Any company that has considered its environmental impact has already taken an interest in the Carbon Credits mechanism.
At the center of attention for several years now, the carbon market has been plagued by scandals on both the demand side (accusations of greenwashing, incentives to pollute more) and the supply side (unviable projects, weak certification criteria). The positive impact of certain carbon credits, even though certified, has even been called into question. This is notably the case for Verra REDD+ carbon credits.
Carbon credits remain one of the pillars of the Net Zero initiative, which aims to achieve carbon neutrality on a global scale and is supported by recognized players such as SBTi and the Net Zero Initiative. It is therefore difficult today to make sense of all this information.
How do carbon credits really work? Is it still a viable tool in a decarbonization strategy? Can it be exclusive?
What’s a carbon credit?
A carbon credit is a digital document certifying that a company or project developer has reduced or sequestered the equivalent of one tonne ofCO2 . It is issued by certifying bodies that follow a methodology generally taking into account 5 criteria that were reaffirmed by France in its 2021 Climate and Resilience Act:
- additionality: the guarantee that gas emission reductions or offset projects are "additional" to those that would occur in future circumstances, i.e. complementary to the "baseline scenario" (e.g. preserving a forest which, without the preservation project implemented, would have had to be razed)
- measurability: the quantity of CO2 avoided or sequestered must be measurable according to a strict methodology
- verifiability: being able to verify and quantify each year the effective avoidance or sequestration of tons of CO2 sold in the form of carbon credits. This verification must be carried out by an independent third party.
- permanence: GHG emissions must be sequestered, reduced or avoided permanently or over a sufficiently long period to effectively offset the carbon generated upstream
- uniqueness: the guarantee that the certified carbon credit is unique, to avoid double credit accounting for the same project.
Voluntary carbon offsetting enables companies toinvest in carbon sequestration projects, in parallel with the carbon quota market set up under the Kyoto Protocol, and thus reduce, at least on paper, the carbon footprint of their activities.
However, the operation of these credits has been subject to abuses, and their reliability is now being called into question.
More and more companies are offering "carbon-neutral" products and services. To understand how they arrive at this conclusion, it is important to look back at the various levers available to companies to achieve their stated carbon neutrality objectives. They can :
- avoid carbon emissions by modifying all or part of their activity or production method
- reduce their carbon emissions on certain scopes
- offset their emissions by investing in projects that sequester CO2
While efforts are being made on each of these levers, it is inevitably offsetting that is the most successful today, with a veritable explosion in the number of forest preservation or tree planting projects, particularly in developing countries.
A study by the Columbia Center on Sustainable Development claims that 66% of the world's most polluting companies rely overwhelmingly on carbon credits to meet their carbon targets.
The solution may seem simple. If a company is unable to reduce its gas emissions at a given moment, it can offset them by purchasing carbon credits from companies investing in carbon storage projects. So, in theory, carbon emissions remain in balance.
But is this sustainable in the long term? Isn't this ultimately a headlong rush to avoid investing in structural changes to production methods or business models?
Questions about the viability of projects
Over the past 2 years, a number of research institutes and media outlets have been examining the projects implemented by companies selling carbon credits , as well as the third-party organizations responsible for certifying these credits.
The research carried out raised several issues that could call into question the viability of the projects and their real impact on carbon sequestration.
Minimal audits and controls
The sheer number and scale of these projects makes it difficult to monitor their progress effectively over the long term. For example, journalists from the TV program Cash Investigation noted that in a tree preservation and planting project in Peru, only 0.23% of the 3,810 plots had been checked by the certification bodies during their last audit.
To date, there are no sufficient means to ensure that the project has been properly implemented and continues to be viable over time. The criteria of verifiability and permanence are therefore undermined.
An overestimation of risk
Turning now to the criterion of additionality, it has been noted that some project promoters tend to overestimate the risks associated with the purpose of their projects.
As we said, preserving an existing forest can generate carbon credits. However, you still need to prove that the forest is really threatened by human exploitation, natural hazards, etc...
For example, the media outlet Follow the Money reports that the studies carried out prior to the launch of the Kariba project in Zimbabwe tended to overestimate the risks weighing on the wooded plots, thereby enabling more carbon credits to be generated.
Similarly, a study carried out on wind farm projects in India showed that 52% of projects certified to emit carbon credits would in all cases have been completed, with or without contributions from project owners. In this context, can carbon credits be considered legitimate?
Suspected conflicts of interest
Finally, third-party certifiers are remunerated according to the number of carbon credits they certify, which raises questions about their assessment criteria and objectivity in the certification process.
A measurement tool turned slogan
The race for carbon credits is mainly driven by the need for companies to meet the expectations of their various stakeholders (customers, investors, employees, etc.), who are increasingly concerned about corporate social responsibility. They are therefore often looking for a solution that will enable them to demonstrate their commitment to environmental issues at lower cost and risk.
The purchase of carbon credits enables companies to communicate their supposed carbon neutrality. However, this is mainly based on the purchase of credits to compensate for the gas emissions generated by their activity, which has neither been changed in depth nor is planned to be.
This strategy is deleterious. It makes companies dependent on carbon credits, the cost of which is skyrocketing on the carbon market, given the explosion in demand and rising emission reduction targets set by governments, and exposes them to tougher legislation and accusations of greenwashing. Since January 1, 2023, a decree in France prohibits companies from claiming to be "carbon neutral" without being able to justify it according to strict criteria. The massive purchase of carbon credits as part of their strategy means they can no longer boast that their business is carbon neutral.
