In the Latest Blow to Carbon Offsets, A Third of All Credits Fail Key Market Test

A third of all renewable energy carbon credit projects have failed to meet the ‘high-integrity’ standards required to use the Core Carbon Principles label.

Major worries are emitting from the carbon offsets sector, after an industry watchdog rejected a third of all carbon credit projects based on current renewable energy methodologies.

On Tuesday, the Integrity Council for the Voluntary Carbon Market (ICVCM) said 32% of these credits were ineligible to use its high-integrity Core Carbon Principles (CCPs) label, a move that affects 236 million credits.

It is another blow to the voluntary carbon market, which has faced intense scrutiny from climate experts in recent years, who have labelled carbon offsetting as ineffective, ‘junk’ and a greenwashing tool.

Carbon credits are used by many of the world’s largest companies – from Disney, Nestlé, Gucci and Etsy to Volkswagen, ExxonMobil, TotalEnergies and Delta Air Lines – as part of their net-zero goals, and usually involve reforestation or green energy projects.

But the ICVCM has now said that eight existing processes used to design and implement renewable energy projects aren’t rigorous enough when it comes to determining whether the projects would have been greenlit “without the incentive of carbon credit revenues”.

“We need to modernise the design of these carbon projects, which carbon-crediting programmes can and should do,” said ICVCM chair Annette Nazareth. “More robust methodologies would unlock finance for a new wave of renewable energy projects in places where they are most needed.”

How the CCP label certification works

Backed by 250+ organisations, ICVCM is a governance body that sets and maintains a global standard for quality in the voluntary carbon market, and mobilises financing into projects that reduce greenhouse gases, in order to accelerate the transition to 1.5°C.

This standard is based on the CCPs, which establish fundamental principles for carbon credits to have a verifiable impact. In essence, a CCP label is designed to build trust in the voluntary carbon market, ensure the comparability of credits, and enable the market to accelerate emissions cutting and unlock private climate finance.

Each credit represents one tonne of emissions removed from (or not added to) the atmosphere, and the CCP label aims to assure that new projects have “robust social and environmental safeguards and deliver positive sustainable development impacts”.

For a credit to carry the CCP label, it must be issued by one of five offset programmes vetted by ICVCM, and generated via an approved methodology. So far, it has authorised projects that capture methane from landfills, destroy ozone-depleting gases from discarded appliances (like air conditioners) and detect and repair methane leaks in the gas sector.

ICVCM has a “two-tick” process for carbon credits to use the CCP label. The programme must be authorised as CCP-Eligible, and the credits generated from it should use methodologies that are CCP-Approved. ACR, Climate Action Reserve, Gold Standard, Verra (VCS), and Architecture for REDD+ Transaction (ART) – which control 98% of the market – have all been approved as CCP-Eligible.

The eight methodologies rejected by ICVCM involve grid-connected electricity regeneration from renewable sources, electricity and heat generation from biomass, as well as the electrification of rural communities using green energy.

“We are taking the tough decisions necessary to build a high-integrity voluntary carbon market that can be scaled to meaningfully fund climate solutions and channel material amounts of finance to the Global South,” Nazareth said.

Some CCP-approved standards are highly controversial

The decision has major implications for the corporate sector, which accounted for half of all offset purchases in 2020. It means that the approved number of carbon credit projects that can use the CCP label is around 27 million, or 3.6% of the total market, which itself has shrunk. According to analysis from Bloomberg, the value of the carbon offset sector has decreased by nearly a quarter since a 2022 peak.

ICVCM has pointed out that governments and regulators are looking to CCPs as an international integrity standard, with the US, the UK, the Commodity Futures Trading Commission, and the International Swaps and Derivatives Association all having endorsed CCPs, or issued standards closely aligned with them.

CCPs are implemented via an Assessment Framework that sets out what ‘high quality’ means, underlining that emission cuts should be additional – in other words, they would not have occurred in the absence of the incentive created by carbon credit revenues. ICVCM plans to “ratchet up ambition” in successive versions of its framework, which is released every two to three years.

But it is not without its critics. Research organisation CarbonPlan studied the landfill credits eligible to carry the CCP label, and found that six of the 14 projects failed an “additionality” test, which measures whether the extra funds generated by the credits resulted in a change that wouldn’t have happened otherwise.

Meanwhile, Verra – one of the carbon standards approved to use CCPs – has been the source of an investigation that found 90% of its rainforest offset credits to be “worthless”. And seven of these projects – which were Redd+ schemes – had between 98% and 52% less reduction than what Verra’s system claimed.

In another study, researchers concluded that Verra’s Redd+ projects are not fit for purpose and are open to exploitation, accusing the standard of reporting highly inflated environmental impacts. Still, Redd+ is among the carbon credit categories currently being evaluated by ICVCM.

The watchdog said it was “ready to review more rigorous renewable energy methodologies once they are developed”. Pedro Martins Barata co-chair of ICVCM’s expert panel, said: “We encourage programmes to develop methodologies that take a much more sophisticated approach to assessing whether renewable energy projects are additional.”

Last month, the Science Based Targets Initiative (SBTi), regarded as the “gold standard” for evaluating corporate net-zero plans, described carbon credits as mostly “ineffective”, shrouding the market in further uncertainty.