REDD myth no. 6: “Carbon markets are climate finance”

The reality is that carbon markets are diverting money away from the Global South.

Carbon market proponents claim that carbon markets can “help close the climate funding gap”. According to this argument, projects that generate carbon credits provide finance for climate action. These projects include REDD, hydropower dams, wind farms, cookstoves, and sulphur hexafluoride replacement projects, among others. Carbon market proponents argue that criticising any aspect of carbon trading results in less money going to the Global South to help address the climate crisis.

In fact, as the Dutch NGO Centre for Research on Multinational Corporations (SOMO) points out, “Most of the funds involved in carbon offsetting circulate amongst private actors and businesses in the Global North.”

Carbon land grabs

A recent report by GRAIN investigated land grabs in the Global South for carbon projects. The report identified 279 large-scale plantation carbon projects established since 2016. The report found that most of the land area was in Africa, where carbon projects covered an area of more than 5.2 million hectares.

In China, India, and Brazil most of the projects are financed by project developers in those countries. Most of the other projects were run by organisations based in the US and Europe.

Opaque finance flows

Flows of finance within carbon markets are extremely opaque. SOMO writes that,

There is no transparency about how much money ends up with the countries and communities where offset projects are implemented, nor how much goes to the project developers and businesses involved in the sale of carbon credits.

A 2023 report by Carbon Market Watch found that 90% of intermediaries operating in the voluntary carbon market do not disclose the fees they charge or the profits they make from the sale of carbon credits.

A January 2023 report by Follow the Money exposed how South Pole made million of dollars of profit by buying offsets from the Kariba REDD project in Zimbabwe for €0.50 and selling them for more than €20.

A 2016 report published in Conservation and Society looking at “Actually existing” REDD found that financial benefits were not delivered to local communities in any of the authors’ case studies in Cambodia, Laos, and Vietnam.

Inflated prices

In 2022, Unearthed and SourceMaterial carried out a joint investigation into the role of intermediaries profiting from the carbon market. Unearthed reported that, “Payments for carbon offsets routinely end up in the hands of middlemen instead of the conservationists they are designed to fund.”

Brokers buy carbon credits from forest-based projects in the tropics and sell them to consumers and Big Polluters at inflated prices. Brokers resold carbon credits for at least three times what they paid for them in almost 250 projects.

The report quoted leaked emails from a broker claiming to a potential buyer that “typically 85-95 per cent” of the price of carbon credits goes to the project owner.

But in the same email exchange, the broker offered carbon credits at a price seven times what they had paid to the project developer.

SOMO writes that,

These reports are consistent with how the industry has evolved. From project developers to the entities that validate and verify carbon credits to the traders, there is a growing number of actors seeking to profit from carbon offsetting. Any industry with a host of associated service providers will always see funds diverted to those entities, and the least powerful actors in the system usually get the smallest share of the funds.

Perverse money flows

The reality is that the “climate funding gap” is a myth put forward by Big Polluters and the conservation industry that hopes to profit from neoliberal false solutions to the biodiversity and climate crises.

In 2022, the Global North handed out US$2.5 trillion in fossil fuel subsidies. Carbon offsetting also receives state subsidies — governments have given at least US$20 billion to subsidise carbon capture and storage schemes and a further US$200 billion is in the pipeline.

In their recent book about neoliberalism, George Monbiot and Peter Hutchison point out that rich countries have spent far more on keeping out the people fleeing from climate impacts and other crises.

Between 2013 and 2018, the UK spent almost twice as much on fortressing its borders than it did on climate finance. Australia The US spent 11 times, Australia spent 13 times, and Canada spent 15 time more.

Meanwhile, the biggest oil corporations are making obscene profits.

In September 2024, Oil Change International published research that shows that rich countries could generate more than US$5 trillion a year by stopping fossil fuel subsidies, making Big Polluters pay, and changing unfair financial rules.

Clearly, if finance were the problem, the money could be found — just as it was in country after country to bail out the banks for many years after the 2008 financial crisis.

SOMO concludes, that,

There is growing evidence that very little of the money made in the carbon offsetting industry ends up with the communities and countries where offset projects are implemented. On the contrary, a range of private actors – most in the Global North – are generating sizeable revenues from trading in carbon credits, money that is not used to support real climate action.