CO2 certificates in the “climate laboratory”: why many forestry projects are frauds

If you save a forest from the chainsaw, you can apply for CO₂ certificates and sell them for a lot of money to companies that want to offset their emissions, be green and suddenly “climate neutral”. Experts estimate that this market will have compensation projects as early as 2040 1 trillion dollars worldwide could implement. But upon closer inspection, many forestry projects turn out to be fraudulent and many certificates are found to be worthless. “There is no government regulation,” he says Lambert Schneider of the Öko-Institut im “Climate laboratory” the biggest problem in an industry where only voluntary standards apply. Furthermore, there are no objective and clear criteria on what exactly a project must achieve to receive CO₂ certificates. The results are climate protection projects in which budget optimization is part of everyday life – and which have recently attracted interest Belarus and Russia woke up.

ntv.de: Are there projects on the CO₂ certificate market that actually reduce emissions?

Lambert Schneider: Yes, but these projects are difficult to identify for both laypeople and institutional buyers. You have to watch carefully because many things can go wrong with carbon credit projects. For example, if I plant a forest that then burns, CO₂ will still be present in the atmosphere. Therefore: The project must be additional; Reductions must be robustly quantified and not, as is often the case, massively overestimated. There are a lot of details to take into account and that’s what makes it so complex.

What does “additional” mean?

Let’s take a wind turbine: if it were built anyway, but I still received CO₂ certificates and could cause further emissions, I would have emitted more CO₂ but in reality I would not have saved anything. It must therefore be demonstrated that a climate protection measure is only made possible by the certificates and would otherwise not be implemented. As you might imagine, this question is very hypothetical. How do I know if a forest would be cut down without a compensation project? No one can answer with certainty.

One of the best-known compensation projects is the Kariba project in Zimbabwe. However, according to the “New Yorker”, this flagship project sold many worthless CO₂ credits, surprisingly because too few trees were cut down in another forest.

When it comes to projects to avoid deforestation, the crucial question is: when would the forest be cut down and to what extent? To answer this question, comparison areas are used, a sort of control group like in medicine. Next it is checked how much more is cut in this comparison area compared to my area. However, this only works for comparison areas that are actually representative of the project. In the case of Kariba it turned out that the difference between the comparison area and the project area was not as large as expected. This is why too many certificates have been issued.

Who determines the areas of comparison and verifies the information? These markets are regulated.

There are voluntary standards such as Verra’s Verified Carbon Standard. They set the exact rules. If I want to protect a forest from deforestation, I have to register the project there. It is therefore necessary to document and demonstrate that emissions have actually been saved. This can be done, for example, by creating alternative sources of income for local people so that they no longer have to rely on deforestation. Emission reduction calculations are validated by a verifier; in Germany, among others, the TÜV does it. At the end I receive CO₂ certificates for the emissions avoided.

Does this verifier come on site and look at the project with his own eyes or does this happen remotely?

This is regulated differently depending on the regulatory standard. Most require on-site presence in at least some locations, but this does not apply to all projects. Some rely on video data or satellite imagery. Validation is usually performed at the beginning of the project. The check comes a few years later.

Do you think Verra is a reliable standard?

Surely not. We have huge quality problems with forestry and other projects. Most certificates do not reduce emissions, although individual valid projects exist. A big difference from organic farming is that I have relatively objective and clear criteria that can be easily controlled: the use of pesticides or certain fertilizers is not allowed. With Carbon Credits I find myself in a “what-if” world: I have to estimate what would have happened without the project. This is also made more difficult by information asymmetry: the project developer has more information than validators or standards like Verra and knows exactly which data source leads to more certificates. For example, the historical period of reference cannot be the last five years, but rather the previous years, in which greater deforestation occurred.

In the business world this is called balance sheet optimization.

But in business, accounting rules leave less room for fraud. At the Oeko-Institut we analyze the carbon market very carefully and repeatedly see that project developers have a lot of creative scope when calculating reductions. And certifiers such as TÜV are paid by the project developers. This reduces the incentive to complain, otherwise you will lose your customers.

And there’s no one to supervise Verra?

NO. This market is voluntary. Verra is a non-governmental organization born out of industry. There is no government regulation, other than anti-competitive advertising legislation in some countries. The Green Claims directive is currently being negotiated in Europe: this directive establishes that companies can no longer talk about projects with zero climate impact if emissions are compensated with certificates.

In essence, this approach is not wrong. We must find ways to avoid CO₂ emissions. Do you think the market can develop in a serious direction or will one project after another be exposed and companies will stop buying carbon credits?

Some companies have already exited, so this market is indeed at a crossroads. We’ve been seeing these problems in science for years. Really old studies show how much goes wrong. But the topic is only now receiving more media attention. This means there is a different level of attention and different pressure. However, there are many initiatives to improve the quality of the market. It remains to be seen whether carbon programs like Verra will seriously reform their rules or not.

Do companies put pressure on programs like Verra? They lose money and trust when they buy worthless CO₂ certificates.

Currently, various actors are applying pressure, including companies, because their reputation suffers and they could be sued. In recent years, a whole series of rating agency startups have been created that evaluate individual projects, as rating agencies do on the financial market. This creates another level of transparency.

Before the 2008 financial crisis, rating agencies also failed. And now there’s a whole new initiative coming out of Africa, where many of these forests are found. They understandably want to get a slice of the trillion-dollar pie and build a sort of Wall Street for the international compensation market. However, Belarus has been involved as a partner and wants to sell certificates for Russian forests…

There are high expectations for the carbon market in Africa, but it is questionable whether they can be met. I don’t know the details of this deal and can’t comment on the plans, but Russia has already issued many questionable carbon credits from all kinds of businesses in the past. Only the forestry certificates were never registered, not even in Verra. I really don’t know what’s behind these certificates or if it’s just hot air. It definitely seems very questionable.

Do we really need this voluntary market for CO₂ offsetting or would it be better to look for another path?

In any case, we need funding for climate protection – from the state. We also need government regulation. This will get us out of the climate crisis. Voluntary action can complement it, but it is not the essential component.

I spoke to Lambert Schneider Clara Pfeffer AND Christian Hermann. The conversation has been shortened and simplified for clarity.