To advocates, scaling up the markets where companies go to offset their greenhouse gas emissions will unlock billions of dollars to plant forests, restore ecosystems, and spur a global roll-out of machines to scrub carbon dioxide (CO2) from the sky. 

To critics, a long history of failed projects suggests that the chief beneficiary may not be the climate — but the bankers and brokers betting that carbon trading is on the cusp of exponential growth. 

Next month, the Integrity Council for the Voluntary Carbon Market, a new international standards body, aims to help resolve this tension by publishing draft guidelines — known as the “Core Carbon Principles” — designed to filter out poor-quality offsetting schemes. The idea is to create a universally recognized quality assurance stamp for carbon credits — tokens bought by companies representing a metric ton of CO2 emissions reduced, or removed, somewhere else. 

Few dispute that the quality of these credits has varied. Reports are rife of ostensibly climate-friendly projects that in reality deliver little demonstrable benefit — and may do active harm, from exploiting communities to incentivising land-grabs in the global south. Compounding the problem, the “voluntary carbon markets” where these credits trade are fragmented between four major certification standards, each with its own focus and approach.

The Core Carbon Principles are designed to introduce some consistency into the market by providing a global threshold for high-quality credits. Even before the draft has been published for public consultation, however, climate campaigners have raised questions over the role of the financial industry in shaping the standard-setting process, fearing the exercise may deliver little more than a market-friendly compromise, rather than fundamental reform.

Members of a 12-strong expert panel drawing up the principles are the first to acknowledge that there is an inherent tension between hopes of rapidly increasing the size of the market to a climate-relevant scale, and the imperative of screening out dubious carbon credits. 

“We urgently need to scale up finance for projects to mitigate climate change, and carbon markets could be part of the architecture for doing this,” Derik Broekhoff, senior scientist at the Stockholm Environment Institute and a member of the expert panel, told DeSmog.

“We can come up with a high-integrity stamp, but the political reality is that there’s a tension between setting a really high bar and not wanting to exclude everything that’s already out there in the market today,” Broekhoff said. “There is a tightrope to walk between raising the bar, but not raising the bar so much as to become irrelevant.”

‘Merely Greenwashing‘

Launched on the eve of the COP26 U.N. climate negotiations in Glasgow last November, the Integrity Council grew out of a previous governance initiative called the Taskforce on Scaling Voluntary Carbon Markets. That body had faced fierce criticism from climate groups who suspected that its focus on rapidly growing the size of the market would serve primarily to hand big business a license to continue polluting — while creating new profit streams for financial intermediaries serving as brokers and project developers. 

The Integrity Council has attempted to make a clean break with its predecessor, emphasizing that its first priority is to address the quality of carbon credits. 

“The markets today are very flawed. They’re not transparent. The pricing mechanisms are flawed. We don’t have consistency of quality of the credits that trade,” Annette Nazareth, a former commissioner with the U.S. Securities and Exchange Commission who now chairs the Integrity Council, told Reuters in a video interview in May. 

“So, all of these market flaws will need to be addressed. But first of all, we need to focus on integrity. Because…we see companies taking credit for offsets that are merely greenwashing,” Nazareth said.

While the Integrity Council aims to improve the quality of credits, it represents only one component of a broader effort to introduce more transparency and rigor into corporate net-zero drives. A complementary but separate body — the Voluntary Carbon Markets Integrity initiative — published its own draft code of practice in June outlining the kinds of climate claims companies might legitimately make on the basis of purchasing carbon credits. 

The idea is that these and other initiatives will combine into a framework to ensure that companies will only be allowed to meet their net-zero targets by purchasing carbon credits once they have made genuine progress in decarbonising their business models. 

Past experience suggests that imposing that level of discipline may be easier said than done.  

Surging Demand

Dominated by the European Union’s Emissions Trading System, government-backed cap-and-trade schemes covering industries that are legally required to reduce their emissions are by far the biggest carbon markets, trading at a record $851 billion last year, according to data provider Refinitiv. In contrast, the vastly smaller voluntary carbon markets are — as the name suggests — purely voluntary: Companies go to them to buy carbon credits because they want to show they are helping to tackle the climate crisis, not because they are required to buy credits by law. 

Credit: Phoebe Cooke and Michaela Herrmann

With carbon credits emerging as a cornerstone of the deluge of corporate net-zero commitments, the value of voluntary carbon markets topped $1 billion for the first time last year — having more than doubled in value since 2020, according to Ecosystem Marketplace. The market represented just under 300 million metric tons of CO2-equivalent, or less than 1 percent of the world’s annual emissions.

With companies under growing pressure to show they are taking climate change seriously, it seems a safe bet that demand for credits is likely to grow. More than one-third of the world’s largest publicly traded companies now have net-zero targets — up from one-fifth in December 2020, according to Net Zero Tracker. Nearly 40 percent of these companies say that they intend to use carbon credits to achieve their targets — with most of the rest not yet specifying whether or not they plan to rely on offsetting. Only a few have ruled out offsetting altogether. 

