84% of carbon credits are junk

New peer-reviewed study finds that, “less than 16% of the carbon credits issued to the investigated projects constitute real emission reductions”.

One of the problems with carbon credits is that they often do not represent genuine emissions reductions. These credits are junk credits. Of course, even if carbon project did achieve genuine emissions reductions, generating carbon credits means that any climate benefit will be cancelled out, because the buyer will use the carbon credits in order to continue burning fossil fuels.

A recent meta-study, published in Nature Communications, highlights the problem of junk credits in the voluntary carbon market. The study, titled “Systematic assessment of the achieved emission reductions of carbon crediting projects” looks at carbon credits issued by 2,346 carbon projects.

The authors write that,

The analysis covers one-fifth of the credit volume issued to date, almost 1 billion tons of CO₂e. We estimate that less than 16% of the carbon credits issued to the investigated projects constitute real emission reductions, with 11% for cookstoves, 16% for SF6 destruction, 25% for avoided deforestation, 68% for HFC-23 abatement, and no statistically significant emission reductions from wind power and improved forest management projects.

This is a damning finding. Out of 972 million carbon credits studied, the meta-study found that 812 million do not constitute real emission reductions.

“Improved” forest management?

Improved forest management projects fared particularly badly with zero emissions reductions. The meta-study found that improved forest management projects were prone to “lenient baselines, low leakage deductions and low deductions for reversal risk into the buffer pool”.

Baselines are often set as the average carbon per hectare for the forest type in the region of the project. The forests that became improved forest management carbon project already had lower harvesting rates over decades before the start of the project. These projects generated carbon credits without actually changing how the forests were managed.

Avoided deforestation?

The authors note that avoided deforestation projects use “inherently flawed methodological frameworks . . . to calculate credit issuance”.

They write that,

Specifically, project developers use deforestation baselines informed by historical trends in chosen reference areas defined at the outset of the project, which often result in unrealistic scenarios.

The meta-study does not consider estimates of carbon per hectare in forest carbon projects. One study found that project estimates were 23% to 30% higher than values taken from scientific literature. The meta-study authors write that “more research would be needed to ascertain the carbon rates per hectare on a project level”.

The meta-study also refers to a large literature that assesses the effectiveness of projects aimed at reducing deforestation or similar environmental degradation. “Studies have found a wide variance in the effectiveness of these interventions,” they write.

Studies document several reasons for low performance in these projects, including “poor administrative targeting (i.e. the project does not protect the forest most at risk), adverse-self-selection (those without intention to deforest self-select into programmes) and non-compliance (many schemes do not have appropriate measures to sanction non-compliance.”

Substantial and systemic quality problems

The authors of the meta-study write that their assessment, “documents substantial and systemic quality problems across all analysed project types, which further strengthens the evidence by previous cross-cutting analyses of the CDM [clean development mechanism] and the JI [joint implementation]”.

Other studies of project types not included in the meta-study also expose quality issues. The authors therefore note that their estimate of 812 million junk carbon credits should be considered as “a lower bound” because “many more credits currently traded may not constitute real emission reductions”.

Also, issues of additionality and leakage are “only partly addressed by the literature”. The meta-study does not cover permanence and double-counting.

The authors write that,

Carbon credits are issued based on standards developed by carbon crediting mechanisms. The quality of carbon credits hinges on the robustness of these standards, the choices made by project developers in applying these standards and the thoroughness of the checks by third-party auditors and the carbon crediting mechanism. Our assessment highlights that many project developers pick favourable data or make unrealistic assumptions. Some methodologies make use of outdated data or inappropriate methodological approaches, which can lead to adverse selection or perverse incentives.

The authors argue that standards and methodologies to generate carbon credits “need to be considerably improved”. They suggest that improvements should aim to address the following problems:

• reducing project developers’ flexibility in making favourable methodological assumptions to maximise credit generation;

• using conservative assumptions and data based on the latest scientific evidence;

• addressing the risk of adverse selection and perverse incentives; and

• excluding project types from eligibility where it is very difficult to ascertain whether calculated emission reductions result from the mitigation activities or exogenous factors that impact emissions.

The authors conclude that,

Demand for carbon credits is expected to grow significantly over the next decades, with increased demand from voluntary carbon market buyers, domestic compliance markets, CORSIA and countries using Article 6 of the Paris Agreement. Yet, our results substantiate doubts about the environmental quality of carbon credits from the project types we study.

The authors argue that these “quality issues need to be addressed for carbon crediting mechanisms to meaningfully contribute to climate change mitigation”.

But the decades of failure to address exactly these issues points to the fact that the systemic problems and blatant conflicts of interest within carbon markets make addressing these “quality issues” impossible. Even if the issues could be addressed, carbon markets would remain a dangerous distraction from the increasingly urgent need to leave fossil fuels in the ground.