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Regulatory risks in current offsets programs

Regulatory risks in current offsets programs

The staple of green claims made by emitters wanting consumers to buy their goods and services have in recent years been dodgy overseas offset programs. These are not reliable as they have inevitably been “certified” by self-appointed entities such as Verra, until now the world’s largest certifier of carbon offset programs.

Offset programs usually consist of forestry removals or promises not to cut down forests in places like the Amazon or Indonesia, or supposedly stopping emissions in other ways, such as providing funds for poor villagers to stop reliance on wood stoves. Whether these really helped the planet by proving additionality and performance was always questionable.

How many promises were made in respect of the same forests? How many promises would be kept? How long would it take for villagers to revert to burning timber? Will claimed forest sequestration be reversed before 2100?

Low integrity carbon credits, once “certified”, are then sold to emitters who use them to offset against their obligations to reduce emissions they are responsible for. So, we get a double effect. Even if an emitter was buying high integrity carbon credits these should not be used to excuse not reducing emissions. The planet needs to both reduce emissions and remove those already there to meet IPCC targets. This is exacerbated by trying to make excuses using credits that lack any integrity.

It all started to unravel in February 23 when the Guardian newspaper in UK brutally exposed the integrity of Verra’s credits and found that at least 90% had no effect on helping slow global warming.

And now what a difference May 23 has made. In the space of a few weeks the UK Advertising Authority has effectively banned offset green claims; the EU has also done the same, and Verra’s long-term CEO has fallen on his sword. It is possible Verra is positioning itself against lawsuits for having certified dodgy credits. And in the USA Delta Airlines announced it was facing a US$1 billion lawsuit for relying on offsets to make green claims and sell them to flying customers.

Where does that leave emitters who are still relying on such credits? In a particularly exposed place. The point has been reached where no company officer or director could reasonably claim they believed offsets delivered what they claim they will. That potentially leaves companies, employees and directors open to actions under the Companies Act, the Fair Trading Act and the Financial Markets Conduct Act, as well as under such general law actions as negligent misrepresentation, sale of goods warranties, and possibly deceit.

In addition, the requirement that large emitters include climate risk disclosures in financial reports will add to exposures for making claims that e.g., rely on offsetting as supposedly managing those claims. When such disclosures must be made, companies and directors must do something.

Some of these actions are only against a company, some can be against employees and directors; some can result in damages others injunction, and some can only be brought by a regulatory body. However, all carry enormous reputational risks for companies selling to consumers. And stopping relying on green claims at some time in the future is not going to excuse breaches that are occurring right now.

Companies, and employees and directors who have known of or directed that green claims be made, must ensure that they are not misleading or deceptive as judged by the effect on those to whom the green claim is pitched. And it is not just what is expressed, but what is implied. Suppose an emitter impliedly claims it is helping the planet by offsetting. Now we know from Verra’s predicament that in most cases it is not possible to prove that is true. Making an implied claim that it is, and let us be honest, the claim would not be made unless truth was implied, is likely misleading.

To prevent a claim from being misleading there needs to be a qualification added, like health warnings on cigarette packages. “We cannot prove that our offsetting is helping the planet.” But adding that would destroy the whole purpose of offsetting: to impliedly suggest to consumers that the actions of the emitter are helping the planet.

Unfortunately, we are living in a world where many corporate managers are so vested in offsetting, having justified their relevance and the integrity of what they have done to directors, CEOs and CFOs, that it is going to be like a turkey voting for an early thanksgiving to accept the offsetting party is over. But sooner or later it will happen. When it does, emitters will need to prove what they imply and to do that they will need different standards than those they rely on now. The PFS Platinum Standard is an example of what it required to avoid regulatory action and greenwashing claims when relying on forestry collateral to support them.