Confidence in the carbon credit market is ebbing as the big names are in decline

LONDON (Reuters) – Voluntary carbon markets contracted for the first time in at least seven years, as companies including food giant Nestlé and fashion house Gucci cut purchases, and studies find that many forest conservation projects have not delivered promised emissions savings.

Preserving forests is critical to achieving international targets for limiting global warming to prevent more extreme consequences of global warming.

This drop is also bad news for poor countries that stand to lose if the flow of money from multinational corporations to finance climate change mitigation projects slows.

Kenya, for example, is seeking to become a hub for carbon offset trading, which relies on projects such as planting trees to mitigate the greenhouse gases the company generates.

Demand for carbon credits is on the wane in 2023, according to two of the top data providers. Data from BloombergNEF showed that the number of credits used by companies fell 6% in the first half of the year, the first drop in at least seven years.

Data from consulting firm Ecosystem Marketplace showed a sharp drop of 8% over the same period. Data for both providers may be updated retrospectively with a review of offset records.

Gucci did not provide financial details regarding its share of the carbon offset or comment on why it removed claims from its website earlier this year that it was completely carbon neutral.

“Gucci is in the process of reviewing its climate strategy and commitments with the aim of achieving the most positive overall impact,” a company spokesperson said in an emailed statement.

Nestle, which also did not disclose its spending on offsets, said it would stop using carbon offsets and look for other ways to get to net zero.

In addition, the company has canceled plans to manufacture products including KitKat snack chips that are carbon-neutral.

“We are moving away from investing in carbon offsets for our brands to investing in programs and practices that help reduce greenhouse gas emissions in our supply chain and operations where it makes the greatest difference to reach our net zero ambition,” she said in a statement. Statement via email.

Three people, who asked not to be named because they are not authorized to speak on the matter, said Gucci has stopped buying carbon offsets from Antarctica.

Southpole CEO Renate Hoeberger told Reuters that the company followed the approved methodology for the project at all times.

“There is no other way to implement deforestation projects. You cannot know the deforestation rates 10 years in advance,” he said.

Quality price

Ecosystem Marketplace said the quality of the charts was an issue.

“A number of negative studies on carbon credits have caused enough concern for some companies to pause purchases and wait for further guidance on what type of credits they should purchase,” said Stephen D’Onofrio, managing director of Ecosystem Marketplace.

“Companies are moving in the right direction, as there is a growing preference for higher quality and more expensive credits.”

Studies reported by news organizations in January and March showed that the developer of the South Pole mega-project, along with carbon credit issuing firm Vera, were linked to forest protection credits that did not deliver the promised carbon savings.

Until this year, the voluntary carbon market was growing as more companies came under shareholder pressure to adopt net-zero policies.

The market value reached about $2 billion in 2021, and Shell and Boston Consulting Group together predicted in January that it could reach between $10 billion and $40 billion by 2030.

But carbon credits have long struggled to inspire confidence. Environmental groups say it allows companies to appear to be taking climate action, when in fact they are not cutting emissions.

price segment

With demand slowing, carbon offset prices traded via the Xpansiv CBL market, the world’s largest spot carbon exchange, have fallen by more than 80% over the past 18 to 20 months.

The contract price for the Global Emissions Offset (GEO), which includes projects eligible under the CORSIA global emissions offset scheme for airlines, was around $1.60 per ton in July, down from a peak of $8.85 per tonne in November 2021. The price of the global emissions offset based on To normal $2.60 per tonne per ton, down from a high of $11.75 per tonne in January 2022.

Companies use voluntary carbon markets, where they trade carbon offset credits that represent the avoidance or removal of carbon emissions, to mitigate any greenhouse gases they generate.

But measuring carbon savings is difficult. Analysts say most projects overestimate the benefits, which may be short-term, given the ease with which trees are destroyed, for example.

In September, easyJet said it would end its compensation program to focus on reducing emissions from its operations.

“There’s no denying it’s an area where there’s been a fair amount of media discussion and uncertainty,” said Jane Ashton, director of sustainability at easyJet.

EasyJet has purchased Verra certified forest compensation. Ashton said the company has been reassured by third-party assessments that it has achieved the promised carbon savings.

Vera says it will publish updated rules for forest protection projects in the third quarter.

Unfortunately, negative press has led some companies to ask, “Why would I do this and invest in something that could result in getting attacked in the press?” said Naomi Swickard, a senior director at Verra.

“In some cases, this undermines companies’ willingness to act on climate at all,” she said.

Steve Wenzel, director of Carbon Green Investments, which built Kariba, told Reuters one of the projects that has been criticized for overestimating carbon savings and has received a VERA certification is Kariba in Zimbabwe, which has not made a sale since October.

Wenzel said the project had been funded for a few years but after that, the outlook became uncertain.

after reconsideration

For carbon markets, another problem is that regulators and carbon market advisory bodies limit the scope of their use by companies. The United Nations and the Voluntary Carbon Markets Integrity Initiative (VCMI) say companies should not be overly dependent on it.

The EU parliament plans to ban the use of environmental claims based solely on carbon offset schemes from next year, while the bloc’s draft carbon reporting standards require companies to report their carbon footprint before deducting any carbon credits or avoiding emissions.

Stockholm-based advisory Normativ, which helps companies calculate their carbon footprint, says customers are becoming wary of using credits and realizing that without proper due diligence on what they buy they risk being accused of greenwashing.

“They (the companies) don’t consider carbon credits a supplement to actually reducing their emissions,” said Christian Rhone, Normative co-founder.

“You need to reduce emissions, and that’s how the market will judge you when you disclose your carbon footprint.”

Potential legal action is an additional deterrent.

KLM is facing a civil action in a Dutch court, brought by environmental groups, in connection with commercials that allegedly misled consumers about the airline’s environmental qualifications, including its use of offsets.

KLM said it looks forward to arguing its case and will continue to strive to improve communication with customers.

Companies such as Tullow Oil choose to develop their own projects rather than relying on outside service providers. It is working on a forest conservation project in Ghana, and expects to make a final investment decision this year.

“Close involvement ensures we are set for success from the start. On the downside, investing in our own project, rather than buying existing compensation from the market, presents additional reputational risk, which is why we have a governance role at Tullow,” said Rob Hayward, Tullow Climate Change Officer. : “It’s that.”

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