The trouble with voluntary carbon offset markets

As the climate crisis becomes impossible to ignore, voluntary demand for carbon credits is surging. It is, therefore, no surprise that the recent purchase of 2.2 million tonnes of carbon credits by the Saudis during the recent second regional voluntary carbon market auction easily exceeded previous records.

This is a positive sign. What this means is that when Aramco, Saudi Arabia’s State oil company, for example, offers “carbon neutral” oil to its customers, the idea is that burning the oil will result in zero emissions.

This is because emissions would have been counterbalanced by offsetting reductions, or by increases in carbon absorbed by forests or other carbon “sinks” in Africa or somewhere else.

But with these markets growing exponentially, are we sure they will help keep global warming under 1.5 degrees Celsius as called for in the 2015 Paris climate deal?

For starters, the estimated Sh280 billion carbon offset market allows companies to pay others to cut emissions.

They do this by counting on players engaged in projects such as planting trees, adoption of clean cooking stoves, and renewable energy? Such projects generate offset certificates which are tradable.

Demand for these certificates exists from more than 190 countries that have pledged to reduce greenhouse gas emissions. The voluntary carbon offset market transacts an estimated 500 million tonnes (500 million credits) per year, an amount set to grow to 1.5 billion tonnes in a decade.

But there’s a small problem. Bought credits can be counted by the buyers’ countries towards their reduction pledges. In effect, these countries may relax reducing their emissions and still claim to have achieved their pledges of reducing global emissions.

This is insane and is simply greenwashing. This problem partly emerges from the fact that most voluntary markets are largely unregulated, are not transparent and generally lack common standards. On the contrary, the mandatory carbon markets (such as the EU scheme) deliver real emission reductions.

But mandatory markets alone cannot solve the problem. Annual carbon emissions must be cut to 25 billion tonnes by 2030 to limit the increased global warming to 1.5 degrees Celsius, according to Unep. Hence, the need to fix voluntary carbon markets are in order to fill in the gaps.

Industrialisation plans

In sum, voluntary carbon markets contain the firm foundation needed to build a strong structure. This is especially crucial for the African industry as plans to industrialise the continent are being mooted on the back of the African Continental Free Trade Agreement.

Nonetheless, letting companies and countries to buy credits as a ploy not to reduce their own emissions to absolute zero is just plain patching over emissions. That needs to change.

Otherwise, we will pat ourselves on the back for meeting environmental, social and governance (ESG) scores but making no difference to the planet’s atmosphere.

The writer is MD Canaan Capital