carbon markets can make a vital contribution, delivering multiple benefits, not only mitigating climate change but also supporting livelihoods, maintaining vital ecosystem services and conserving biodiversity.

REDD+ is not a silver bullet, but just another tool in the toolbox.

 

REDD+ is no panacea, and changes are required. Bad projects abound, and we must weed them out – from the Southern Cardamom REDD+ Project in Cambodia to the Kariba REDD+ project in Zimbabwe. Next, we must learn from projects that are achieving real impact in places such as Madagascar. Furthermore, “the carbon market should be a real market, not a secret pact between buyers and sellers”; more transparency and better regulation of the VCM are needed. Incentive systems need to be restructured to punish cheating.

REDD+ is not a silver bullet, but just another tool in the toolbox. According to the Intergovernmental Panel on Climate Change Sixth Assessment Report  “The climate time bomb is ticking…Our world needs climate action on all fronts…everything, everywhere and all at once”. We need to improve an imperfect tool, not throw it out.

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