New carbon offset rules aim to clean up climate claims

Companies that buy carbon offsets from the voluntary market to counterbalance their greenhouse gas emissions now have guidelines to inform what they can and can't claim about purchased credits. The rules, published Wednesday by the Voluntary Carbon Markets Integrity Initiative, aim to tighten climate claims companies make, in the face of sham claims, abuse and illusory credits. 

The group published guidelines for purchasers of credits after two years of development. To comply, companies must publish annual emissions, adopt targets dictated by science and — significantly — show that their lobbying and advocacy work are consistent with the Paris Agreement and not a barrier to its success.

Once they've taken these steps and shown they're making progress cutting their near-term emissions, companies can then purchase carbon credits to clean up some of their remaining emissions. (Further critical guidance on monitoring progress is expected later this year.) Credits must be of the "highest quality," according to the VCMI. To judge quality, the guidelines rely on principles set down by a similarly named, sibling group that focuses on where credits come from. The Integrity Council for the Voluntary Carbon Market released its rules in March. They disappointed experts.

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"We're filling a gap because of policy failure, and that's a collective failure in the world as a whole," said Mark Kenber, VCMI executive director. 

The new guidance also acknowledges a persistent issue.

Double-counting occurs when the same carbon credit is used by multiple buyers to reduce their emissions burden, according to Derik Broekhoff, senior scientist at the Stockholm Environment Institute.

"Where it becomes a problem is where someone is claiming through their actions to have reduced emissions, and someone else is making the same claim or the same emission reduction," he said. "And both entities can't really have caused it."

There are two kinds of systems where carbon credits are bought and sold. One is a compliance market, where credits are traded in line with laws or (evolving) Paris Agreement rules. At 2021 U.N. climate talks in Glasgow, negotiators drafted a rule to address double-counting in this, still nascent, market. Put simply, when a country sells CO2 credits to another, it can no longer count that carbon toward its own U.N. goals; in a similar way that if someone sells a car, they don't retain use of the car. 

The second system is the voluntary market, which reached $2 billion in 2021. That's where companies can buy credits. It's these markets that have drawn the most scrutiny, given the shady offsets being sold, backlash in some developing countries and lawsuits against companies accused of greenwashing.

The voluntary carbon market that companies participate in is not a party to the Paris Agreement or decisions of more recent U.N. climate talks. Credit Suisse likened it to the "wild west" in 2022. Critics say that in the voluntary carbon market, a company and a country can both claim responsibility, impossibly, to have offset the same tons of greenhouse gas, akin to two drivers claiming purchase and ownership of the same car.

This kind of situation happens frequently. When it comes to companies and countries using the same credits, "There's not much clarity," said Beatriz Granziera, senior policy advisor at The Nature Conservancy. "We have different opinions on whether that's double-counting, whether that's double-claiming, whether that should happen or not. There's a big debate going on right now."

Ørsted AS, a Danish energy company, in May announced a new project that will capture the CO2 generated from a wood-powered electricity plant outside of Copenhagen and bury it under the North Sea. The company says the facility will catch about 430,000 metric tons of carbon dioxide a year. The credits will count toward Denmark's Paris goals of the European Union, which represents its member countries. The Danish government didn't reply to a request for comment.

The same Ørsted press release announcing this development also said that Microsoft Corp, which helped finance the work, will purchase about 243,000 tons a year of the same CO2. 

Such deals are not rare, according to Carsten Birkeland Kjaer, an Ørsted spokesperson. "It is common practice," he said.

This case was highlighted in a white paper published this week by Joseph Romm, a physicist and senior research fellow at the University of Pennsylvania's Center for Science, Sustainability and the Media. 

"This deal just reveals that the entire voluntary market doesn't mean anything," Romm said.

There are distinct accounting practices for national and corporate credits — just as there are distinct ledgers for their emissions, Kjaer said. It is only double-counting if two countries or two companies claim the same credits. 

"Notionally, there are two systems," a Microsoft spokesperson said: the Paris Agreement and the voluntary carbon markets. "Both public-sector subsidy and private-sector purchasing was necessary to make a project like this feasible," which is why Microsoft will include the emissions toward its 2030 carbon negative goal and Denmark may include it toward its U.N. goal. 

To potentially address some of these concerns, negotiators at last year's COP27 U.N. talks in Sharm El-Sheikh came up with a potential middle ground. They minted a new accounting unit, the "mitigation contribution," which could replace corporate offset purchases. By making such "contributions," a company could in principle show off its effort to help finance emission reductions, without counting it in CO2 goals. 

The new VCMI code threads the needle through the national and voluntary markets by requiring companies to disclose whether any of their credits are also being used by a country to fulfill a Paris Agreement pledge. 

Voluntary carbon markets were never expected to be a coequal partner with an international climate agreement. They were and remain ways to, as VCMI explains in its new code, help finance CO2 reductions around the world, test new policy approaches and encourage companies to shed emissions.

Kenber in 2007 founded an organization to improve voluntary carbon markets. At that time, he said, he expected that within a decade there'd be no more such markets. That's because countries would soon eliminate the need for them with global, economy-wide policies that made voluntary efforts redundant.

As to the future of carbon credits claimed both by countries and companies, he said: "I would say the picture is only slightly less murky than it was 12 months ago in terms of what's going to happen."

— With assistance from Ben Elgin