Many companies are shying away from carbon credits

Less than a quarter of 137 global companies surveyed in the fourth quarter of 2022 plan to use carbon credits, despite more than 90% of respondents promising to cut their net greenhouse gas emissions to zero by 2050, according to a report published Tuesday by the World Economic Forum and Bain & Co.

Around half of respondents say they aren’t buying credits because of a complex web of standards, varying definitions of carbon credit quality or a lack of market transparency. Around 40% cite the risk of reputational damage, including legal action.

Retirements of carbon credits—a measure typically of companies claiming offsets against their greenhouse gas emissions from projects such as tree planting and renewable energy—back up the survey results. Retirements fell 3% in 2022 from 2021, compared with average annual growth of 48% from 2019 to 2021 on Verra, the world’s largest carbon-credit registry, the report said.

With carbon credits increasingly playing a part in net-zero-by-2050 scenarios, officials around the globe continue work to create a widely accepted set of carbon credit standards that provide the transparency and definitions that they hope will unleash this market.

On Sunday, the U.S. State Department, Rockefeller Foundation and Bezos Earth Fund outlined six guiding principles and an adviser group for the Energy Transition Accelerator, a developing-market carbon offset plan announced by John Kerry, the U.S. special presidential envoy for climate, at last year’s United Nations climate conference in Egypt. International and U.S. regulators are also working on standards. Carbon credits are also expected to be discussed at this week’s World Economic Forum annual summit in Davos, Switzerland.

As officials work to develop the market, sustainability chiefs must weigh the pros and cons of carbon credits in their climate plans.

Companies can pay now for credits that help the environment as they work on long-term goals to cut their greenhouse gas emissions. However, using credits entails some risk, given the numerous investigations that have uncovered questionable financing and projects that don’t accomplish what they promise.

A recent Wall Street Journal investigation found that only a small amount of money designated for rainforest preservation in a project in Peru actually reached locals. Instead, much went to an opaque network of traders, registries, raters, governments and investors.

In another instance, satellite imagery found that 10 years of carbon credit projects in California provided no real climate benefit, according to researchers from the National Aeronautics and Space Administration and University of California, Irvine.

Carbon solutions

To address concerns in the carbon market and scale up climate action, there is a movement toward better, widely accepted standards. The Integrity Council for the Voluntary Carbon Market ended its public comment period in September on the 10 so-called Core Carbon Principles it proposed in July. The group, which includes climate experts and representatives of carbon credit market participants, nonprofits and indigenous groups, hopes the principles can guide regulators.

The concern raised by companies “makes our work to establish a definitive, global standard for high integrity carbon credits all the more urgent," said William McDonnell, chief operating officer at the ICVCM. “We are aware of this issue and continue to work intensively to get these standards into the market as soon as possible." He said they would share an updated timeline in the coming days.

Work continues on Mr. Kerry’s Energy Transition Accelerator with the aim to fully design the initiative ahead of this year’s U.N. climate conference in Dubai this December.

At the national level, the U.S. Commodity Futures Trading Commission held meetings and gathered public comments on carbon credits last year, suggesting it may seek the authority to regulate the market. The U.S. Securities and Exchange Commission has proposed that companies disclose their use of carbon offsets in its coming emissions reporting rules.

The World Economic Forum report made five recommendations for companies seeking to improve the carbon market. They included setting scientifically aligned decarbonization pathways to provide credibility around using carbon credits, creating market transparency through corporate disclosures and adopting leading standards such as the ICVCM.

Verra, the nonprofit carbon credit registry, said it agrees with the World Economic Forum’s recommendations and is “hiring and training people internally and working with independent auditors to help them get up to speed on our methodologies."

Waiting until 2030 to improve the carbon credit market “isn’t an option," the report said.