What went wrong with nature-based carbon credits

Unsplash/Projeto Café Gato Mourisco

• 90% of projects ‘unsuitable for offset claims’
• Price of nature-based credits down 95%
• Expert calls for honesty over failures

Nature-based carbon credits were supposed to be a means whereby countries and companies, Middle Eastern entities among them, could offset their greenhouse gas emissions.

Advocates of the credits have argued they help mitigate climate change and at the same time benefit rural communities. 

Yet the reality has disappointed. After Cop26 in Glasgow in late 2021, carbon credit prices soared. But their value has since collapsed because of a lack of confidence in their validity.

Nature-based carbon credits were trading at $1.03 on November 2, down 94.5 percent from a peak in January 2022 of $18.70, according to carboncredits.com.

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Forestry – preventing deforestation and growing new trees – is at the centre of the proposition, and the disappointment.

Under the United Nations’ REDD+ framework, developing countries can receive money for preventing deforestation.

The UN says REDD+ incentivises countries to “take social, policy and environmental measures to help conserve forests” through several activities: reducing emissions from deforestation and forest degradation; conservation and enhancement of forest carbon stocks; and sustainable management of forests.

Instead, reality has bitten. 

Finland’s Compensate Foundation analysed around 170 nature-based carbon offset projects certified by verification agencies and found that 90 percent were unsuitable for offset claims.

Jonathan Crook, a global carbon markets policy expert at Belgium’s Carbon Market Watch, said that because of weak structures, nature-based credits could have the opposite of their desired effect.

“If the carbon credits are low-quality and are used to offset real emissions instead of the purchasing companies cutting their own emissions, then the creation and trade of these credits could actually increase emissions,” Crook warned.

A major flaw in carbon credits that claim to prevent deforestation is so-called “leakage”. Local people and commercial loggers simply take their wood from locations other than the protected area.

Similarly, a forest may have been preserved anyway without the associated carbon credits, and the carbon credit scheme therefore lacks “additionality”.

Niklas Kaskeala, chairman of the Compensate Foundation, said: “Potential buyers must focus on the quality of the projects underlying the credits. If they’re not additional, then you’re paying for something that’s just business as usual.”

Over-crediting is another common problem.

This has led some corporate buyers of nature-based credits to present their purchases as contributing to environmental protection, not as emissions offsets.

Kaskeala said: “It would be a false claim to say that you counterbalanced or offset your emissions via most nature-based credits. They’re of insufficient quality to enable counterbalancing or offset claims.”

The control area against which potential deforestation in the area underpinning the credits is compared is rarely measured – another flaw.

Creators of deforestation avoidance-based carbon credits have a strong incentive to choose a comparison area that is unlike the project (or protected) area. For example, the project area could be in a remote location without roads or human presence with plenty of trees, whereas the reference area is often near a town where deforestation is much likelier, Kaskeala said. The result? The nature-based carbon credit project shows lots of additionality. 

“Nature-based carbon credits are built on trust, because you’re trading something intangible,” Kaskeala said. “If you erode that trust, you don’t have a market. That’s why it’s crucial we expose these flaws and start rebuilding the trust by being honest about what went wrong.”

The situation is not entirely hopeless. The Integrity Council for Voluntary Carbon Markets aims to set global benchmarks for carbon credits and offsets. The first projects created under its auspices are due to be approved and launched in 2024. Australia’s Carbon Market Institute is doing something similar.

Kaskeala said: “There’s a vast number of initiatives and these are an improvement, but where most of them fall short is in failing to acknowledge it’s almost impossible to make that equivalency between the emissions you cause and then the offsets you pay for.”