Are the announcements of companies that promise a zero climate impact credible? Is it true, as advertised, that they are going to be carbon neutral; or that they almost are? These are pertinent questions because large companies make repeated use of these types of statements. But do these announcements have a real basis that allows them to be sustained?
Behind this debate is the operation of the so-called voluntary carbon markets (MVC), in which companies can buy rights or voluntary credits to offset the gas emissions from their activity.
However, the use of voluntary markets to meet their decarbonisation goals is reviving concerns about whitewashing of companies and investors.
The action of companies in this field occurs in a context of social pressure for companies to design decarbonization strategies in line with the Paris agreement and the most recent scientific information on climate change, which requires achieving a balance of zero emissions at mid century
In a strict and comprehensive sense, this would lead them to focus their action on the use of renewable energy, the use of cleaner technologies and more efficient actions.
But many companies cannot reduce their gases or address that transformation, and, for various reasons, they choose to offset emissions by turning to voluntary markets, sometimes seeing them as a practical shortcut. This is how they obtain the rights or credits that certify the existence of projects (afforestation and afforestation, clean energy, efficiency), located anywhere in the world, that avoid or absorb emissions, to obtain the guarantee that allows them to account for these discounts in their CO2 inventories.
But the voluntary market is a system that is little (or not at all) regulated. It should be stressed that this is not the same as the European Emissions Trading System (ETS), established by governments to encourage the most carbon-intensive sectors to reduce emissions, a market in which the EU controls the (waning) availability of these rights and their prices. Through this system, some 12,000 installations (cement, refining, iron and steel, coal or gas power plants, glass, tiles...) are tied hand and foot and must buy their emission rights in order to continue operating.
In contrast, many other business sectors (telephone, oil, food, agribusiness, among others), not subject to legal regulations, act voluntarily.
But the fact that voluntary markets are unregulated in nature is the cause of many uncertainties and risks. In this sense, it is worrying that these credits, instead of motivating and encouraging structural changes towards decarbonization, are just patches.
Without standardized guidelines or regulations, there is a risk that this is a fertile field for whitewashing.
The boiling of projects of all kinds in this market is so enormous and there are so many initiatives, that there is a risk that "many projects may overlap"; that is, that the same projects give rise to credits that are accounted for twice or that are even traded in different markets. Or there may be projects that do not take into account the full scope of emission-generating activities that need to be offset. This would put an effective reduction on the line, explains Ismael Romeo, from Sendeco2, which sells both credits from the UN-protected market and voluntary market certificates.
Many of these voluntary market rights or credits show weaknesses. For example, if they are certificates that guarantee the protection of a forest that absorbs CO2 by fixing in the wood, how is it guaranteed that there are no emissions and reverse the situation if there is a forest fire?
“We entered a swampy terrain because there are different projects to compensate; the prices depend on the project or the methodology used, or the support that the verification company has”, says Ismael Romeo.
To counter all this, many experts call for a global registry and for all available projects and credits to be tracked.
“There is a risk that companies will use carbon credits to continue with their normal activities instead of avoiding, reducing or substantially reducing emissions, and that would undermine efforts to mitigate climate change, delay the adoption of new low-carbon technologies and it would erode trust,” says Mark Kenber, co-executive director of the Voluntary Carbon Markets Integrity Initiative (VCMI).
Precisely, the VCMI platform is working to ensure that these voluntary markets are transparent and robust and contribute to the global goal of limiting global warming to 1.5ºC. This platform was born with the desire to be the seed that paves the way for future regulation. Within it, it has multiple and prominent actors (such as the British government, the US Special Envoy for Climate, John Kerry, or the United Nations Development Program, UNDP).
Its first initiative is the preparation of a commitment guide (to be presented next month) that will include the steps that companies must take and under what circumstances they must use carbon credits. It will be a practical manual with the requirements that must be met to make credible use of these credits, explains Kenber.
Voluntary markets are growing exponentially, reaching $1 billion in 2021, according to the NGO Ecosystem Marketplace.
A 2021 report by management consultancy McKinsey estimated that the demand for voluntary carbon credits could increase fifteenfold by 2030, with the total market reaching a value of US$50 billion.
