Mostafa Monira Firdouse. Green Finance Advisor, Friends of the Earth (HK)

Over one-third of the world’s largest publicly traded companies have announced net-zero targets and are set to use carbon credits to offset emissions that are hard to completely abate. Companies like; Apple to Disney, Gucci to Shell, used carbon credits for their sustainability efforts from the unregulated voluntary market, which grew to $2bn (£1.6bn) in size in 2021 and saw prices for many carbon credits rise above $20 per offset.

By 2021, the voluntary market has already topped $1 billion in and the global demand for voluntary credits is forecasted to increase by a factor of fifteen by 2030, reaching 1.5 to 2 gigatons per year.

On 18 January 2023, the Guardian published an explosive article accusing Verra—the world’s premier certifier of carbon credits—of grossly overstating the emissions reductions associated with its “avoided deforestation” credits. Study found some offsetting could make global heating worse.

In contrary, there is no single and universally-accepted definition of insetting, but the term generally refers to a company offsetting emissions through carbon reduction or removal projects along its own supply chain. Insetting is most commonly used by corporations with a large land footprint and involves protecting nature. Unlike offsets, insetting projects do not currently require verification against globally agreed standards.

The worry is, insetting may lead to a new avenue of Greenwash, as well as double claiming of carbon credits.

What can be done?

Ensure accountability of market actors to set the prices. Certification does have an important role to play, but it cannot work unless it is supported by a broader governance framework. Just as we would never leave, say, food or pharmaceuticals to be governed exclusively through voluntary, certification-based systems, we should not do so for CO2 emissions.

Establish minimum price floors, in order to crowd out poor-quality offsets/inset and actors, and to advance more equitable outcomes, especially for the Global South, indigenous peoples, and local communities. The carbon prices have to grow in the long term to drive investments at the necessary scale and pace. To keep global warming below 2°C, prices must reach $50/tCO2 to $100/tCO2 by 2030.

Finally, international governance arrangements must be upgraded. Principles and guidelines are not enough to ensure the exclusion of poor-quality products, inequitable deals, rogue traders, and, more broadly, markets that do not comply with minimum agreed standards.