Big Polluters are buying cheap, old, junk carbon offsets

A new study shows that 87% of offsets retired by companies like Shell, Delta Airlines, Chevron, and Eni carry a high risk of not providing emissions reductions.

A new paper published in Nature Communications looks at the 20 companies that retired the most carbon offsets between 2020 and 2023. The authors looked at whether the offsets “could be considered high quality”. Their conclusion is damning:

“Most companies include carbon offsets in their net-zero strategy. However, many offset projects are poor quality and fail to reduce emissions as claimed.”

They found that companies predominantly buy low quality, cheap offsets. “87% carry a high risk of not providing real and additional emissions reductions,” they write, “with most offsets originating from forest conservation and renewable energy projects.”

Three-quarters of the offsets were from projects that began before 2016. The aviation industry’s carbon trading scheme CORSIA has a cut-off of 2016 or later for when projects started issuing offsets. The vintage of the offsets must also be 2016 or later.

The paper in Nature Communications was written by Gregory Trencher and Jordan Carlson, both of the Graduate School of Global Environmental Studies, Kyoto University, Sascha Nick of the Laboratory of Environmental and Urban Economics, Ecole Polytechnique Fédérale de Lausanne, and Matthew Johnson of the Center for Earth System Research and Sustainability, Universität Hamburg.

They are clear about why Big Polluters like carbon offsets:

The appeal of offsets lies in their ability to allow companies to outsource decarbonisation efforts to external initiatives, thus avoiding the more difficult task of transforming their own operations and supply chains and phasing out fossil fuels.

The authors note that carbon offsets “have lost credibility due to increasing evidence that many offset projects are of low quality and fail to deliver the emissions reductions they promise”.

This criticism has focussed particularly on REDD and renewable energy projects. Both are prone to over-crediting and exaggerating their additionality.

“High quality” offsets?

Carbon trading proponents answer such criticism with claims of “high quality offsets”. These are supposed to ensure additionality and permanence, avoid over-crediting and double-counting, and protect against social and environmental impacts.

“Such quality principles, however, do not guarantee genuine climate benefits,” Trencher and colleagues write.

As an example, they highlight four problems with offsets from a wind farm or REDD project that started 15 years ago:

1. Renewable energy projects carry a high risk of overestimating emissions reductions and lacking additionality;

2. Using historical mitigation activities to offset emissions today fails to promote new decarbonisation activities beyond those already scheduled to occur;

3. Cheap offsets typically originate from over-credited projects with low additionality, diverting funds from projects with higher quality control measures that cost more;

4. In countries where renewable energy has diffused widely and become standard practice, there is a weak argument for additionality.

The authors’ analysis found that many renewable energy projects in Brazil, China, and India are not additional — because of the high governmental support for renewable energy in these countries.

In a 2022 interview with Energy Monitor, David Antonioli, who was then the CEO of carbon certification company Verra, acknowledged that more than 200 renewable energy projects in China that were still on Verra’s registry were no longer considered to be additional.

“Those projects were developed before we came to the conclusion that they were no longer additional,” he said. “So they were legitimate at the time they submitted their original requests for registration.”

The authors of the Nature Communications paper point out that carbon removal projects are also “not immune” to quality issues of over-estimating carbon stored and lack of additionality.

And they write that,

“Furthermore, nature-based solutions are unable to store carbon permanently for the millennial timescales required for effective climate mitigation.”

Big Polluters

The 20 companies that retired the largest volumes of carbon offsets between January 2020 and December 2023 include some of the world’s biggest polluters, such as Shell, Delta Air Lines, Chevron, Eni, Sasol, Boeing, PetroChina, and easyJet.

All of the 20 companies, except one (Hu-Chems Fine Chemicals), have used offsets to claim carbon neutrality or as part of their decarbonisation targets.

Shell and Delta Airlines are the two largest offset buyers. Between 2020 and 2023, each company retired about 23.5 million offsets, making up about 35% of all the offsets retired by the 20 companies.

97% of the offsets retired by the 20 companies are based on avoided emissions. These are renewable energy or REDD projects that are based on the claim that greenhouse gas emissions were avoided compared to a counterfactual baseline — a story about what would have happened if the project had not gone ahead.

“Low-quality, cheap credits”

The authors highlight a systemic problem with the various attempts to “clean up” the carbon market. “The largest corporate buyers of offsets,” they write, “continue to source low-quality, cheap credits with minimal climate benefits.”

The authors note that “companies have actively targeted cheap credits”.

This is the “market for lemons” problem. Sellers know whether or not their carbon offsets are bogus or not, but the buyers don’t. Imagine buying a car that you’d never seen. Instead you have to rely on a “third party certification process” to convince you that the car even exists, let alone whether it has wheels and an engine.

Carbon offsets are invisible. Avoidance offsets are based on something that didn’t happen.

That “third party certification process” had better be good.

The reality is that it is not.

Verra has the largest registry of carbon offsets in the voluntary carbon market. It is therefore responsible for ensuring more buyers than any other registry that its carbon offsets are genuine. But Verra has been caught again, and again, and again, and again, and again, certifying junk offsets.

The authors write that,

These findings support the growing body of evidence that the VCM — designed as a voluntary industry-led market operating free from government oversight and regulation — is plagued by fundamental quality issues that undermine its effectiveness in reducing global emissions.

REDD offsets are “higher risk”

The paper includes this graphic, illustrating that 87% of the offsets retired by the 20 companies are “higher risk”:

“Lower risk” offsets account for only 6% of all retirements by the 20 companies.

Most of the high-risk offsets came from forestry and land use projects — mainly REDD projects, which accounted for 43% of the offsets retired.

Gucci, for example, bought all of its offsets from REDD projects between 2020 and 2023. But in May 2023, the company quietly removed all claims of being carbon neutral from its website.

The authors summarise the problems with REDD offsets as follows:

• tendencies to exaggerate historical deforestation trends or regional baselines;

• failures to reduce deforestation to levels claimed by developers; and

• emissions leakage, where deforestation shifts to another area.

These are the same problems that have plagued REDD from the beginning.

Old projects, old vintages

The authors found that while some companies did buy credits issued in 2016 or more recently, seven companies (Shell, Delta, Sasol, DPD, Gucci, PetroChina and Norwegian CL) bought most of their offsets with vintages older than 2016.

Most of the offsets were generated by projects that started issuing offsets a decade or more ago. Eight companies (Shell, Delta, Takeda, Sasol, DPD, Chevron, Norwegian CL and Hu-Chems) bought 75% of their credits from projects that started in 2013 or earlier.

65% of the offsets retired by the 20 companies came from projects that started a decade or more ago. The authors write that,

Our findings thus indicate that the majority of offsetting expenditures by the twenty companies have not supported the formation of new climate initiatives.

Offsets traded under Article 6.4 of the Paris Agreement must come from projects that started in 2021 or later. Only 0.4% of the 20 companies’ offsets came from projects that started in 2021 or later.

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