Carbon offsetting players: perspectives and criticisms.
As part of their ecological and energy transition, many countries (including France) and companies have set a target of carbon neutrality by 2050. To achieve this goal, it is sometimes necessary to offset emissions. This brings us into the realm of climate finance.
Indeed, once the carbon footprint has been quantified using a greenhouse gas (GHG) emissions assessment, and the transition action plan applied, certain emissions may prove to be incompressible. This may depend on the company's operations, sector or activity. For example, a manufacturer of internal combustion engines will find it difficult to reduce emissions linked to the use of its engines, and the product sold(scope 3 of the carbon footprint).
In such cases, offsetting (or "contribution") can be another way of reducing your carbon footprint. It is based on the (theoretical) principle that the impact of GHGs remains the same, wherever they are emitted. Reducing GHG emissions at home or elsewhere therefore has the same impact on the final quantity of GHGs in the atmosphere, in theory.
A financer can buy carbon credits, finance an emissions reduction project, and thus contribute to reducing emissions to the extent of its financing. The project may be located in the financier's own country (France, for example) or abroad. A carbon credit corresponds to one tonne of CO2 avoided, whether by sequestration or reduction (through the deployment of renewable energies, for example) of emissions.
Despite its necessity, carbon offsetting, and in particular its various players, is subject to criticism and controversy. This article explores these criticisms and examines the sector's future prospects.
1. Who are the different players in voluntary carbon offsetting?
1.1. Differentiating between voluntary and mandatory contributions
2.1. The use of carbon credits
Who is involved in voluntary carbon offsetting?
Let's start by looking at how the sector operates and the interactions between its various players.
🙋Differentiate between voluntary and mandatory contributions
Carbon credits are sold on two financial markets:
- The regulated market, created following the Kyoto Protocol (1997), on which governments and companies subject to greenhouse gas emission reduction obligations trade.
- The voluntary market, developed in parallel with the first, in which individuals and companies voluntarily offset their emissions.
The controversies we're going to examine concern the voluntary financial marketplace (private finance). Because of its voluntary nature, there is no neutral authority to attest to the quality of the credits sold, or to distribute them according to projects. This is why labels have been developed to attest to their quality, based on specific, verifiable methodologies, and why various players are involved in the exchange of these credits. However, they are not immune to certain pitfalls and abuses.
⛰️En upstream of the project
According to ADEME, there are several players upstream.
- The carbon investment fund, which exists to enable the development of carbon contribution projects that will eventually deliver credits.
- The project leader, who proposes, implements and manages the carbon offset program.
- The carbon consultant, who carries out field studies to assess the project's carbon impact, and helps the project owner with the administrative procedures for obtaining carbon credits.
- The carbon label, which provides certification in a multi-stage process.
- The carbon auditor, who verifies the quantity of GHG reductions.
Once the project has been set up, certified and the quantity of GHGs reduced audited, the credits are sold on the voluntary financial market, at a price determined by the project's various criteria. They correspond to a tonne of CO2 already avoided, with the avoidance verified and certified by auditors and the chosen label.
🏞️En downstream of the project
Once the carbon credits have been issued, other players become involved, again according to ADEME.
- Carbon offset operators, often consulting firms or NGOs, offer solutions tailored to their customers' needs. In the case of carbon offsetting, this may involve proposing the purchase of carbon credits linked to a program that corresponds particularly closely to the customer's values and wishes.
- Carbon brokers buy and sell carbon credits on the financial market. He puts managers in touch with financiers, who exchange credits at an agreed price.
- The financer, or final offset customer, is the organization or individual who buys the carbon credits to offset part of its irreducible emissions up to the amount of its purchase.
Controversial players
The carbon contribution is young, and in the case of voluntary contributions, unregulated. This has led to abuses and pitfalls on the part of some stakeholders.
💸The use of carbon credits
Some companies are criticized for basing their entire strategy for achieving carbon neutrality on offsetting, through the purchase of credits, without reducing their own emissions.
In this way, carbon offsetting is seen as an equal lever for reducing greenhouse gas emissions. However, the carbon contribution does not cancel out the effect of actual emissions.
An action plan to reduce emissions begins by decarbonizing its activity wherever possible, and only then by offsetting it. These are not two interchangeable levers.
The "Science-based target initiative" is also criticized for counting the purchase of carbon credits as a means of reducing emissions. Carbone 4 believes that this is a step backwards in the initiative's historic ambition, and would delay the collective measures to be put in place.
This is counter-productive, if only because it doesn't encourage companies to truly rethink their business model and decarbonize their value chain.
It is also inconsistent from a scientific point of view. The purchase of carbon credits in no way reduces the dependence on fossil fuels identified by a GHG emissions balance.
This can lead to dangerous communication, with overestimated targets and false claims. A product is not carbon neutral because the company has purchased credits. Its production will still have emitted GHGs.
👻Ghost credits
Some labels are facing criticism over their methodology, and the sale of phantom credits. This is what happened to Verra certification, an internationally recognized NGO, in August 2023.
Following an investigation by The Guardian, Die Zeit and SourceMaterial newspapers, it has been revealed that around 90% of the carbon credits certified by the label, under the "Reducing Emissions from Deforestation and Forest Degradation" program, are in fact ineffective in the fight against climate disruption.
🏋️♀️La overestimation of project effectiveness
Some carbon offset operators are also facing methodological criticism, such as the leading South Pole, a Swiss company specializing in financing projects likely to reduce the concentration of greenhouse gases in the atmosphere. It then sells the carbon credits associated with these projects to interested companies.
In 2023, according to the Swiss daily "Der Bund", South Pole overestimated by 50% the effectiveness of carbon credits linked to the "Kariba" project, which should have prevented the destruction of a forest the size of Puerto Rico.
South Pole defended itself by invoking a correction mechanism: every ten years, deforestation projects re-evaluate the rate of deforestation assumed in the initial project, and the credits issued are adjusted accordingly.
It's true that one problem with carbon contribution projects is that they don't always deliver the returns they promise. Climate is not an exact science. Estimates of the absorption capacity of French forests, for example, have been revised down wards to 2024 compared with 2023.
Nonetheless, the company's reputation has been tarnished, and many companies are moving away from it.
🔮Future prospects
The voluntary carbon contribution market is estimated to be worth $2 billion by 2024. It's booming, and still in its infancy.
The various scandals surrounding players in this sector have tarnished the industry's reputation and shaken companies' confidence. It would appear that they wish to take a more cautious and methodical approach to their offsetting, by verifying more precisely the methodologies associated with the labels available on the market, and by detaching themselves from controversial players.
Some, like Volkswagen, no longer use carbon offset operators, preferring to set up their own projects.
These scandals call for a correction in methodologies, so that the credits sold can be directed towards projects that are genuinely useful in the fight against climate change, and so that private finance can play its role properly. They also call for greater awareness of carbon offsetting, which is no substitute for a decarbonization strategy.