The VCMI initiative was born with the desire to guarantee certainty, cohesion and coherence to guarantee how these commitments (which should be assumed by the world of advertising or governments) should be regulated, in order to give credibility to carbon markets.
“Our guidance will make it clear that a company can only use carbon credits if it has a credible and verified zero-emissions pathway in place aligned with science and is reducing its emissions accordingly,” says Kenber.
"We are clear that voluntary carbon markets should only be used as an additional activity reserved for emissions that companies cannot reduce," he adds.
The promoters of this type of initiative are aware that in order to banish the risk of accusations of image laundering, it is essential that this guide disclose the progress of decarbonisation before using the markets.
Buying low-cost voluntary loans on the market can end up being a counterproductive formula, and gives a bad image, if it is not accompanied by real action efforts)
It is about while ensuring that "companies that really go the extra mile are properly recognized."
“These voluntary markets offer flexibility in the action of companies to act. They are welcome. But they should only be used when other options to reduce emissions with direct and real measures have been exhausted. They should only be used as an additional action”, says Mikel González-Eguino, a researcher at the Basque Center for Climate Change.
Before offsetting emissions by going to the voluntary market, "wouldn't it be better to change your transport fleet, switch to electric motors, or simply take the car less?" asks González-Eguino, who repeats his slogan. "They must be additional projects and with a correct verification."
Mark Kenber considers it necessary to provide facilities (“gateways”, he says) to companies so that they have enough confidence “to invest in carbon credits and, in parallel, offer society the assurance that these investments are really aligned and keep the the objective of curbing warming to 1.5 ºC”.
Kenber is a firm supporter of voluntary markets fulfilling a double objective: "to generate emission reductions and investments in the countries that host projects."
For this reason, it advocates applying a criterion of environmental integrity, which implies, on the one hand, that "projects must generate carbon savings that would not occur otherwise, and, on the other, respect the rights of indigenous peoples and local communities, and provide them with additional benefits”
The aforementioned platform is also working to establish global thresholds for high-quality carbon credits "that will help determine which carbon credit programs and methodologies are credible."
Emission reduction projects do not offer the same guarantees in all cases; they lack a follow-up for verification and, above all, they offer different prices.
For this reason, Ismael Romeo believes it is necessary to homogenize them.
“There are many and very different products, and they do not have the same price. Voluntary certificates do not have the "seal" of the United Nations, although they do have the endorsement of private certifiers that certify their quality. That is why it is important to know who has validated that certificate in each case”, says Romeo. There may be certificates that do not have that required quality, but they are also sold on the market.
That disparity makes prices different too, adds Romeo. While the emission rights subject to the European emission trading directive, protected under the UN umbrella, cost about 82 euros per ton (CO2 not emitted or neutralized), the voluntary credits are worth between 2 and 20 euros per ton, but they have come to be worth 0.2 cents: a price so ridiculous that it does not move companies to act with preventive actions.
Companies can have these credits from the voluntary market as a formula to reduce emissions, but they are not interchangeable with those from the regulated market, recalls María José Sanz, director of the Basque Center for Climate Change.
María José Sanz points out that the great debate is to know if the projects subject to the voluntary market are an effective instrument or not to reduce emissions. "And this depends on each project," she says.
“Voluntary markets are part of the solution; the problem is that they tend to be a means to become a fi in themselves”, he says
In his opinion, projects that give rise to emission reduction certificates offer guarantees if they are small but present many uncertainties if they increase in scale.
The UN Secretary General, Antonio Guterres, expressed his concern at the Glasgow summit at the lack of guarantees offered by the announcements of companies' decarbonization strategies. “Who is going to certify that all these announcements of decarbonization strategies are true?” asks María José Sanz.
The emission reduction promises made by the countries are reviewed every two years and this is the best indicator that allows us to know if their gas inventory is going up or down. But in the case of the private sector there is nothing similar. “There are multinationals that work in various countries; sometimes their reductions are already accounted for in national inventories, and they cannot be separated”, says Sanz, pointing out the risk of double accounting of these targeted reductions.
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