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    Industry’s Tentative Defence of Carbon Offsets

    Stockholm (NordSIP) – Last week the NordSIP Laundromat covered the simmering controversy over carbon offsetting, which seemed to boil over following the publication of articles in the UK’s Guardian newspaper and Germany’s Die Zeit.  The headlines focused on a particular set of data that appeared to indicate that more than 90% of the scrutinised offsets were invalid.

    In a co-ordinated response, on January 30 2023 some 49 organisations involved in the Voluntary Carbon Markets (VCMs) published an open letter in defence of this relatively nascent industry.  “Don’t throw the baby out with the bathwater” accurately summarises their message.  There is an admission that “the carbon credit market alone will not solve climate change.  Not all credits deliver the climate benefits they claim.  These two facts are not disputed.”  The letter’s signatories reiterate their belief in the so-called “mitigation hierarchy,” whereby offsets should only be used after all current mitigation efforts have been exhausted.

    The rather succinct letter does not offer up any concrete rebuttal of the claims made against many of the offsetting-related projects set up under the UN-sponsored Reducing Emissions from Deforestation and Forest Degradation in Developing Countries (REDD+) framework.  The inconsistency in carbon credit quality within the VCMs is cited by the 49 signatories as one of the reasons for their very existence, as many of these firms are set up as ratings or third-party measurement providers.

    The industry’s recognition of its own limitations is also given as the motivation behind the establishment last year of the Integrity Council for the Voluntary Carbon Market (ICVCM).  The council’s secretariat is a collaboration between the Green Finance Institute, the British Standards Institution (BSI), the International Emissions Trading Association (IETA), and the Center for Climate and Energy Solutions (C2ES).  Following a public and industry consultation, the ICVCM aims to publish its final Core Carbon Principles (CCPs) in March of this year, along with the related assessment framework.

    Verra, the main carbon credit standard-setter under fire in the Guardian and Die Zeit articles, was quite outspoken in its criticism of the proposed CCPs.  A five-point defence of VCMs was also made by the World Economic Forum in Davos last week.  Nevertheless, while the media coverage may have somewhat overstated the problem with REDD+ offsets, there is a general consensus that it is an industry beset by too many standards, frameworks and methodologies.  The result is confusion and scepticism that could jeopardise the necessary flow of capital to these essential climate change mitigation efforts.  The VCMs must move beyond squabbles and fragmentation and get behind a feasible and efficient set of standards that can restore trust in the offsetting process.

    Image courtesy of Mariusz Prusaczyk from Pixabay
    Richard Tyszkiewicz
    Richard Tyszkiewicz
    Richard has over 30 years’ experience in the international investment industry. He has worked closely with major Nordic investors on consultancy projects, focusing on the evaluation of external asset managers. While doing so, Richard built up a strong practical understanding of the challenges faced by institutional investors seeking to integrate ESG into their portfolios. Richard has an MA degree in Management and Spanish from St Andrews University, and sustainability qualifications from Cambridge University, PRI and the CFA Institute.

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