‘Manipulating Communities’ 

Some of the most egregious problems with carbon credits have involved reports of Indigenous communities being driven off their land for forest-related projects, or harm to food security and biodiversity caused by monoculture plantations. 

Yeb Saño, a former climate negotiator for the Philippines and now executive director of Greenpeace Southeast Asia, said poorly-managed projects risked exploiting vulnerable populations.

“Local politicians are manipulating the communities into accepting these projects,” Saño told DeSmog. “It’s not difficult to see forest- and land-use-based carbon offsetting is a mode of appropriating land in the countries that are producing those credits.”

There are also long-standing concerns over the difficulties involved in accurately assessing the amount of carbon a particular ecosystem-based project may have sequestered — and how long it may stay stored. As climate change has fuelled more extreme wildfires, some forest-based offset projects have literally gone up in smoke. 

There have also been reports of carbon credits being generated by projects to develop wind and solar power, or stop pollution leaking from ramshackle factories, that would have happened anyway because they made financial sense. In climate jargon, such projects are said to lack “additionality” — meaning buying their credits made no difference to the climate. 

The wide variations in price for carbon credits on the voluntary market also shows how divergent standards are. Some nature-based projects can trade at a few dollars per credit, while projects using new technology to capture CO2 directly from the air and sequester it underground can trade at closer to $1,000. 

According to Gilles Dufrasne, who serves on the Integrity Council’s expert panel and is a policy officer at the Brussels-based nonprofit Carbon Market Watch, a “very, very small share, if any” of the credits currently available on the voluntary carbon market would pass rigorous, “high integrity” standards.

Deep Ties to Finance

Comprised of carbon market specialists, Indigenous leaders, U.N. officials, and other technical experts, the Integrity Council’s independent panel of experts — working under the supervision of the 22-member governing board — bears responsibility for drafting the Core Carbon Principles.  

Although there are no representatives of the financial industry serving directly on the expert panel, the prevalence of senior industry figures in the Integrity Council, and the way it was formed, have left some observers asking whether finance is, in effect, writing its own rules. 

The Taskforce on Scaling Voluntary Carbon Markets — which went on to create the Integrity Council — was formed in September 2020 by a Washington D.C.-based lobby group called the Institute of International Finance (IIF). The IIF represents many of the world’s biggest asset managers and international banks, including BlackRock, Standard Chartered, JP Morgan, HSBC, and Barclays.

Mark Carney, a U.N. climate envoy and former governor of the Bank of England, was instrumental in the creation of the task force, which was chaired by Bill Winters, the chief executive of Standard Chartered. McKinsey served as consultants.

At the task force’s launch, the IIF said voluntary carbon markets would have to grow by between 15 and 160 times to meet surging demand for carbon credits, echoing a projection by Carney that the market could hit $100 billion. Some 250 companies — including airlines and oil majors — joined the initiative, sharpening concerns among campaigners that some of the chief beneficiaries of offsetting would be shaping the rules. 

Concerns over possible conflicts of interest intensified in May 2021, when Standard Chartered and several other members of both the IIF and the task force created a carbon trading platform called Climate Impact X. Standard Chartered told DeSmog that its support for the exchange aligned with its wider net-zero goals. “Our involvement in Climate Impact X is consistent with our support for the development of high quality carbon markets so that capital can be channelled to the projects and countries that need it most,” Standard Chartered said in an email. 

Amid press reports of internal divisions over the role of offsetting, the position of the task force became increasingly untenable, and it ultimately created the Integrity Council to take its work forward. A slogan on the new body’s website reflected a shift in emphasis: “Build integrity and scale will follow.” Climate campaigners were not convinced. 

“Calling something an ‘integrity council’ doesn’t give it integrity and ignores what climate science has made abundantly clear,” said Charlie Kronick, senior climate advisor at Greenpeace UK. “No matter how ‘high’ the standards are, offsetting simply isn’t a substitute for action to rapidly and dramatically cut carbon emissions.”

The Integrity Council has, however, adopted a markedly more streamlined structure than its predecessor — notably absent are the 250 companies that joined the taskforce. Funders listed on its website include the UK government, various environmental organizations, and the IIF. The Integrity Council’s secretariat is partly supported by the Green Finance Institute, a UK-government-backed body that convenes experts to find ways to boost climate finance.

Nevertheless, despite these changes, key figures from the task force retain significant roles in a 29-member “distinguished advisory board.” Winters and Carney both serve in this group, along with Tim Adams, the president of the IIF, and Sandy Boss, global head of investment stewardship at BlackRock, the world’s largest asset manager, which has been accused by campaigners of acting too slowly to transition its portfolio away from oil, gas, and coal. Sonja Gibbs, the IIF’s sustainable finance head, serves on the Integrity Council’s governing board. Nazareth, the Integrity Council’s chair, was previously the operating lead of the now disbanded task force.

“Whilst [the Integrity Council] has taken a new, firm stance that integrity is top of its priority list, the old guard are still lingering,” wrote James Vaccaro, executive director of The Climate Safe Lending Network, a coalition pushing banks to act on climate. “Some of the same faces from Carney’s original task force are still playing key roles.”