Rebuilding Trust in Carbon Offsets Won’t Be Easy
BY DIETER HOLGER - WSJ
The $2 billion voluntary carbon- offsets market has suffered allegations that many credits don’t deliver the emissions cuts they promise, but efforts to rebuild credibility face an uphill battle.
Recently, the Commodity Futures Trading Commission said it would make policing carbon offsets a priority, Nestlé decided to leave the market and standard setters published guidelines that few existing buyers would meet. As things currently stand, only 5% of companies buying voluntary credits would meet the tough new standards on their proper use, according to Trove Research. It also estimates that less than 2% of projects issuing credits would comply with new standards for sellers— assuming the final rules coming soon are in line with the draft published in July 2022.
“The offset industry’s inability to self-regulate has produced a slow-moving crisis,” said Danny Cullenward, research fellow at the Institute for Carbon Removal Law and Policy at American University. “Companies are asking whether the marketing benefits are worth the legal risks.”
Carbon offsets are part of nearly every scenario that keeps global warming to 1.5 degrees Celsius. Morgan Stanley estimated in February that it could be a $100 billion market by 2030.
However, over the past year the market’s credibility has suffered after a series of allegations that credits aren’t delivering on their emissions-reduction promises. It has left many companies with cold feet.
Nestlé is pulling out of carbon offsets and withdrawing carbon-neutrality claims for brands such as Nespresso, Perrier and San Pellegrino, to focus on investments that cut emissions in its supply chain and operations, a spokeswoman said. Airline easyJet
and fashion company Kering
also have decided to exit from the market completely.
Many companies are avoiding the market given the reputation risk and rising scrutiny.
In June, the CFTC—the federal regulator of derivatives— created an environmental task force focused on rooting out fraud in carbon markets. Earlier that month, the agency called for whistleblowers to expose misconduct.
“As carbon credit markets continue to grow, we will act to foster the integrity of these markets by fighting fraud and manipulation,” CFTC Enforcement Director Ian McGinley said.