Dark underbelly of carbon trade

World leaders need to learn from the mistakes of the voluntary carbon market so that this new market mechanism does not repeat them

At the next UN climate conference (COP28) in Dubai this year, the issue of regulating a carbon market will be discussed. World leaders need to learn from the mistakes of the voluntary carbon market so that this new market mechanism, which is designed for transformation in the world, does not repeat them. The investigation by the fortnightly Down To Earth and the Centre for Science and Environment has found inconvenient truths, which should lead us to change.

We find that the current carbon markets could end up increasing emissions in the world. The buyers of the credit — say, an airline that has assured its customers to offset its carbon footprint or a food company that has declared itself net-zero — have continued to emit; they have even increased their emissions, saying that they have bought credits. But as these credits are overestimated or do not really exist, the reductions are notional. This is a double jeopardy. This is what the climate-risked world does not need.

The first, and the obvious step, is to ensure transparency in the market. My colleagues met with stiff resistance when they asked for information; they were asked to sign non-disclosure agreements (NDAs) before visits to project sites; they were even told (by a Paris-based investor company) that travel in Indian villages was too dangerous and by one of the leading players, EKI Energy Services, that the “company is in a silent period”.

The second step is to decide the objectives of the market — voluntary, bilateral, or multilateral — and design rules accordingly. If the purpose of the market is to invest in projects that will lead to reduction in emissions in different parts of the world, then the market must be based on paying for the real cost of the projects. Currently, the market pays less than the costs of a renewable-energy project or a biogas project. The poor are literally subsidising the rich emitters in this market.

Third, the market seems to work only in the interests of project developers, consultants, and auditors. The communities get virtually nothing from the proceeds, and this means they also have no stake in the emission-reduction programme. The carbon market must be required to share the proceeds annually with communities in a verifiable manner. Take the issue of household devices — in this case, improved cookstoves. 

This market segment is growing exponentially, and understandably so, because it is lucrative for the project developers. The cost of the stove, which is all that households get in terms of carbon-credit benefits, is barely 20 per cent of what the developer would earn over the five to six years of the lifespan of the project. In other words, 80 per cent of the carbon revenue is kept as profit, and it is a handsome amount as each such project has thousands of devices to be distributed. And, this is assuming that the devices are supplied for free. At places, as we have found, poor households have actually paid for these cookstoves, against which the developer and its rich offset clients have made a killing.

Then of course, there is the obvious question about actual carbon reduction, which has been used by companies to continue to emit. In the case of the household device programme, companies count carbon reduction on the basis of the distribution of stoves. There is little information on its actual usage — our research found that households were using multiple sources for cooking.

Therefore, in spite of the army of project developers, verifiers, auditors, and registries, there is widespread overestimation of emission reductions by project developers. One lesson that must be learnt is to keep the project design simple and also the control of the projects with public institutions and people.

The most critical issue is: To whose account should the abated carbon be credited? This is not a hypothetical question, but a real one. To achieve the target of 50 per cent of India’s electric power requirements from non-fossil fuel sources, every megawatt of renewable power, including hydroelectricity, will need to be counted and factored in. Some 675 Indian renewable-energy projects are registered under the Verra and Gold Standard registries for 268 million carbon credits, of which 148 million have retired (or claimed against offsets). How can these be accounted for in India’s nationally determined contribution (NDCs)? Or can they be? Will this not lead to double accounting?

The fact is that the current voluntary carbon market is based on cheap options. This means countries have “sold” off the lowest-hanging fruit — the options of emission reductions that they could afford. They would now be on the balance sheet of foreign entities and governments. This only means that countries will not be able to afford to make investments in the hard-to-abate options; this will contribute to emissions and jeopardise our common future. This is a marker of failure that we cannot afford. 

The writer is at the Centre for Science and Environment sunita@cseindia.org, X: @sunitanar