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COP27 may allow for greenwashing in carbon offsets

A view shows a deforested stretch of Brazilian Amazon rainforest near the Transamazonica National Highway, in Apui, Amazonas State, Brazil

Carbon credits resulting from forest conservation, among other things, will soon be available to companies through a UN-controlled market.
Photo: Bruno Kelly (Reuters)

As COP27 hurtles to an end in Egypt, there are many key issues including financing for “loss and damage”, how countries should report on their carbon reduction progress and whether all countries can agree on a long-term goal to phase out fossil fuels remain unresolved.

In a statement late on Nov. 17, Sameh Shoukry, Egypt’s foreign minister, who is leading the summit, gave a grim assessment: “There are still a number of issues that have not been progressed. While some discussions were constructive and positive, others did not reflect the expected recognition of the need for collective action to address the gravity and urgency of the climate crisis.”

One such problem is the burgeoning market for carbon credits, which is being structured at the COP in such a way as to leave gaping loopholes for corporate greenwashing.

Carbon markets can be shrouded in secrecy

The 2015 Paris Agreement calls for the formation of two types of carbon trading markets, which would theoretically allow a country with higher emissions to pay for carbon reduction projects in another country (e.g. forest conservation or building a solar park). The country selling the credit gets cash. The country that buys the credit pays for its emissions rather than directly reducing them. These credits are similar to the types of carbon offsets that exist today and are plagued by inconsistency, fraud or inadequacy.

In the first kind of market, two or more countries can agree to trade directly with each other; in the second, a UN-administered marketplace would gather carbon credits from around the world and make them available to countries or private companies.

The byzantine rules for these proposed markets are still under negotiation, but two big problems with their current shape worry independent experts.

The first problem relates to bilateral or multilateral carbon trading. The rules call for an independent committee to oversee these trades, so that, for example, two countries acting in bad faith can’t create a bogus carbon market and then claim to be doing their part on climate. But the rules allow countries to designate any amount of information about their carbon market as confidential, essentially putting the whole process in the dark. The committee may have access to confidential information but cannot reveal it, preventing civil society groups or other watchdogs from holding the countries to account.

Moreover, the committee itself is completely toothless. “What is the consequence if the review finds the process is a complete joke?” said Gilles Dufrasne, lead analyst at Carbon Market Watch, an advocacy and research group. “The review team gives an opinion, and countries can completely ignore it.”

Carbon markets allow for misleading accounting

The second problem relates to the wider UN carbon market. This system is only credible if each credit is counted just once. For example, if carbon credits are created from a forest conservation project in Zimbabwe and then sold, via the UN marketplace, to a US oil company, the credit can be counted against Zimbabwe’s national carbon footprint or the oil company’s corporate carbon footprint, but not both. To count such credits twice would foster the illusion that global emissions are falling faster than they really are, and would amount to greenwashing.

The rules being developed for this market prohibit double-counting for one class of credits. But another class of credits suffers no such constraint, and if they are priced cheaper, they could offer companies an attractive way to indulge in greenwashing. To circumvent this, late-night COP negotiations on Nov. 17 arrived at a decision to label the latter class of credits as “contributions,” rather than true offsets. The distinction is meant to clarify that companies buying these credits are merely supporting carbon-cutting activity in a general, corporate-social-responsibility sense, and not directly offsetting their own emissions per se.

The “contribution” language is a positive step, Dufrasne said. But without more specific prohibitions, he said, the rules still “leave the door wide open for double-counting between countries and companies.”

Although the rules are not bulletproof against greenwashing, they do offer a model for corporate climate plans. With the right kind of oversight, credits in these markets may end up being more robust than present-day offsets. Truly climate-conscious companies may scrap their old-school reliance on dubious offsets, and refocus their actions around reducing their own emissions, buying more effective credits, and “contributing” to emissions reductions elsewhere. And although the UN has no direct power over the existing, $2 billion private carbon credit market, the rules that take shape here will send an important signal to that market about what governments view as credible.

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