SaurEnergy Explains- What’s the Stink Around Carbon Credits?

Highlights :

  • In this session of SaurEnergy Explains, we touch upon the issues facing the carbon credits market, and how it got here
SaurEnergy Explains- What’s the Stink Around Carbon Credits?

On today’s episode of why we can’t have good things easily, carbon credits get to be in the limelight. Originally proposed in 1997 with the Kyoto Protocol as a way for companies to fund the development of renewable and carbon-offsetting projects, carbon credits utilize third party firms who sell carbon credits and use the money to fund renewable projects. Credits were to be earned broadly for every tonne of carbon emissions avoided being equal to a credit, with a market developed to trade in these credits. Companies which emit massive amounts of greenhouse gases buy these to get a PR boost and renewable projects get funded. Theoretically, it’s a win-win for everyone.

Except for when it isn’t.

Take the example of global oil major Shell’s egregious misconduct in peddling millions of carbon credits, only for a recent investigation from Financial Times  to find that there was an utter absence of any carbon mitigation efforts. Shell facilitated the registration of a staggering 5.7 million credits, devoid of any authentic CO₂ reductions, which were purportedly offloaded to premier oil sands producers and even some of its own subsidiaries. The worst part? Shell wasn’t even fined, because loopholes exist. This isn’t the first time this has happened either. Earlier this year in January 2024, Shell had come under fire for inflating emissions reductions from rice farming carbon credits. Even after being forced to retire these projects, Shell has been counting the claimed reductions towards its climate targets. Auditing firms we have spoken to have spoken of projects they had to refuse once they realised that the generation of credits by showing say, the plantation of trees in a region was coming at the cost of massive deforestation to enable the same.

Sadly, Shell seems to be the rule, not the exception. According to new analysis, for 33 out of the top 50 corporate buyers, more than a third of their carbon offsets portfolio is “likely junk”. The fundamental failings leading to a “likely junk” ranking include whether emissions cuts would have happened anyway, as is often the case with large hydroelectric dams, or if the emissions were just shifted elsewhere, a common issue in forestry offset projects. This is also one reason most renewable energy projects donot qualify, as plans have either been announced for them in any case (business as usual) or are mandated by law (RPO) obligations and the like)

Oil and gas companies are among the largest corporate buyers of likely junk carbon offsets, with nearly 3.7m carbon credits purchased by ExxonMobil being classified as junk or worthless. Delta Airlines has purchased more carbon credits than any other organization, with 14.35 million worthless credits in their portfolio. In California, a 2023 civil class-action alleged that Delta misrepresented itself as carbon-neutral as the company’s reliance on the carbon trading market renders its climate friendly representations as false and misleading. Similar stories continue to pop up for any industry purchasing carbon credits.

A number of critics have voiced their concerns over carbon credits, saying that they’re a way to avoid taking action to reduce emissions by shifting the responsibility to someone else, with the claim of carbon neutrality by purchasing carbon credits being a form of greenwashing. They might be right.

A recent study conducted jointly by the Swiss Federal Institute of Technology and the University of Cambridge analysed the effectiveness of more than 2000 projects, showing that they actually achieved only 12% of the announced reductions in greenhouse gas emissions.

Just like the blockchain, carbon credits can have potential to do good. However, a steady supply of con men and scammers ensures the journey remains tough. Just like how NFTs permanently scarred the blockchain’s public image, scammers will do the same for carbon credits. Articles like this continue to point out how easy the carbon credit market is to manipulate. The market value of carbon offsets have dropped 61%, indicating a lack of trust in the idea. Companies don’t wish to be associated with something that might turn out to be a scam. The lacklustre approach that governments have shown to these scams is something to consider as well. Most people don’t care about carbon credits, and it shows. Taylor Swift continues to be under heavy criticism for her travel habits, despite allegedly offsetting her emissions. People have realised that climate change is a problem which can’t be solved by simply throwing money at it. They want to see these companies and influential figures put in the work, fund projects by themselves and actually do the research.

By Yash Singh

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