Offsets discredited. Again

Analysis by SOMO and Data Desk reveals the offset industry’s claims do not stand up.

In recent years the criticism of the carbon offset industry has increased, with a series of investigations revealing massive overestimation of the supposed benefits of carbon offset projects, human rights abuses associated with REDD projects, and the fact that carbon markets are riddled with fraud.

There have also been several legal cases that highlight problems with carbon projects and the claims that companies make based on having bought carbon offsets.

One of the responses from carbon market proponents is to argue that companies that buy carbon offsets are the companies doing the most to reduce their emissions. For example, UNEP’s Gabriel Labbate, comments that,

The belief that companies that purchase credits are dodging real emission reductions is simply not supported by data.

Labbate relies on a 2024 report by MSCI Carbon Markets that claims to show a link between buying carbon offsets and corporate emissions reductions. And a 2023 report by Ecosystem Marketplace came to a similar conclusion.

But a new briefing by SOMO (the Centre for Research on Multinational Research) and Data Desk (an investigative consultancy) analyses the methodologies and data sets used in these reports. The briefing finds that the link between carbon offset buyers and emissions reductions is “statistically flawed”.

All in on Climate?

Ecosystem Marketplace published its report, “All in on Climate: The Role of Carbon Credits in Corporate Climate Strategies” in October 2023. Ecosystem Marketplace is an initiative of Forest Trends, an organisation set up in 1998, that came from the World Bank’s Forest Market Transformation Initiative. Since 1998, Forest Trend’s President and CEO has been Michael Jenkins, who previously worked at the World Bank. Both Forest Trends and Ecosystem Marketplace are major promoters of carbon markets.

Ecosystem Marketplace’s report was sponsored by the Skoll Foundation, the Voluntary Carbon Markets Integrity Initiative, the High Tide Foundation, the We Mean Business Coalition, and Conservation International.

In October 2024, MSCI Carbon Markets published its report, Corporate Emissions/Performance and the Use of Carbon Credits. MSCI is a US-based financial data company, that was previously called Morgan Stanley Capital International. MSCI Carbon Markets claims to “bring clarity to global carbon markets”.

Incidentally, both Forest Trends Association and MSCI Inc are incorporated in the tax haven of Delaware.

A third report was released in May 2023 by Sylvera, a UK-based carbon credit rating company. But a Carbon Market Watch report published in December 2023 found that Sylvera’s report gives no detail about how the approximately 100 companies in the sample were selected or how their emissions were calculated.

When SOMO asked Sylvera about this, Sylvera replied that it could not provide more detail because the author of the report had left the company. Data Desk points out that, “In the absence of further information, it is difficult to interrogate the Sylvera analysis in any detail.”

Data quality issues

Ecosystem Marketplace uses just two years of emissions data (2020-2021) to conclude that 59% of companies that buy carbon credits reduce their emissions against 33% of companies that do not buy carbon credits.

MSCI uses emissions data for six years (2017-2022) and concludes that buyers of carbon credits have reduced emissions by 3.4% while companies that don’t buy carbon credits have reduced emissions by 1.5%.

The key data source for both reports is the Carbon Disclosure project (CDP), which is the largest source of self-reported emissions data. But the CDP dataset has several limitations, as Data Desk notes in its briefing:

Its crucial weakness is that disclosure via CDP is entirely voluntary. As such, companies that do not report — almost 2,000 of which have been identified by CDP itself as environmentally high-impact — cannot be included in any analysis.

Data Desk summarises some of the key issues as follows:

• Disclosure via CDP is voluntary and rates of disclosure vary significantly by industry, region and other variables, leading to a fundamentally unrepresentative data set. Rates of emissions disclosure also differ between carbon credit users and non-users, the categories which form the basis of both analyses, complicating any conclusions drawn.

• The self-reported nature of the CDP data leads to quality issues. This is especially the case with CDP’s data on carbon credit use, which raises questions as to whether the reports properly distinguish between voluntary and compliance credits.

• By excluding companies that have not reported to the CDP consistently in the timeframes used for their analysis, the reports’ authors narrow their sample drastically, basing their ultimate conclusions on a relatively small number of companies.

• Other factors like changes to a company’s structure as a result of mergers and acquisitions are largely unaddressed. This is particularly relevant for companies in oil and gas, mining and heavy industries, all of which are well-represented in the CDP sample.

• Neither report adequately addresses the issue of Scope 3 emissions, which are a major source of emissions for many companies. This fundamental lack of Scope 3 data represents the greatest source of uncertainty for both reports.

Big Polluters, junk credits

The reality is that Big Polluters like oil and gas companies and airlines are among the biggest buyers of carbon credits. A 2024 paper in Nature Communications looked at the 20 companies that retired the most carbon credits between 2020 and 2023. These companies include Big Polluters such as Shell, Delta Air Lines, Chevron, Eni, Sasol, Boeing, PetroChina, and easyJet.

The paper looked into whether the offsets “could be considered high quality”. The authors found that, “Many offset projects are poor quality and fail to reduce emissions as claimed,” and that, “87% carry a high risk of not providing real and additional emissions reductions.”

Joanna Cabello, a senior researcher with SOMO, writes that, “It is clear that oil and gas companies buying carbon credits are not climate successes but, on the contrary, they are climate failures.”

Cabello notes that two reports analysed by Data Desk are misleading:

By presenting only the data that aligns with the industry narrative and ignoring counter evidence and limitations of the datasets they use, organisations such as EM and MSCI mislead consumers, citizens, and policymakers. Reports such as the two analysed in this article create false perceptions of what carbon credit buyers and the offset industry actually do: divert attention from the continued extraction and consumption of fossil fuels. In this context, these reports are an attempt to push a narrative to rescue an industry that is failing on all accounts to deal with the climate crisis.