LONDON, Sept 1 (Reuters) – Voluntary carbon markets shrank for the first time in at least seven years, as companies including food giant Nestlé and fashion house Gucci reduced purchases and studies found many forest protection projects Promised emissions savings have not been met.
Conservation of forests is vital to meeting international goals to limit global temperature rise to prevent the most extreme consequences of global warming.
The decline is also bad news for poorer countries, who will suffer if the flow of money from multinationals for climate mitigation projects slows.
For example, Kenya is trying to become a hub for trading in carbon offsets, based on projects such as tree planting to reduce the greenhouse gases generated by the company.
Demand for carbon credits is on track to fall in 2023, according to two top data providers. Data from BloombergNEF showed the number of credits used by companies fell 6% in the first half of the year, the first drop in at least seven years.
Data from Consultancy Ecosystem Marketplace showed a sharp decline of 8% over the same period. Data from both providers can be updated retroactively when the offset registries are modified.
Gucci did not provide financial details on its carbon offset stake or comment on why it removed the claim from its website earlier this year that it was completely carbon neutral.
“Gucci is in the process of reviewing its climate strategy and commitments with a view to achieving the most positive overall impact,” a company spokesperson said in an emailed statement.
Nestlé, which also has not disclosed its spending on offsets, said it will stop using carbon offsets and is looking for other routes to net zero.
In addition, it has scrapped plans to make products including its KitKat wafer snacks carbon neutral.
“We are moving away from investing in carbon offsets for our brands to investing in programs and practices that help reduce GHG emissions across our supply-chain and operations, where this aligns with our net zero ambition. makes the most difference in access,” it said. An emailed statement.
Three people, who spoke on condition of anonymity because they were not authorized to speak on the matter, said Gucci has stopped buying carbon offsets from the South Pole.
South Pole CEO Renate Heuberger told Reuters the company followed the approved methodology for the project at all times.
He said, “There is no other way to do deforestation projects. You can’t know ten years in advance what the rate of deforestation will be.”
price of quality
Ecosystem Marketplace said the quality of the plans was an issue.
“The many negative studies on carbon credits have caused some companies to hold off on purchases and wait for more guidance on what types of credits they should buy,” said Stephen Donofrio, managing director of Ecosystem Marketplace.
“Companies are moving in the right direction, prioritizing higher quality, more expensive credit.”
Studies published in January and March by news organizations showed that large project developer South Pole, along with carbon credit certifier Vera, were tied to forest conservation credits that did not deliver promised carbon savings.
By this year, the voluntary carbon market had grown as more companies succumbed to shareholder pressure to adopt net zero policies.
The market was valued at about $2 billion in 2021, and Shell and Boston Consulting Group jointly estimated in January that it could reach between $10 billion and $40 billion by 2030.
But carbon credits have long struggled to inspire confidence. Environmental groups say they allow companies to appear to be taking climate action when in fact they are not cutting emissions.
price slide
As demand slowed, the prices of carbon offsets traded through Xpansiv Markets CBL, the world’s largest spot carbon exchange, fell by more than 80% in the last 18-20 months.
Its global emissions offset (GEO) contract, which includes projects eligible under the airlines’ CORSIA offsetting scheme, was priced at about $1.60 a tonne in July, down from a peak of $8.85 a tonne in November 2021. Its nature-based-GEO is $2.60 a ton. tonne, down from the January 2022 high of $11.75 a tonne.
Companies use voluntary carbon markets, where they trade carbon offset credits representing the avoidance or removal of carbon emissions, to reduce any greenhouse gases they generate.
But measuring carbon savings is difficult. Analysts say most projects overestimate benefits that may be short-lived, for example trees are easily destroyed.
Airline EasyJet said last September that it would close its offsetting program to focus on cutting emissions from its operations.
“There is no denying that this is an area about which there has been a lot of discussion and uncertainty in the media,” said Jane Ashton, sustainability director at easyJet.
EasyJet had purchased forest protection offsets certified by VERA. Ashton said the company has been reassured by third-party assessments that it delivered the promised carbon savings.
Vera says it will publish updated rules for forest protection projects in the third quarter.
Vera Senior Director Naomi Swikard said the negative press has unfortunately led some companies to ask: “Why would I do this and invest in something that could result in a press assault?”
“In some cases, it is undermining corporate will to act on climate at all,” he said.
One of the projects that has been criticized for overestimating carbon savings and certified by Vera was Zimbabwe’s Kariba, which hasn’t made a sale since October, Steve Wentzel, director of Carbon Green Investments, which founded the Kariba project, told Reuters. told.
Wentzel said the project was funded for a few years but after that, the outlook was uncertain.
Second Thoughts
For carbon markets, another issue is that regulators and carbon market advisory bodies are limiting the scope of their use by companies. The United Nations and the Voluntary Carbon Markets Integrity Initiative (VCMI) say companies should not rely on them too much.
The EU parliament is planning to ban the use of environmental claims based solely on carbon offsetting schemes from next year, while the bloc’s draft carbon reporting standards will allow companies to deduct any carbon credits or avoid emissions. First you need to report your carbon footprint.
Stockholm-based consultancy Normative, which helps companies calculate their carbon footprint, says customers are becoming wary of using credits and understand they may be passed on to them without proper investigation of what they are buying. There is a risk of being accused of greenwashing.
“They (companies) don’t really see carbon credits as a complement to reducing their emissions,” said Normative co-founder Kristian Rohn.
“You need to reduce emissions and when you disclose your carbon emissions, that is how you will be evaluated in the market place.”
Potential legal action is another deterrent.
Airline KLM is facing a civil lawsuit in a Dutch court brought by environmental groups regarding advertisements that allegedly misled consumers about the airline’s environmental credentials, including the use of offsets.
KLM said it looked forward to arguing its case and would continue to improve communication with customers.
Companies such as Tullow Oil are choosing to develop their own projects rather than rely on external providers. It is working on a forest protection project in Ghana, and is expected to make a final investment decision this year.
“The close partnership ensures that we are set up for success from the outset. The downside is that investing in our own projects, as opposed to buying existing offsets from the market, carries an additional reputational risk, which is why We as governments have a role to play in this,” said Rob Hayward, head of climate change at Tullow.
Reporting by Susanna Twidell and Sarah McFarlane; Editing by Barbara Lewis
Our Standards: The Thomson Reuters Trust Principles.
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