Intermediaries are profiteering from the false solution of carbon trading

Back in 2011, the Munden Project put out a report titled, “REDD and Forest Carbon: Market-Based Critique and Recommendations”. The report concluded that “Forest carbon trading is unworkable as currently constructed”.

One of the problems that the report highlighted was that a large amount of the money invested in REDD would be captured by intermediaries.

The report states that,

“We therefore conclude that REDD is unlikely to generate expected impact at the producer level. That is, the bulk of benefits from forest carbon will not go to REDD projects, the communities that live within them or the countries where they are located, and those projects that are able to operate will come under intense pressure to cut costs due to monopsony buying power.

“This has important implications for REDD beyond its impact on forest countries, projects and communities. If we assume that $20 billion will be needed to fight deforestation, then we can already assume that a good bit of that money will end up precisely where it started, in developed countries with the kind of large multinational organizations capable of servicing the market.”

Munden Project report on REDD and Forest Carbon: “Forest carbon trading is unworkable as currently constructed”

Intermediaries include exchanges, brokers, online resellers, crypto firms, and others. Recently a company called Puro.earth put out a map of the “new” voluntary carbon market:

In recent months, these intermediaries have come under scrutiny.

In May 2022, an investigation by Greenpeace’s investigative journalism unit, Unearthed, and the non-profit investigative journalism organisation, SourceMaterial, found that brokers were buying carbon credits from REDD projects and selling them on to consumers and corporations at inflated prices. One broker was offering carbon credits at a price seven times higher than they had originally paid.

Unearthed wrote that,

“A consequence of the lack of transparency in the market is that consumers, who think they are paying to offset their emissions, are often sending the bulk of their payments to companies that do nothing to combat climate change.”

In January 2023, a report by investigative journalists Bart Crezee and Ties Gijzel for the watchdog website Follow the Money exposed how South Pole had made millions of dollars buying offsets from the Kariba REDD+ project in Zimbabwe for as little as €0.50 and selling them for more than €20.

In 2022, the Kariba REDD+ project generated about 10% of South Pole’s revenue. Some of the money was supposed to go to the communities living in the REDD project area, but Crezee and Gijzel’s investigation revealed that South Pole has no way of knowing how the project developer, Carbon Green Investments (registered in the tax haven of Guernsey) has spent the money it received.

Secretive Intermediaries

In February 2023, Carbon Market Watch published a report titled “Secretive Intermediaries: Are carbon markets really financing climate action?”

Carbon Market Watch’s report starts badly:

“The purchase of carbon credits through the voluntary carbon market is widely considered to be an effective way to channel finance towards climate action.”

Carbon Market Watch is on a collision course with reality here.

Carbon credits exist in order to avoid meaningful climate action. Even if finance from carbon credits goes to a genuinely useful project the buyer of the carbon credit uses that credit to continue emissions from burning fossil fuels.

As Larry Lohmann points out,

“Carbon markets are not designed to reduce emissions. Their function, in the Paris Agreement and elsewhere, is to extend the life of the fossil fuel economy and, indirectly, an exploitative and unequal system of extractivism and nature degradation. That is why they are backed by so many fossil-driven corporations and capitalist states. Carbon markets have coexisted very happily for more than 20 years with a catastrophic increase in emissions.”

Carbon Markets are a way of deflecting discussion away from the violence and destruction associated with the fossil fuel industry, and the urgent need to leave fossil fuels in the ground.

It is in theory possible that buying carbon credits could finance worthwhile projects, but the reality is that the vast majority of carbon projects do not lead to any reduction of emissions - as Carbon Market Watch itself reported back in April 2017.

And the idea that the only way of funding worthwhile projects is through a scheme that allows Big Polluters to continue polluting is madness.

90% of intermediaries do not disclose fees

US$2 billion is an often quoted figure for the size of the voluntary carbon market. It comes from a report by Ecosystem Marketplace, an organisation that exists specifically to promote carbon trading, biodiversity offsets, payments of ecosystem services, and other neoliberal false solutions to the climate and biodiversity crises.

The figure of US$2 billion is calculated from the volume of trades and their price. If the same carbon credit is traded repeatedly, that increases the overall size of the market, but it doesn’t mean that any more money will go to carbon projects or to the communities on whose land the project is taking place.

Because intermediaries are opaque, there is no way of knowing how many times a carbon credit is traded before it is finally retired and taken out of the market.

The overall size of the market tells us nothing about how much of the money goes to intermediaries through fees and price markups.

Carbon Market Watch’s report states that,

“90% of intermediaries operating on the carbon market did not disclose the exact fees they charged or the profit margins they made during the sale of carbon credits on the VCM.”

The fee disclosed by the remaining 10% of intermediaries averaged 15.5%. As Carbon Market Watch notes, this is probably low because the companies that do publish information about fees are those with the lowest fees and publish their low fees in order to attract buyers.

In addition, the 15.5% fee applies to the price the intermediary sold the carbon credit for. Carbon Market Watch gives an example: “a broker could purchase a credit at €5 and sell it at €15, and apply the 15.5% fee to the €15 final sales price”.

Inequity and intermediaries

Carbon Market Watch notes that “intermediaries tend to be wealthy individuals or organisations” while the carbon projects that generate carbon credits are often in poorer communities in the Global South.

This arrangement exacerbates inequity.

“Carbon traders get to use brown and black bodies as human shields for their cynical trade,” climate researcher Ketan Joshi writes, “all while pocketing far more cash than actually ends up in these communities.”

Carbon Market Watch has a series of recommendations for making intermediaries more transparent about how much they are profiting from selling carbon credits. A checklist for buyers of carbon credits aims to get buyers to ask “the right questions to channel money to the right places”.

Carbon Market Watch hopes that its recommendations will “strengthen the integrity, and hence credibility, of the VCM [voluntary carbon market]”.

This spectacularly misses the point. Carbon markets are a false solution to the climate crisis. Carbon Market Watch’s report shines a light on how intermediaries are profiteering from “the extreme lack of transparency and the enormous complexity of the VCM”.

But even if carbon markets were transparent and simple they would still be a false solution.

In 2017, Carbon Market Watch put out a press statement about a study by the Öko-Institut for the European Commission that found that 85% of projects in the Clean Development Mechanism were unlikely to deliver “real, measurable and additional” emission reductions. Carbon Market Watch demanded “an end to the scheme, and a shift away from offsetting as a climate policy approach”.

The same conclusion should have been reached from this recent Carbon Market Watch report. Carbon markets are highly opaque. Publicly available data is extremely limited. There is little or no price transparency. Intermediaries are exploiting the market.

And carbon markets cannot address the climate crisis. It’s time to scrap them.