A mixed impact
Finally, the real impact of major carbon sequestration projects is now being called into question. Is this strategy sustainable? Are the criteria considered for implementing these projects and the methodologies for certifying carbon credits sufficient?
Lack of space
Planting trees and preserving forests undoubtedly contribute to a virtuous circle, or at least to a clear desire to take climate issues into account. Nevertheless, our economic model has changed little since these issues were first taken into account, and as a result, carbon emissions continue to rise year after year.
If companies wish to meet their targets, they will soon find themselves faced with a bottleneck: the lack of available space.
On January 15, 2021, Bloomberg reported that there were "only" 500 million hectares available to plant new forests dedicated to carbon capture. These areas are also in direct competition with farming and the expansion of urban centers.
Unless we find new and ever more innovative ways of sequestering carbon, the strategy of reducing CO2 emissions seems to make the most sense in the long term.
The majority of projects today are carried out in developing countries. Conducted by project owners or directly by companies, they sometimes have harmful consequences for ecosystems and local populations. Monocultures and land grabbing are problems that are regularly raised.
Some researchers and NGOs are calling for additional criteria to be taken into account when issuing carbon credits. A study carried out by the French Ministry of Energy Transition suggests the inclusion of additional criteria:
- respect for human rights
- environmental, social and economic co-benefits
Time for assessment
Since the Kyoto Protocol and the introduction of carbon credits, it has to be said that the results of this program have so far been a failure. Global carbon emissions are neither decreasing nor stagnating - quite the contrary.
Carbon credit is an ambitious project, but one that suffers from a lack of oversight. Some accuse the legislative framework of being too weak or the certification criteria too flexible.
For others, the introduction of carbon credits on the market enables large companies to exonerate themselves from their impact on the environment by simply offsetting their greenhouse gas emissions through the purchase of credits, without changing their business model or worrying about the concrete impact of the actions taken to offset carbon.
Finally, the proliferation of communication campaigns on the carbon neutrality of certain products and services plays on consumer psychology and skews consumption patterns.
Rethinking carbon credit
At Traace, we are convinced of the usefulness of carbon credits. It can once again become an effective and virtuous model, supporting companies in their ecological transition and in changing their production methods.
However, for this to happen, it must be thought of as a tool at the service of your carbon emissions reduction strategy, and not as a palliative.
A complementary solution
Carbon credits should not be seen simply as an accounting tool enabling companies to achieve their carbon neutrality objectives. As we saw at the start of this article, companies have a number of levers at their disposal to improve their carbon footprint.
These levers must be activated across all the company's scopes to the best of its ability , prioritizing firstly the elimination of emissions, then their reduction in activities where elimination is not an option in the short or medium term.
Carbon offsetting by means of certification or the purchase of carbon credits should only be activated for so-called "residual emissions", i.e. those that can neither be eliminated nor reduced.
It is also a tool that must be considered as ephemeral. For an emissions reduction strategy to be effective, it must be measurable and objective for the company's scopes 1, 2 and 3. In other words, once an assessment of existing emissions has been carried out, carbon footprint reduction targets for each of these scopes must be set for a given period.
As the plan unfolds, carbon offsetting will represent an increasingly small part of the strategy to achieve carbon neutrality or reduce emissions. This is the only way to achieve a viable long-term strategy. It secures the company against changes in the carbon market, but above all, it implies structural changes in the company's modes of production, its relationships with suppliers and service providers, and the ways in which its products or services are consumed.
A new approach to Net Zero
The Net Zero Standard launched in 2021 by SBTi is in line with this approach and aims to provide companies with a scientific methodology for achieving concrete reductions in GHG emissions.
This methodology has a dual timeframe, with short-term objectives over 5 to 10 years and long-term objectives consistent with scenarios aimed at keeping global warming below 1.5°, compatible with the objectives set by the 2015 Paris Agreements.
The method consists in setting ambitious objectives for periods of 5 to 10 years, in line with long-term objectives. They will be re-evaluated at the end of each period, so that if they fail, they can be brought back into line with the long-term objectives. By following this method, companies and institutions commit to effectively reducing their GHG emissions, based on concrete data and a scientific approach. Residual emissions that cannot be reduced or avoided to meet this objective will be the only ones eligible for carbon offset projects.
This is also the project supported in France by the Net Zero Initiativelaunched by Carbone 4, supported by ADEME and of which Traace is a signatory, with the aim of achieving global carbon neutrality by 2050.
These 2 initiatives bring two key elements to the table:
- Carbon neutrality is a global concept, on a planetary scale. It makes no sense to talk about carbon neutrality at company level.
- Priority should be given to emission reduction projects, with carbon offsetting only possible for residual emissions.
Carbon contribution instead of offset
At Traace, we invite companies to forget the term carbon offset and replace it with carbon contribution.
It may seem a simple semantic change, but it's an important one. It's no longer a question of implementing strategies designed to boast a reduced or neutral carbon footprint on paper, but rather of moving away from an accounting logic to ensure that one's actions produce concrete results.
The carbon contribution puts aside the notion of communicating vessels of emissions. Emissions cannot be offset. The carbon contribution implies that the notion of reducing emissions must be considered at the global level, and not just at the level of the company.
Our corporate strategy must actively contribute to reducing global greenhouse gas emissions. We believe that only a collective effort will make it possible to achieve these objectives.
It will certainly be less attractive on paper. In any case, for the time being, carbon neutrality is just a pipe dream. But this collective contribution will enable concrete investments, structural changes and a long-term reduction in global carbon emissions.
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- Net Zero Initiative