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What happens after the voluntary carbon market can no longer use phantom credits?

What happens after the voluntary carbon market can no longer use phantom credits?

The voluntary market exists because emitters find that they have a better chance of selling their goods and services if they can claim they are “green.” Proving a product is green means somehow convincing consumers that the harm done to the planet from greenhouse gases (GHG) produced by manufacturing the goods (or providing the services) has been offset in some way, so consumers do not feel guilty about buying particular goods or services.

All emitters have an obligation to reduce GHG emissions going forward. They also have an obligation to remediate past emissions (permanently remove them from the atmosphere), because we need to do both to meet IPCC goals. Sometimes those are legal obligations, sometimes only moral, but if we are to meet IPCC targets it is necessary to do both. The distinction between legal and moral obligations is blurred here because consumers will punish emitters if they are not seen as doing both, regardless of whether it is a crime not to.

Emitters have sought to prove their green claims at the least possible cost. To do this they have traditionally bought “offsets.” This means that if a product emits a tonne of CO2-e the emitter “buys” a tonne of e.g., forestry removed CO2, or buys a promise that but for the payment a forester would have cut down his forest (cutting down a forest releases all the carbon it had previously stored) and, so the logic goes, stopping carbon entering the atmosphere is equal to removing it in the first place.

The emitter has, according to this logic made itself “carbon neutral.” The emitter makes “green” statements at a small cost; the person who certifies, and often supplies, the offset gets a fee, and the public hopefully believes what it is told.

Some of the problems with offsetting have been exposed in an earlier post, as have regulatory actions that will see its demise. Added to those are risks of moral (or actual) fraud. What comes next?

There are two things that emitters must do. First, they must change their message to the public. It will no longer be possible to talk about offsets and being carbon neutral without running regulatory and greenwashing risks. The different message to the public must be “we are trying our best to reduce our GHG emissions but when we have unavoidable emissions, we have ensured we have permanently captured CO2 in the atmosphere at least equal to them.”

The corollary of this is emitters cannot rely on phantom credits. “Phantom” credits are really funding mechanisms. A forester claims to have sequestered a tonne of CO2. But it cannot prove the sequestered carbon will not be released back into the atmosphere before 2100, or even worse implies it is not required to. Reversed sequestration does not help the planet and it is likely a breach of consumer and market participant protection laws to imply it does. Even if the forester must “pay back” any previous reward received for sequestering carbon, the planet is not helped by transfers of money.

It all went wrong when the Kyoto Agreement members allowed historic stock exchange accounting for forestry sequestration without requiring proof not only that past sequestration has occurred but that it would remain sequestered until 2100. This oversight, namely the need to evaluate past sequestration by looking at what happens to it in the future, fed into the Paris Agreement and the calculations of NDCs required under the latter. However, none of these excuses allow phantom credits into the voluntary carbon market. Unlike mandatory markets (NZ ETS) where the Government can pass legislation allowing it to call black, white, with legal impunity, there is no immunity bath in the voluntary market and this pretense will not wash with consumers, and it will not wash with regulators. To call black, white, in the voluntary market is simply to expose companies, their employees and directors to both breaches of law and greenwashing claims.

The problem is exacerbated in countries where sequestration occurs by planting short-lived species (e.g., pinus radiata). Vigilance is required to ensure such trees really will remain carbon positive through to 2100. In no way can that be presumed.

The argument justifying “phantom” credits, often raised in a different context, is that felling and replanting means that sequestration is not really lost when a tree is cut down. It is, and a future post will show the fallacy of this argument.

The planet is always better off leaving a tree in the ground if it is capable of positive sequestration all the way through to 2100, and if this cannot be proved phantom credits should not be granted as rewards for planting a tree whose sequestration will not help meet IPCC goals.

This is not to suggest that proven permanence alone should be rewarded. There are other hurdles to be surmounted in the voluntary market, such as additionality and legal longevity, before voluntary credits can safely be relied upon. These are expanded on in the PFS Platinum Standard.