Two major scandals rocked the voluntary carbon market (VCM) in 2023.
In the VCM, companies buy ‘offsets’ or ‘credits’ to support projects that avoid or reduce emissions. They use these offsets to reduce their own net emissions or to say that they are ‘carbon neutral’.
2023 was a year of scandal for carbon offsets
Carbon offsets are judged in quality by a company called a verifier. These companies conduct checks on a project and confirm how much CO₂ (or other greenhouse gas) is avoided or removed. This then gives a figure for how many offsets can be sold from a single project.
In January, the Guardian claimed that Verra, one of the largest verifiers in the offset market, had been vastly overstating the number of offsets on the rainforest projects it was verifying. Verra challenged the findings, but its CEO ultimately stepped down.
The key issue with such offset projects is that their impact is often subjective. When protecting a forest from deforestation, the verifier has to compare the rate of actual deforestation with a counterfactual in which the project was not undertaken, and a variety of assumptions are used to support this.
The second scandal broke in March and continued to develop throughout the year. This time the issue was with the Kariba project, a forest preservation project in Zimbabwe. Kariba was the landmark project of South Pole, one of the largest retailers of offsets, and was itself one the single largest sources of offsets on the market. As it turned out, outside experts and South Pole’s own analysis showed that the benefits of the project had been wildly overstated. Unfortunately for Verra, it had also been the project’s verifier. A later investigation by The New Yorker found a variety of governance issues, with no one able to account for all the money corporates had put into the project’s offsets.
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2024 will be a year of recovery
In November 2023, there was a small sign of hope for the VCM. A UN sub-group had developed a draft set of rules that would operationalise article 6.4 of the Paris Agreement.
The Paris Agreement is the global agreement to limit global warming to well below two degrees above pre-industrial levels. Article 6 aims to create a framework for carbon markets. The new rules would create a certification for offsets that fulfill certain criteria, and these offsets would be called A6.4ERs. The final rules will be negotiated at COP28 in December.
Countries could buy these offsets to their own emissions, as well as corporates. It also increases the likelihood that offsets that qualify for the A6.4ERs will be included in compliance carbon markets. These are regulatory markets where governments auction off permits to emit CO₂. This would increase demand for the types of offsets that qualify and put an end to those that do not. If a positive outcome at COP28 fails to revive the VCM, it will remain subdued until more technology-based carbon removal offsets have scaled. These include technologies like direct air capture, biochar, and enhanced rock weathering, which can store CO₂ for long periods, but which remain expensive and difficult to scale.