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Blog Are carbon credits a scam?

Are carbon credits a scam?

Ever buy a flight and see an offer from the airline to “offset” part of the emissions it creates? 

Well, we hate to ground your dreams … but they’re a scam, according to climate experts.

That got us thinking: Are carbon credits flimflam, too?

Let’s take a look. 

Carbon credit vs. offset

Carbon offsets and credits are related and are often used interchangeably. They are, however, different approaches within the context of mitigating greenhouse gas emissions.

Airlines’ offers to negate carbon emissions on a flight is an example of an offset. A carbon offset is a way to compensate for carbon emissions being produced in one area by funding carbon reduction projects elsewhere.

A carbon credit is a tradable certificate representing the reduction, avoidance, or removal of greenhouse gas emissions. Credits incentivize and offset carbon emissions by allowing businesses and individuals to invest in projects that contribute to a net reduction in overall emissions.

How do carbon credits work? 

The world of carbon credits can get complex quickly. We’ll try to keep it simple here.

Carbon credits are basically like permission slips for emissions. Credits are typically one ton of carbon dioxide — or the equivalent in other greenhouse gases — and businesses can trade them in a market-based system to incentivize carbon emission reduction.

Carbon credits are generated through emission reduction projects and can be bought and sold on the carbon market, helping facilitate emission reduction between people, businesses, or governments. Carbon credits can also be used to fund projects that remove greenhouse gasses, such as planting trees or renewable energy.

Voluntary vs. mandatory models

The complexity comes in when you’re looking at mandatory vs. voluntary carbon reduction models. In mandatory systems, a government or independent body issues credits and ensures compliance.

A voluntary system is similar but there is no legal obligation and companies participate based on their own sustainability goals. The lack of regulation can make this model a less reliable driver of emission reductions compared to mandatory models.

In the U.S., the voluntary model is what’s most common. California and Washington are the only states that have a cap-and-trade carbon credits system, and 12 states in the Northeast are part of the Regional Greenhouse Gas Initiative.

Challenges of voluntary carbon credits

While the voluntary carbon credit model offers flexibility, it faces several significant issues, including: 

  1. Lack of regulation: No central regulatory body oversees the voluntary market, prompting questions on the legitimacy of some carbon credits. That means there’s no enforcement or penalties in the voluntary carbon credit system.

  2. Double-counting: Without centralized accounting, there’s the possibility of the same emission reduction being counted twice, which artificially inflates the impact of carbon credits.

  3. Market fragmentation: A lack of centralized oversight also drives market fragmentation and creates difficulty in comparing and valuing credits from different projects.

  4. Transparency concerns: Some carbon reduction projects lack transparency in their methodologies and results, making it difficult for buyers to assess their credibility and impact.

  5. Limited impact for big polluters: The voluntary market is still relatively small and fragmented, leading to limited liquidity and price volatility for large businesses. That makes it difficult for buyers and sellers to find suitable trading partners and secure stable prices.

(Big) room for improvement

Although carbon credits hold promise to meaningfully reduce greenhouse gas emissions, they’ve struggled to live up to their hype. For example, a 2023 study suggests that only 12% of existing carbon credits constitute real emissions reductions.

A recent investigation by the Guardian and researchers from Corporate Accountability that looked at the top 50 emission reduction projects by sales of carbon credits also found damning results. A total of 39 of the top 50 projects — or 78% — were categorized as “worthless due to one or more fundamental failing that undermines its promised emission cuts.”

Many climate experts agree the success of voluntary carbon credit models hinges on several key factors. Among the top priorities are strong, independent standards for verification and reporting, regulatory oversight, improved market infrastructure to facilitate trading, and standardized methods to compare and value credits from different projects.

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