Carbon offsetting transactions explode despite environmental concerns

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Organizations’ rush to meet climate change targets has boosted trade in units related to avoiding or reducing carbon emissions by more than half this year to $ 748 million, and could exceed $ 1 billion. dollars by the end of the year.

Despite skepticism about the market’s green credentials, interest in carbon offsets, which are used to offset greenhouse gas emissions, is accelerating. Offsets for renewable energy projects have become the second-largest category after forestry and land use, although demand may peak in 2021, according to an Ecosystem Marketplace report.

After nearly doubling to 80.3 million in 2020, an additional 80 million renewable energy carbon credits were sold between January and August. But these offsets in particular have been criticized by concerns that the patterns that generate them lack integrity.

Each offset is supposed to represent one tonne of carbon that has been permanently avoided or removed from the atmosphere.

The units are used by organizations aiming to meet their net zero emission commitments and have become popular as the pressure on companies to offset their greenhouse gas emissions has intensified.

But market critics say offsets often don’t deliver the environmental benefits they promise, and the unregulated and fragmented market gives companies a license to pollute. In light of these concerns, a task force initiated by former Bank of England Governor Mark Carney is developing new rules that he hopes will reform the system.

“Carbon credit projects and retailers are struggling to meet demand in a warm market,” with net zero ambitions fueling interest, Ecosystem said Wednesday.

The most active offsets buyers are the energy, consumer goods, finance and insurance industries, but there has also been an increase in speculative buying from those looking to cash in on the market. exchange of compensations.

Compensation mechanisms, such as those linked to wind farms or solar farms, must show that they are “additional”, that is to say that they cannot exist without income from the sale of carbon credits.

Increasingly, however, critics are questioning whether renewable energy projects generating offsets really depend on carbon finance. They note that investor interest in projects like solar farms is increasing across all programs, as governments and businesses around the world pledge to switch to clean forms of energy.

“The case of financial additionality is [now] harder to do, ”said Patrick Maguire, one of the main authors of the Ecosystem Report. “Particularly in developed countries, we don’t expect to see any significant new supply in the years to come. ”

Two of the major program certification bodies stopped approving them for most new renewable energy projects last year. However, many such programs that were approved before the change generated, and will continue to produce, large amounts of offsets that can be traded.

Many renewable energy project offsets are cheap to buy, costing an average of $ 1.10 per offset in September, up from $ 1.42 in 2019. This compares to an average of $ 4.73 for offsets. forestry offsets sold this year, Ecosystem said.

Prices in the voluntary carbon offsets market are generally much lower than those in regulated systems operated by a number of countries, such as the EU Emissions Trading System. The price of carbon allowances traded under the EU system has risen to over € 60 this year.

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