Carbon credit schemes are not a straight road to zero 

Pexels/Kelly

• Reform needed to avoid NFT fate
• 85% don’t achieve emission cuts
• Companies profit from credit sales

Schadenfreude has rarely felt so sweet as for sceptics who doubted the value of NFTs, with 95 percent of non-fungible tokens now worthless according to a recent report.

We will forever marvel at how a digital image of a badly drawn, bandana-wearing CryptoPunk once sold for $23.7 million. But another recently created asset class has suffered a similarly precipitous decline: carbon credits.

Unlike NFTs, carbon credits do have a real-world usage. So, what went wrong? And are their struggles terminal?

To answer the second question first: no, carbon credits may yet provide a meaningful and effective way to mitigate some of the detrimental environmental effects of consumer capitalism.

But to do so, the asset class’s proponents must solve some fundamental problems.

• Aviation offset rules face shake-up as doubts persist
• Majority of Mena countries lack net zero target, IEA warns
• Net zero (noun). Meaning … well, that’s the question

Let’s start with the terminology: although many companies use “net zero” and “carbon neutral” as interchangeable terms, the two are defined differently, while their meanings are also dynamic, which only heightens confusion.

The United Nations-backed Science Based Targets Initiative’s (SBTI) Corporate Net-Zero Standard requires companies to cut greenhouse gas emissions by at least 90 percent and use carbon capture and storage for remaining emissions that cannot be eliminated.

“Carbon neutral” is broader and allows for companies to buy carbon offsets to compensate for their real emissions.

The International Air Transport Association (IATA) has committed to net zero by 2050 but says 19 percent of the aviation industry’s emissions reductions will be through carbon offsets and capture. By including offsets, that approach wouldn’t meet SBTI’s definition of net zero, despite IATA saying the sector will achieve net zero.

Such ambiguities deepen suspicions from environmentalists that carbon credits are little more than a ruse to enable prolific greenhouse gas emitters to maintain business as usual.

Each carbon credit represents one tonne of CO2 equivalent. There are several carbon offset registries worldwide that certify and issue carbon credits. These include Verra, Gold Standard and Corsia (Carbon Offsetting and Reduction Scheme for International Aviation).

Offsets can take various forms, such as reforestation schemes, methane capture from landfill sites, renewable energy projects and programmes to provide cleaner cooking fuels in developing countries.

Yet many projects that purportedly eliminate carbon emissions would have occurred anyway without the associated carbon credits. As such, these aren’t really offsetting.

A European Union study, for example, found 85 percent of carbon offset projects didn’t achieve additional emissions cuts.

Massive oversupply is another flaw; according to the EU, Corsia-registered projects could provide about 1.5 billion credits despite demand for just 493 million.

Such problems have led to a collapse in most carbon credit valuations.

The price of nature-based carbon offsets, endorsed by Verra, has declined about 90 percent since January 2022.

Corsia credits are down 91 percent from a late 2021 high, while the tech industry’s carbon credits have lost about two-thirds of their value in just over a year, according to carboncredits.com.

Even the EU emissions trading scheme, which deploys a more robust methodology, is down by about one-fifth on an August 2022 peak.

Pixabay

Airlines pause purchases

In May, California residents launched a class action lawsuit against Delta Airlines, alleging the US carrier made misleading claims about being carbon neutral. The lawsuit argues that Delta relied on carbon offsets that were largely bogus, AP reported.

The case has led many other airlines to pause buying credits until there is clarity on “what is actually acceptable”, Yvonne Lam, Head of Carbon & CCUS research at Oslo’s Rystad Energy, told AGBI.

Purchasing carbon credits is also only the first step – for them to count, companies must “retire”, or destroy them so that they cannot be reused or resold. Yet businesses are not obliged to disclose if and when they have done this.

Tesla’s green scheme

Finally, let’s consider Tesla, whose dizzying stock price surge made chief executive Elon Musk a multi-billionaire.

The company sells regulatory credits to other manufacturers that produce fossil fuel-powered vehicles. These credits, which are near-pure profit and totalled $1.78 billion in 2022, kept Tesla afloat during its 11 straight years of posting annual losses from 2008-2019.

One could argue the credits have pushed other automakers to build electric cars, but of far greater significance is the financial engineering they provided to a company which flagrantly flouts environmental laws. 

In February 2022, US authorities fined Tesla for repeatedly failing clean air regulations, its latest in a series of infractions.

So, it’s no wonder that investor and public confidence in environmental credits has ebbed when those sold by Tesla ultimately provided a form of corporate welfare for an unrepentant polluter. 

Musk himself took 171 flights on private jets in 2022, producing 132 times more carbon dioxide than the average US resident, yet still he indirectly pockets tens of millions of dollars for his company’s supposed environmental credentials.  

New rules governing the aviation sector’s Corsia programme are due to be published by year-end. These will narrow the scope of what qualifies as a carbon offset project and bolster reporting requirements on their real-world impact.

That should provide fresh impetus to the ailing carbon credit industry, but it will take further reforms if the assets aren’t to suffer the same fate as Logan Paul’s $623,000 Bumble Bee NFT that the YouTuber bought in 2021 and now admits is worthless.

Matt Smith is a Middle East journalist specialising in various sectors including stock markets, telecoms, technology, banking and finance