By Charles Bedford, Chief Impact Officer at Carbon Growth Partners
Much of the media and NGO community have recently muddied the waters around the global carbon market by repeating a set of myths around the market. The “carbon market” is a set of mechanisms that have been put in place by national governments, the UN, and civil society to drive funding toward reduction and removal of carbon emissions from the atmosphere in the most efficient way possible. Here’s a recent paragraph from Bloomberg which repeats these myths:
“Offsets are designed to allow companies to pay a small sum in exchange for removing carbon from their balance sheets. For years, researchers have been raising concerns that these transactions are letting polluters off the hook. Rather than actually reducing planet-heating emissions, they say, these offsets function like an accounting manoeuvre that allows more greenhouse gas to enter the atmosphere.”
Let’s take it sentence by sentence.
Imaginary carbon “balance sheets.” Offsets (or credits) are designed not to minimise the cost of removing carbon from balance sheets of companies. Rather, the system was designed to bring finance to carbon beneficial activities and to embed a price on carbon into a company’s balance sheet where there was none before. The market is not designed to have these sums be “small”, but reflect market demand as well as the cost of delivering carbon projects. Finally, companies have no legal or binding obligation to even keep a carbon balance sheet, much less “remove” the carbon from it. There is no imaginable scenario where the world’s governments will implement strict carbon recordkeeping and reductions in the next decade, though there is some progress on disclosure from some securities regulators. Even Europe only covers 45% of corporate emissions, so the idea that the Central African Republic, Somalia, or Venezuela might implement the kind of command and control regulatory structure and land use controls seems far-fetched at least. So much for sentence 1.
The mythical “Hook.” The second sentence parrots the notion that polluters are let “off the hook”. There is no hook—companies pledge to decarbonise. We all hope that they will do so, however, there is no legal requirement or hook. By repeating this notion, readers might be tempted to be outraged that the companies are somehow doing something wrong. It’s just not true. Should companies be more thoughtful about the carbon projects that they are financing? Absolutely—and they are doing so increasingly with the assistance of ratings agencies and their own research. Should the credit standards be more exacting? Of course, and they’ve repeatedly improved their standards, but are generally given no credit for having done so. Some carbon projects, those generated in middle income countries for wind and solar projects that would have been able to stand up on their own financially, have, since 2020, no longer been eligible for credits from the largest certification bodies. Corporate offsetters are clearly on notice that these are a ‘no go’ for offsetting.
This myth also ignores the most potent aspect of the carbon markets, which is that, even at the small scale of the current VCM, embedding a price on carbon into unregulated corporate sector activities is happening for the first time ever. A rising price for ‘voluntary’ carbon, while not a perfect solution to climate change, helps in changing behaviours of corporates and driving decarbonisation. As price rises, alongside quality, in the VCM, corporates will have greater incentive to switch to internal decarbonisation. The myth of an imaginary “hook” misses this central point. Instead of a hook, why wouldn’t we focus on the economics, and drive companies to invest more into the carbon market, rather than paint a portrait that leads companies to throw up their hands and say “why bother?”.
Blame climate change on carbon credits. This myth must have taken a fantastic imagination to conjure up. How is it possible to believe that purchasing carbon credits voluntarily would allow for more CO2 to be emitted? I think you’d have to believe in a world that, frankly, doesn’t exist. One where there is a strict regulatory cover of carbon emissions at the global level. One where companies decide to only offset and are not held accountable by their stakeholders to also undertake reductions. One where pledge and tracking registries like Science Based Targets initiative (SBTi) do not exist.
There is no way to connect the very small carbon market (maybe 2 bln tonnes/credits ever issued by Verra, CDM, Gold Standard and others, and around $2 bln of market activity last year) to the increasing emissions of companies, year on year, for the duration of the existence of that market (about 15 years). The correlation/causation analysis is completely absent. The assertion that the number of climate meetings has CAUSED global warming because of the increasing emissions every year since the 1992 Earth Summit would be a similar stretch of the imagination. Laughable, yet this assertion of causation is repeated in nearly every media report on the carbon market, hidden behind the notion that “experts say” This expert says, “bullshit.”
Myths like King Arthur may have some basis in history, but they are far from reality and based in the past. Equally interesting are the myriad stories that that show a steady progress toward integrity in the nascent carbon market. Stories of:
- Indigenous and local communities finally being offered a seat at the carbon finance table after generations of providing carbon and biodiversity sinks for the rest of the world for free. (Numerous communities that have never even met someone from the government of their country before are now able to provide medical care and education for their people with proceeds from carbon projects.)
- Or ratings agencies that are double checking the quality of projects and the exchange platforms that are labelling project credits with ratings and quality markers.
- Or the crediting standards that are working hard to tighten rules, increase quality and augment confidence in a market that is incredibly complex (over 400 methodologies with multiple sub-methodologies, over 10 crediting standards, 6,000 projects, over four ratings agencies, dozens of auditors/VVB bodies, etc).
Let’s not give the corporate sector an easy excuse to do nothing, because they risk being attacked for trying to do something. Doing nothing is the worst possible outcome for the planet. There are great projects out there, generating carbon and biodiversity and social benefits, that also have the benefit of putting a price on carbon into corporate operations that was never there before and isn’t likely to be mandated by law anytime soon. Ecosystem Marketplace did a study of corporate action on climate a few years ago, and found that corporate buyers of carbon credit corporate were MORE likely to take action to decarbonise their own operations.
The carbon market can only be successful in combating climate change with critical and accurate inputs, peer review and oversight. But the lack of appreciation for what carbon finance can do for indigenous and local people alongside carbon outcomes and corporate behaviour change is troubling. Hundreds of VCM projects are succeeding where 70 years of government aid, World Bank and bilateral projects, promises and loans have failed. What is more interesting, and laudable, about the VCM is the work done to protect forests in Colombian Indigenous territories or to restore hydrology to mangroves in Mexican communal land ownership, to bring power to small rural communities in Bangladesh or to distribute cookstoves in the eastern DRC through the Catholic church. These projects have high quality carbon, biodiversity and social equity/economic outcomes, yet will be discontinued if demand continues to decline because of lack of confidence in the market caused by the rote repetition of myths like the Balance Sheet, the Hook, and the Causation myths. That would be a shame.
Charles Bedford is Chief Impact Officer at Carbon Growth Partners and an adjunct professor at Hong Kong University of Science and Technology.
Any opinions published in this commentary reflect the views of the author(s) and not of Carbon Pulse.