Ken Silverstein Senior Contributor
The voluntary carbon market is under scrutiny once again. Follow the Money has written an expose on South Pole, the globe’s largest seller of carbon credits. The investigative journalists allege that South Pole exaggerates the number of trees it saves, causing major companies to spread such falsehoods to their customers and shareholders.
Earlier this year, the Guardian said Verra — a standard-setting organization — inflates forest preservation by 400%. It noted that 94% of its credits are “worthless.” The World Economic Forum also said voluntary markets lack transparency, causing corporations to question them. Indeed, the voluntary carbon markets are proprietary and outside the purview of national governments. And often, the rainforest projects get a pittance of the proceeds — quite the contrast from REDD+ sovereign carbon credits, monitored by the UN Framework Convention on Climate Change (UNFCCC.)
“We need to go from a project approach to a national approach, which is more coherent and drives economies of scale,” says Tosi Mpanu-Mpanu, chief climate negotiator for the Congo, in an interview with this writer. “The current voluntary approach is too fractured, with little oversight or transparency. We need to ensure that the citizens of those rainforest lands are fairly compensated and that the bulk of the money does not end up in the hands of investors or bureaucrats. When the money goes to local communities, it must be transparent.”
Take the Democratic Republic of the Congo, which has 100 million people and a gross domestic product of $55 billion: for every dollar invested in saving the rainforests through voluntary carbon credits, local and national governments get about 50% after administrative expenses, and investors get 50%. Meanwhile, the individual landowners or the citizens living on that land receive 10% to 15% of the money from the government’s cut.
As for South Pole, it is valued at $1 billion. Its cash cow is a mega-project in Zimbabwe called Kariba. Companies can’t achieve their net-zero goals by switching to renewable energy and deploying energy efficiency technologies. So they buy carbon credits — financial vehicles that save rainforests, which soak up CO2. Barclays, Gucci, L’Oreal, Nestle, and McKinsey are among the companies that buy South Pole’s credits. According to Bloomberg, most of the $109 million invested in Kariba’s rainforests has gone to South Pole and its partner, Carbon Green Investments.
That feature story says the Dutch energy company, Greenchoice, bought more than 4 million Kariba credits and was “unpleasantly surprised.” Takeda Pharmaceutical Company, which used 75,000 of those credits to reduce its CO2 burden, is putting the brakes on buying more South Pole’s credits.
What are the alternatives?
Those who market voluntary carbon credits say they are doing a lot of good by preventing deforestation and building schools and hospitals. “Each carbon credit from Kariba’s first 10-year crediting period is legitimate, and fully validated and verified under Verra. All of the past and future buyers purchasing credits from Kariba hold a credit that represents the creation of positive, verified impact for the climate and the communities on the ground,” South Pole said in a statement.
It refutes the allegations that it is profiteering from this rainforest project, noting that its consulting agreement compels Kariba to give 25% of the revenues to the agents selling carbon credits. The money is used for marketing and to pay overhead.
But the Global South lacks bargaining power — countries that are desperate for any foreign investment they can get. Would western nations agree to sell their coveted assets for bargain basement prices? Would homeowners pay their agents a quarter of the proceeds to lease their properties? If the Indigenous people are to thrive, they must receive fair compensation so the rainforests will live on.
Such inequity has led to some governments putting a moratorium on the voluntary carbon market. That includes countries like Papua New Guinea and Honduras, which say there is no national oversight — only informal reporting from the landowners. They will sell Paris-approved sovereign REDD+ credits.
To that end, the UNFCCC approved the West African country Gabon for 90 million tons of emissions reductions for slowing deforestation between 2010 and 2018. Gabon will reinvest 10% into its forest, creating an eco-tourism industry. But the money will also go into rural development (15%), a Gabonese sovereign fund that invests in future generations (25%), debt service (25%), and health, education, and climate infrastructure (25%).
Honduras is selling 7.7 million soveriegn REDD+ credits. It will use the money for sustainable forestry for furniture-making and flooring. It will also build agroforestry businesses such as coffee production while planting trees to restore its forest — all to develop eco-tourism.
Rainforest nations need an estimated $100 billion to ensure the survival of their lands. The carbon markets will raise some of that money. But the trading system must be accredited and undergo UNFCCC approval. Those credits are issued by federal governments under the Paris Agreement, driving up prices and raising more monies for forest preservation and infrastructure improvements.
“For many countries, the ideal option is to go with a standardized national system — a sovereign carbon credit scheme,” says the Congo’s Mpanu. “Some countries are even placing moratoriums on carbon investments through the voluntary market because they think they lack clarity and a fair price.”
The voluntary carbon market is getting hit from multiple sides mainly because it is opaque. But most multinational companies have set net-zero targets, requiring many of them to buy carbon credits to save tropical rainforests that vacuum CO2 from the atmosphere. Given the turmoil, companies now have a viable alternative — sovereign credits sold by national governments, which distribute nearly all the proceeds to needy projects.