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Many of the carbon credits used to offset corporate emissions are not worth it. conclusion drawn by investigative journalists. Target: Verra, which approves three out of four voluntary, rainforest carbon projects. The research found that 94% of these voluntary loans are “worthless”.

This damning report signals the corporate world to reassess what kind of carbon credits it buys to meet net zero goals. Other papers also question the credibility of voluntary carbon projects. At the same time, demand for these instruments has stagnated while their market price has fallen, prompting companies to consider sovereign debt, loans issued by national governments and endorsed by the Paris climate accord.

The Guardian, Die Zeit and SourceMaterial say Verra overstates his influence. Organizations estimate how many trees they will save, all verified by Verra-approved third parties. But the threat of potential forest loss is overstated by 400%, which would indicate that carbon credits are overstated. Indeed, such an assumption is almost impossible and is a function of public policy and economics. The research shows that a small number of Verra’s projects have prevented the felling of trees.

Separately, the Australian National University professor and former head of the government’s emissions reductions commission said the market had “integrity issues”. Andrew McIntosh previously studied 119 rainforests and found that the credits had little effect. For 59 of the projects, the amount of rainforest decreased even though they received $100 million in loans.

Overall, demand for forestry-related carbon credits has fallen, Trove Research and AlliedOffsets add, from 380 million in 2021 to 359 million in 2022. As a result, carbon prices continue to decline, forecast at $6.5 per ton this year.

“Our analysis of nearly 100 million carbon credits found that only a fraction of them resulted in actual emissions reductions,” SourceMaterial said. “It raises questions for the organizations that many of the world’s largest companies and the consumers who buy their products rely on to set the standard for effective carbon offsets, particularly the largest of them, Verra.”

A central criticism is that Verra receives 10% of each carbon credit sold to fund its efforts. Logically, the more credits he sells, the more he earns. Therefore, it is motivated to make more and more deals. His earnings increased from $7 million in 2018 to $41 million in 2021.

Vera punches him in the back

Chevron, Shell, BP, Gucci, BHP, Salesforce and Samsung are among the companies Verra has approved to buy carbon credits. Verra, which has issued billions in carbon credits worth nearly $2 billion since 2009, says it enables carbon financing that saves trees and reduces atmospheric carbon by working with global experts to create and refine its methodology. The private sector generally provides 20% of the funding to support deforestation avoidance.

Verra will require evaluations every six years to improve its baseline scenarios, down from 10. For example, he failed to predict the rise of Jair Bolsonaro, who was elected president of Brazil in 2018. He allowed loggers and farmers to rough up vast tracts of land. rainforests, increasing deforestation by 60% and greenhouse gases by 12% by 2021.

Verra “continually improves methodologies based on the best available science and technology,” it said. It mobilizes finance at scale as it certifies projects that avoid, reduce or eliminate emissions. “An important part of the methodologies is determining the baseline against which climate action should be measured, that is, predicting what would happen if the project were not implemented. Baselines are used to determine how much carbon credits the project can provide by comparing the rate of deforestation in the project area to the baseline.”

Importantly, not all carbon credits are created equal and there is a difference between voluntary markets traded by brokers and sovereign credits issued by national governments. The first arranges for the company to buy loans from a developing country to help them save areas of rainforest. The company pays the middleman and then the landowners or project developers get a percentage of the money. The company treats the loan as an expense, and its customers eventually pay it.

The Paris climate agreement was adopted by the latter, and 192 countries agreed to these standards. The goal is to make the trees more alive than dead, or to be used for farming or lumbering. Developing countries struggled to include a “sovereign” REDD+ mechanism in the COP27 final agreement. Under that plan, governments take stock of their forest lands and set goals to stop deforestation. The UN Framework Convention on Climate Change monitors their progress and provides carbon credits.

Will real REDD+ move forward?

To confuse matters, both voluntary and sovereign markets use the term REDD+. Unfortunately, “REDD+” was never patented. Costa Rica and Papua New Guinea introduced the link in 2004, linking nature-based solutions and national rainforests to emissions reductions. But the voluntary carbon market has also coined the acronym, using ownership criteria outside the Paris Agreement.

Voluntary markets need more clarity and oversight to ensure a fair distribution of money. Rainforest countries may end up with pennies on the dollar.

In contrast, sovereign loans protect the rainforests of entire nations. Rainforest countries have their own motivations for allocating money to reduce emissions. If they do, countries and companies will continue to buy the credits. Moreover, satellites fly overhead that make public knowledge of forest management. The data is updated every two days and is accurate.

In general, companies cannot achieve carbon neutrality by generating all their electricity using renewable energy on-site or by increasing their energy efficiency strategies. They should sign electricity purchase contracts. And they have to buy carbon credits, things that can offset their emissions. Sometimes companies buy loans because it creates good public relations. Other times they don’t understand the nuances of the market.

“The implications of this (Verra) analysis are huge,” said Barbara Haya, head of Cal Berkeley’s Carbon Trading Project in a SourceMaterial story. “Companies make false claims and then they convince customers that they can fly guilt free or buy carbon neutral products when they are not carbon neutral in any way.”

In doing so, Deutsche Bank called sovereign carbon credits “one tool to allow capital to flow where it’s needed to protect countries from climate change and continue to cut emissions.” Gabon, Belize and Honduras have either sold or are planning to sell sovereign debt.

Indeed, tropical forest countries will use the proceeds to cut emissions and build infrastructure, allowing them to protect themselves from floods and rising tides; credits that also remove carbon from the atmosphere and benefit the rest of the world.

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