“C” is for carbon credit greenwash could be the summary headline for a series of recent investigative reports from Climate Home News that reveal alarming evidence of the carbon credit market’s susceptibility to manipulation, deception, and profiteering.
The three stories document an underplayed conflict of interest with the potential to make Australia a government sponsor of greenwashing; an oil and gas giant; acting as broker for questionable rice paddy offsets in China; and resistance from the carbon credit industry to calls for climate adaptation funding.
Industry Consultants Shaped Australia Carbon Policy
First up are revelations that Australia’s independent climate advisory body, the Climate Change Authority (CCA), sought advice on official offset policy from a consulting firm that was simultaneously working with the carbon credit industry and an unnamed natural gas producer.
EY, formerly Ernst & Young, was hired for a AU$200,000 contract to assess the country’s carbon market because the CCA lacked the staff to do the work in-house, explains Climate Home. EY did disclose its past (unpaid) work and ongoing relationship with carbon credit registries Gold Standard and Verra, but declared that “no conflict of interest exists or is likely to arise,” according to bid and contract documents Climate Home obtained through a freedom of information request.
In its June, 2022, final report, EY found that Verra and Gold Standard were “the leading international offset schemes for governance” and gave both registries the highest evaluation. “That recommendation could drive Australian companies to buy carbon offsets verified by these two organizations,” explains Climate Home. “Both will get fees if this happens.”
But Verra’s credits have more recently come under intense scrutiny. The Guardian revealed in January, 2023, that almost 95% of its “avoided-deforestation” credits were “largely useless,” though Verra disputes this assessment.
The documents obtained by Climate Home list Steve Hatfield-Dodds as one of EY’s advising consultants, who charge roughly US$1,100 per hour for their work of “intensive desktop-based research, workshops, and collaboration.” It was Australia’s previous Liberal/National Coalition government that commissioned the EY report, but the new Labor government, headed by Anthony Albanese, has since appointed Dodds to an independent review of the country’s carbon credits scheme. That was after the Albanese government pledged to cut back its use of consultants, whose fees exceed US$1.3 billion per year, Climate Home says.
“EY’s bidding document reveals the extent of their influence across Australia’s climate policy-making, advising governments, fossil fuel companies, and climate campaigners,” writes Climate Home. Documents show that EY sought carbon credits for an unnamed “major global natural gas producer” and advised an “Australian energy company with global operations.” As it was advising fossil fuel companies, EY was also helping regional governments, like that of Queensland, to draw up climate policies.
Canberra “appears incapable of running any kind of truly independent review process,” said Polly Hemming, director of the Australia Institute’s climate program. “The default is not to turn to scientists or experts free from potential conflicts, but to industry.”
Controversy over Australia’s carbon offsets continues, Climate Home writes.
“The way things are headed in Australia, it looks like it will be the first country with a government-sponsored greenwashing system at scale,” said climate scientist Bill Hare, CEO of Climate Analytics. “And a lot of this will be facilitated by reports from different consulting firms.”
CCA head Brad Archer told Climate Home that consulting firms like EY often balance work with governments and corporate clients. “While that raises the risk of conflicts, it also provides them with the knowledge to undertake the analysis required,” Archer said.
Shell Profits from Questionable Offsets
In a separate report, Climate Home writes that British colossal fossil Shell’s actions as a “carbon credit broker” in rice farming offset projects is now under review by Verra.
Alarm bells are ringing at the carbon credit registry over concern that Shell and its partners in China may have used creative accounting to benefit from the less stringent regulations applied to small-scale carbon credit projects, says Climate Home.
Established under the Clean Development Mechanism (CDM) first set up by the United Nations in the early 2000s, rice paddy carbon offset projects are rooted in the fact that the traditional irrigation method for rice production, which leaves paddy fields in standing water for long periods, is a major producer of methane—a greenhouse gas that is about 85 times more potent than carbon dioxide over a 20-year span.
Under CDM, rice farmers would be paid to periodically drain their fields, a process too expensive for small-scale farmers to undertake by themselves. To encourage small-hold farmers to participate in the scheme, the mechanism “allowed small-scale projects to face fewer checks and paperwork,” with “small-scale” defined as any project which cut fewer than 60,000 tonnes of carbon dioxide equivalent (CO2e) per year.
In its own analysis of the 37 small-scale paddy projects now under review by Verra, Climate Home found that “on average they declared annual emission reductions of 58.2 kilotonnes of CO2.” One declared emissions reduction of 59.99. Another .01 kilotonne of CO2e, and it would not have qualified as a CDM project.
“On paper, the projects are presented as unrelated, small-scale initiatives,” but they are in fact the product of the “bundling together of tens of thousands of disparate farms sitting on either side of the Yangtze River,” writes Climate Home.
“As little as 280 metres separate farms belonging to separate projects.” Merged into one, they would stretch for over 200 kilometres and produce annual emissions reductions above 500 kilotonnes CO2e, making them ineligible as “small-scale” offset projects.
Moreover, all 37 projects were created on same day, May 29, 2017, by the same entity: Hefei Luyu, a China-based agricultural technology company.
Three years later, Hefei Luyu would apply to have its projects verified by Verra, and Shell would enter the picture another year later, signing on as an “exclusive agent” for at least nine of the projects.
“Shell appears to be acting as a broker for the carbon credits,” Gilles Dufrasne of Carbon Market Watch said, noting that Shell now has the right to “request the issuance and transfer of carbon credits generated by the projects.”
It’s a practice that “is becoming increasingly common,” Dufrasne added. “Once they have access to the credits, they can do what they want. They can use the credits towards their own targets, or they can profit by selling them to other companies.”
“Carbon credits form an integral part of Shell’s net zero strategy,” writes Climate Home. “The company aims to offset emissions of around 120 million tonnes a year by 2030 with nature-based solutions of ‘the highest independently verified quality’.”
But Shell “has also become a major player in producing offsets, as well as buying them,” the news story adds, investing $92 million in carbon credit projects in 2022.
A major client has been state-owned PetroChina, which purchased more than 85% of the 450,000 carbon credits Shell has issued for its rice farming projects. “Credits in Chinese rice farming projects have been traded for around US$6, meaning that Shell may have pocketed up to $2.7 million from their sale.”
Further undermining the integrity of the rice paddy offsets are revelations that the methane-reducing irrigation techniques originally championed by the CDM, and utilized by Hefei Luyu and now Shell, had already been actively encouraged by the Chinese government for decades as part of its own effort to conserve water. So the rice paddy offsets may not fulfill the non-negotiable carbon offset attribute of “additionality”.
Additionality is meant to ensure that carbon credits actually lead to a reduction in carbon emissions, rather than just taking credit for something that would have happened anyway. Since small-scale projects are given more leeway in demonstrating additionality, it is “not a trivial matter” for the paddy projects to fit under the 60-kilotonne cap—which grants them a series of advantages, says Climate Home.
Carbon Industry Resists Funding Call
In a third story,Climate Home writes that “the carbon credit industry has successfully fought off a push by some of the most climate vulnerable nations to place a mandatory levy on carbon offsets to fund climate change adaptation measures.”
The Alliance of Small Island States (AOSIS) had petitioned the Integrity Council on the Voluntary Carbon Market (ICVCM)—the organization that produces guidelines for the VCM—to recommend a mandatory 5% levy on all carbon credit revenues. Monies raised would have been funneled into the UN Adaptation Fund.
While the expert panel of the ICVCM supported the idea of a 5% mandatory levy, its board decided to make the levy optional after getting pushback from carbon credit sellers like NGO heavyweight Conservation International and carbon credit buyers like the Spanish bank BBVA.
