You have most likely seen internationally renowned companies’ claims that their products are “carbon neutral” or have heard that you can fly, buy new clothes or eat certain foods without exacerbating the climate crisis. But what are these green claims built on?

Due to increased pressure from consumers, markets and governments, companies feel pressured to demonstrate their active contribution to solving the climate crisis. As a result, more and more companies set carbon reduction targets. Credible targets require clear pathways towards reducing greenhouse gas (GHG) emissions aligned with the Paris Agreement [1].

Even though consumers sometimes tend to believe that carbon-neutral claims imply an absolute reduction in carbon emissions, most companies rely on carbon offsetting as part of their net-zero strategies [2].

Offsetting cannot replace emission reduction efforts but is supposed to compensate for residual, unavoidable emissions. Companies buy carbon credits for every ton of residual greenhouse gas (GHG) emissions [1]. Demand quadrupled the value of the Voluntary Carbon Market (VCM) to $2 Billion in 2021, while prices of carbon credits grew by nearly 60% [3].

To generate carbon credits, VCM projects must demonstrate that their activities lead to GHG emission reductions and removals beyond those that would have occurred without the carbon activity, commonly referred to as “additionality”. These emission reductions or removals are quantified against a baseline or reference level, a counterfactual scenario of what would have occurred without the VCM project or program. Conservative reference scenarios are essential for the credibility of baselines, but what does the practice look like? [1]

Fig. 1: An AI-generated image of carbon emission at sunset from DALL·E on OpenAI.

The VCM is built on trust. Transactions between buyers and sellers of carbon credits mainly occur over-the-counter, as there is no central regulatory body governing the market. Instead, certification programmes and standards have been developed to promote transparency, credibility, and accountability in the VCM.

While the rapidly increasing value of VCMs reflects the high confidence of corporate buyers, criticism is growing, especially towards avoided deforestation projects – with 30% the most prominent single offset type (in 2020) [2]. Based on a joint scientific study on the majority of forest offset projects (commonly known as REDD+ schemes) certified by Verra, the world’s leading carbon standard for the VCM, the Guardian concluded the following [4]:

The Guardian also encountered severe human rights issues on-site at Verra’s flagship project in Peru, where smallholder farmers claimed to be victims of land grabs while park guards and police cut down their homes with chainsaws and ropes. They spoke of forced evictions and tensions with park authorities [4].

Dozens of companies and organisations have bought rainforest offsets approved by Verra for environmental claims. In reaction, some companies simply stated that the credits bought were certified by Verra, the “world’s leading certification organisation” [4].

However, relying on Verra’s approval and the certifying agencies is insufficient. According to Thales West, a lead environmental economist at the Free University in Amsterdam, Verra’s “methodologies are based on fragile assumptions. That, makes them fundamentally unreliable. There is much room to game the system” [5].

Moreover, Verra has a conflicting interest: on the one hand, it wants to maintain a reliable reputation and intervene in case of possible overestimation of carbon credits; on the other hand, it gets a commission per verified credit. In other words, Verra has to verify offset calculations, but it benefits when estimating the number of carbon credits higher [5].

Therefore, companies buying carbon credits should find out for themselves whether the projects they are leaning on actually offset emissions. West, who previously worked as a certifier of forest projects, stated that “buyers themselves need to have a good understanding of the underlying methodologies and analyses. Because depending on how you calibrate the models, you can trigger an explosion of [supposedly avoided] deforestation – exactly what we see happening in some projects” [5].

In response to misleading or socially irresponsible advertising concerning the environment, the Advertising Standards Authority set out new, significantly stricter standards for net-zero and sustainability claims [6].

While Verra denied all allegations and questioned the research methodology of The Guardian’s research group, Follow the Money revealed that South Pole, the world’s most influential climate consultancy, sold fictitious (mainly avoided deforestation) emissions allowances certified by Verra. Follow the Money’s perusal of internal documents from South Pole and interviews with multiple sources reaffirmed that many green claims by the world’s leading climate consultant clients appear to exist only on paper [5].

Moreover, South Pole employs many climate consultants. Follow the Money stated that they are part of the climate solutions department, which has a joint turnover with carbon credit traders. As a result, they risk wearing multiple hats. When a company inquires how to reduce its climate footprint, South Pole’s climate consultants may be more inclined to advise carbon offsets and refer the customer to their colleagues in sales, while the climate would benefit more from advice that helps the company to mitigate not compensate its emissions [5].

According to South Pole, there is a clear demarcation between advisers and vendors, as clients would enter into separate sales agreements for climate advice and carbon credits. No other guarantees are mentioned. However, South Pole does stress that providing climate advice and selling carbon credits are both necessary to meet climate targets [5].

In short, internationally renowned companies extensively use (rainforest) offsetting to make green claims. However, many resulting credits do not represent genuine carbon reductions. Verra showcased that leading certification standards can have a conflicting role by profiting from inflating the impact of offset projects certified by them. Similarly, leading climate consultants do not always seem to put climate first in their advice. Buyers should be aware that they cannot blindly rely on these parties. Instead, they must understand the underlying methods and work with parties offering complete transparency to add credibility to their green claims.

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References:

[1] Streck, C., Dyck, M., Manirajah, S.M. & Armenteros, M.F. (2022, 13 December). Voluntary Carbon Markets: Considerations for Host Countries. Climate Focus. Downloaded from https://climatefocus.com/wp-content/uploads/2022/12/VCM-considerations-for-host-countries.pdf

[2] The Advertising Standards Authority Ltd. (2022, 20 October). Environmental Claims in Advertising Qualitative Research Report. Downloaded from https://www.asa.org.uk/static/6830187f-cc56-4433-b53a4ab0fa8770fc/CCE-Consumer-Understanding-Research-2022Final-090922.pdf

[3] Forest Trends’ Ecosystem Marketplace. (2022). The Art of Integrity: State of Voluntary Carbon Markets, Q3 Insights Briefing. Downloaded from https://www.ecosystemmarketplace.com/publications/state-of-the-voluntary-carbon-markets-2022/

[4] Greenfield, P. (2023, 18 January). Revealed: more than 90% of rainforest carbon offsets by biggest certifier are worthless, analysis shows. Retrieved from https://www.theguardian.com/environment/2023/jan/18/revealed-forest-carbon-offsets-biggest-provider-worthless-verra-aoe

[5] Crezee, B. & Gijzel, T. (2023, 27 January). Showcase project by the world’s biggest carbon trader actually resulted in more carbon emissions. Retrieved from https://www.ftm.eu/articles/south-pole-kariba-carbon-emission

[6] The Advertising Standards Authority Ltd. (2022, 20 October). Advertising Guidance – misleading environmental claims and social responsibility. Downloaded from https://www.asa.org.uk/static/d819e399-3cf9-44ea-942b82d5ecd6dff3/a79e0147-5417-4f7c-9fdce878078a7ffe/CAP-guidance-on-misleading-environmental-claims-and-social-responsibility.pdf

Cover- and preview image: An AI-generated image of an airbus 707 based of many green leaves on a sunset from DALL·E on OpenAI.