Carbon offsets allow firms and individuals to pay to offset or compensate for the carbon emissions they create. To eliminate the carbon footprint of airplane flights, a building project, or data centers by paying to pull carbon out of the air elsewhere. Voluntary offsets have developed into a billion-dollar global market. Now it appears that the carbon credits may just be greenwashing.
Until 2011 most carbon offset projects focused on building out renewable energy and addressing sources of methane to reduce greenhouse gases. This was because land-based projects, such as those involving agriculture and forestry, had been excluded from the European Union emission trading system under the Kyoto Protocol. As a result, almost no forestry projects were developed. However, in 2011 the preventing deforestation became more desirable on the world stage and it became possible to sell these type of carbon offsets.
The first and largest project was Kariba REDD+ a forest conservation project aimed at providing sustainable livelihood opportunities for poor communities in Northern Zimbabwe while locals maintained and cared for the forest. Over the next decade, Kariba’s REDD+ carbon credits were the basis of the claims of breakthrough progress on cutting emissions from its corporate clients. The project has generated $100 million by selling credits for more than 23 million tons of greenhouse gas emissions. However, during the past year serious questions have been raised.
Earlier this year news reports began appearing in Europe and in Bloomberg Green that charged the project had overestimated its climate benefits by at least a factor of five while delivering much less money than indicated to communities in Zimbabwe. Last month, a report in The New Yorker (“The Great Cash-for Carbon Hustle”) raised the concerns about the illegal movement of money and claimed that the carbon reductions were not real. Based on these reports, the Washington, D.C.-based certification body Verra, the world’s leading carbon standard setter for the offsets market, announced it had launched an investigation into the Kariba project. Verra has said that the project will remain on hold, along with “any further credit issuances” until the probe is complete.
South Pole, the world’s leading seller of carbon offsets, has terminated its involvement in its flagship forest protection project in Zimbabwe following these recent allegations and the entire carbon offset market is in turmoil. The collapse of Kariba REDD+ could also endanger the viability of the rest of carbon market, which has slowed this year amid quality concerns, regulatory investigations in the United States and accusations of greenwashing by the United Nations. These problems and weather risks are also undermining the market’s underlying insurance mechanisms, known in the industry as the credit buffer pool. Climate change is bringing increased risks to natural landscapes from drought, wild fires, and invasive bugs and species and some fear these insurance mechanisms are under-capitalized.
A nonprofit, CarbonPlan, voiced concern as early as 2020 that forest fires could easily burn through the buffer pool in California’s carbon market and wildfires this past summer have damaged a carbon offset project. Researchers at the University of California at Berkeley found estimate that forest offset projects underestimating the risk from natural phenomena by a factor of 10.