Intransparency and fraud: Why Voluntary Emission Trading doesn't work

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A guilty conscience or concern about their good reputation: air travelers calm themselves by transferring a little money to organizations that promise to compensate for the horrendous travel emissions with climate projects in developing and emerging countries.

Companies that are not subject to the statutory emissions trading systems improve their image by purchasing voluntary emissions certificates, and can even avoid penalties if they emit more greenhouse gas than they are allowed to.

In Europe, the European Emissions Trading Scheme (EU-ETS) has been in place since 2005 for particularly emissions-intensive industries, such as steel manufacturers or coal-fired power plants. In Germany, the national emissions trading system (nEHS) has been mandatory since 2021, which additionally includes emissions from the heat and transport sectors. Worldwide, around 90 percent of climate-damaging emissions from these industries are subject to similar systems. The principle: tradable pollution permits are gradually removed from the market over time, causing the price of the certificates to rise. This should eventually make it more profitable to invest in real prevention strategies or technologies.

Good image due to voluntary emissions trading

Independently of mandatory certificate trading, a CO2 trading system has also been established worldwide on a voluntary basis. However, it operates according to completely different rules. Here, private individuals and companies primarily finance climate protection projects that are intended to reduce emissions elsewhere. They are no substitute for genuine emissions reductions.

Voluntary emissions trading has become a key tool for many companies to reduce their greenhouse gas emissions or even to become (arithmetically) climate neutral. Such certificates are cheaper than investing in emissions avoidance in one's own company. The fossil fuel industry can also avoid penalties if its CO2 emissions are higher than those covered by mandatory certificates.

However, since there are no uniform standards according to which climate protection projects are certified, it is difficult to really assess the real benefit of offset certificates.

Revealed: Worthless emissions certificates

The four main standards are the United Nations Clean Development Mechanism (CDM), negotiated under the 1997 Kyoto Protocol, the Climate Action Reserve, the Gold Standard, which includes social-ecological aspects, and the Verified Carbon Standard (Verra).

It is not necessarily guaranteed that their standards actually compensate for CO2. In a large-scale investigation by the Guardian, Zeit and the investigative platform Source Material, a pool of journalists has just been able to show that 94 percent of Verra certificates from forest protection projects are apparently worthless. This is a disaster for the credibility of the Verra organization, which is trying hard to defend itself against the accusations.

This was by no means an episode. Already four years ago, ProPublica investigated forest compensation projects in South America. The investigative U.S. news service found that many projects did not offset as much CO2 as claimed, that project organizations got paid for protecting forests that were not threatened at all, and that positive effects were cancelled out because trees simply continued to be cut down next to the project areas.

Between 2019 and 2021, Plant for the Planet was in the focus of criticism because the organization made questionable claims that it could not substantiate, for example that projects were audited by government authorities, which was not true. After all, this apparently led to a learning process, as the Center for Sustainable Corporate Management at Witten/Herdecke University has since attested.

Forest: The carbon escapes again at some point

Forest conservation and reforestation projects are currently experiencing a real boom on the global market for voluntary certificates. However, they are problematic per se because they usually overlook the time dimension: Trees store carbon only temporarily. After a few decades, they die - whether naturally, through forest fires, pests or disease - and the carbon escapes back into the atmosphere. Burning fossil fuels, on the other hand, will continue to damage the climate for several centuries.

Serious compensation providers therefore no longer offer forest projects. Instead, they concentrate on so-called NBS projects, "nature-based solutions. This means the protection and renaturation of entire ecosystems and their biodiversity, i.e. not only forests but also grasslands, wetlands and coastal areas. Or they finance emission-avoiding technologies, such as solar and wind energy, which are unaffordable for people in poor regions.

But it remains a non-transparent jungle between promises and reality. To help navigate this jungle, the Carbon Credit Quality Initiative (CCQI) has launched aninteractive assessment tool. CCQI is a joint initiative of the Environmental Defense Fund (EDF), WWF and the German Öko-Institut. It allows prospective buyers of certificates or offset payers to assess the quality of different types of carbon credits.

But apparently there is another way. New climate certificates, known as contribution claims, are now tentatively appearing on the market. They do not help companies become climate neutral because they do not count toward their CO2 emissions. However, the country in which projects certified in this way are located can have the greenhouse gas reduction credited to its national CO2 budget. This does not make a company "climate neutral" in balance sheet terms, but it can still use the "contribution to climate financing" to enhance its image.

(jle)