Carbon credit misuse hurts corporate reputation and harms the environment

The carbon offset market has become a veritable minefield for organisations looking to reach net zero targets. With many offset schemes condemned as ‘worthless’, it’s imperative that businesses find options that provide real-world impacts and use them strategically to avoid claims of greenwashing, advise energy transition experts, Partners in Performance.

The carbon offset market’s rapid growth, having quadrupled in size between 2020-21, has incited concerns that Australian firms are using unreliable carbon credits to buy their way to net-zero targets rather than making meaningful changes to decarbonise. Market analysis shows carbon credits may not always deliver what is promised. As such, firms must educate themselves on how to secure the most effective offsets for their decarbonisation journeys.

The voluntary carbon market skyrocketed to $2bn in 2021, but not without criticism. Analysis in 2022 revealed that over 90% of rainforest carbon offsets from the biggest certifier were ‘worthless’ and dubbed ‘phantom credits’ that do not represent genuine carbon reductions. This integrity challenge for carbon offsets, combined with increasing pressure for firms to prove they are decarbonising, has created what you might call an imperfect storm.

Major organisations worldwide are a) inadvertently fuelling the issue by creating further demand without ensuring offsets are credible, and b) relying on offsets, instead of implementing policies and operations that hold real environmental impact. Global firms including American Airlines and J.P. Morgan are already facing scrutiny after their net zero claims were criticised for incorporating carbon credit schemes of ‘questionable quality’.

Also, Credit Suisse Group AG is accused of using ‘junk’ carbon offsets to greenwash their operations. It’s a vicious cycle that requires a shift in the way businesses look at investing in climate solutions and being accountable for their carbon footprint. We need less box ticking, and more collaborative partnerships to reduce emissions. High integrity carbon offsets can still play a role, but shouldn’t be viewed as the backbone of the decarbonisation journey.

How businesses can acquire high-integrity carbon offsets

Reduce emissions before considering carbon offsets

While more than half of Global 500 companies are setting abatement targets, which is a seventy eight per cent increase since 2020, some of these organisations are leaning on carbon offsets to achieve their ambitions instead of reducing their own emissions.

Firms need to focus on rapid decarbonisation pathways. Clear emissions reduction targets and a detailed roadmap to deliver these is critical. An example of this is the Energy Transition Roadmap developed by Partners in Performance, which has been designed to help quantify potential carbon credit volume needs, once every effort has been made to reduce emissions.

Understand why carbon offsets are needed, and explore solutions

There are three main reasons businesses buy carbon credits: to offset their own emissions, create net zero products, and/or to trade carbon as an asset. In our experience, large firms with a detailed understanding of why they are seeking carbon credits have better outcomes.

An example of this was an organisation facing difficulties in procuring renewable energy equipment, delaying their 2030 emission target by 1-2 years. With land restoration activities underway as part of various decommissioning projects, high integrity nature-based solutions were identified as the most suitable credits to meet their 2030 deadline.

Carbon credits come from a variety of climate solutions and – broadly speaking – the market places a premium on solutions that remove carbon and store it for long periods of time as well as enhancing nature and communities. Due to their broad availability and stakeholder appeal, major buyers are turning to nature-based solutions, however these can often raise concerns around the integrity of the climate solution or the carbon accounting, or both.

This pushback largely revolves around projects which either don’t have compelling climate solutions being implemented on the ground, or are using risky assumptions in their carbon accounting. For example, if a national policy already restricts deforestation, an offset project protecting these trees is not providing any additional decarbonisation.

Businesses should do their own due diligence

While there are voluntary registries in place with extensive protocols and strict verification standards, these are not necessarily a guarantee of quality or offset outcome.

Firms must be wary of relying on ‘full service’ carbon project developers, and instead should have their own process for understanding the climate solution being implemented on the ground, and how it aligns with their internal carbon credit strategy. This will assist in sourcing high-integrity credits that help meet goals while mitigating greenwashing accusation risks.

Gain integrity of carbon credits by implementing partnerships

Firms with a longer term, and larger need, for volume of carbon credits should consider forming partnerships with trusted and experienced project developers that have a proven track record. This allows buyers to source credits at costs closer to ‘wholesale’ and influence how projects are designed to help them meet their goals and mitigate greenwashing risk.

While carbon credit schemes come with their own risks, with due diligence, impactful carbon offsets can play an important role in a broader decarbonisation strategy for businessess.

Read the full article: Navigating the carbon credit market.

Rob Fowler is an energy transition expert and Partner at global management consultancy, Partners in Performance.

Rob Fowler, Partner at Partners in Performance