Year in review, 2023: Carbon offsets take a beating

2023 was another year in which the voluntary carbon market’s failings were heavily criticized but there were also positive notable milestones such as a $50 credit and the VCMI’s global rulebook.

As the carbon market has grown in almost every measure, be it monetary value, the number of providers and off takers, or the number of quality assurance protocols designed to bring confidence to the market, so too have the allegations that the industry is littered with meaningless and worthless credits.

This was precisely the claim made by a joint investigation into REDD+ avoided deforestation credits generated using the Verra standard, in a January report published by newspapers the Guardian and Die Zeit and investigative non-profit SourceMaterial.

The trio found that more than 90 percent of avoided rainforest deforestation credits – which in turn make up 40 percent of all credits verified by Verra – are essentially worthless.

The findings were rejected by Verra. Independent carbon ratings agency Sylvera pointed out the assumptions used by the research to arrive at its baseline were based solely on physical characteristics such as distances from roads, rivers, settlements and so on. However, it failed to factor in a forest’s “proximity to the active front of deforestation,” which, it said, is an omission that can result in misleading conclusions being drawn.

Sylvera’s own analysis of REDD+ schemes found that only 30 percent were high quality, which is still not good, but is better than the claim that less than 10 percent are valuable, as suggested by the Guardian et al.

Concerns about the structure of an offset program’s ability to deliver additionality go as far back as the Kyoto Protocol’s Clean Development Mechanism, while in December 2022, Australia’s Carbon Credit Units scheme had just emerged from an independent review that found the program is “essentially sound,” after the former chair of the Emissions Reduction Fund’s integrity committee labeled the scheme an “environmental and taxpayer fraud.”

The California compliance system has also been consistently accused of issuing worthless credits due to its ‘regional averages’ approach, which is used to establish a baseline for assessing the amount of carbon captured by forests in a given area.

2023 did provide some glimmers of home for the carbon market, however, as the VCMI released its global rule book for buyers of carbon offsets, which is seen as critical to improving market confidence.

Meanwhile, anecdotal evidence from Brazilian firm Mombak’s Amazon Reforestation Fund showed the fund manager has been able to forward sell its carbon credits for “more than $50,” which shows how much buyers are willing to pay – even during a bruising year for the market’s integrity – if they are convinced of a credit’s quality.

Despite these points of positivity, the long shadow cast by some REDD+ and other avoided deforestation and avoided emissions credits, which account for more than 300 million unretired credits, according to Climate Focus data, will likely deliver further shocks to confidence as they are scrutinized further.

An August report from Bloomberg claimed credit trader Vitol AS has had to treat 75 million carbon credits as stranded, while subsidiaries of SMS Holding BV have written off 1.5 million credits. Trafigura Group, meanwhile, has suspended a large consignment of credits while it awaits the results of an investigation into the Southern Cardamom forestry project in Cambodia, after Verra halted all issuances from the project.

Clearly, the carbon market will take a few more knocks in the coming years as the flight to quality continues and parts of the industry are consigned to history.