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Green


‘CRAZY’ CARBON OFFSETS MARKET PROMPTS CALLS FOR REGULATION

 * Lack of global oversight opens door for bogus offset claims
 * COP26 agreement paves way for increased use of carbon credits


Photographer: Chris Ratcliffe/Bloomberg
By

Frances Schwartzkopff

+Follow
January 6, 2022, 8:00 AM GMTUpdated onJanuary 6, 2022, 12:34 PM GMT


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GREEN DATA DASH

$69. 9B
Renewable power investment worldwide in Q2 2020
44%
Carbon-free net power in the U.S., most recent data
0
3
2
1
0
9
,
0
2
1
0
9
8
0
9
8
7
6
5
0
9
8
7
6
5
Soccer pitches of forest lost this hour, most recent data
52, 000
Million metric tons of greenhouse emissions, most recent annual data
0
6
5
4
3
2
0
4
3
2
1
0
0
3
2
1
0
9
.
0
6
5
4
3
2
0
6
5
4
3
2
0
8
7
6
5
4
0
2
1
0
9
8
0
5
4
3
2
1
0
0
9
8
7
6
Parts per million CO2 in the atmosphere
+0. 84° C
Dec. 2021 increase in global temperature vs. 1900s average
-5. 89%
Today's arctic ice area vs. historic average
Lahore, Pakistan
Most polluted air today, in sensor range
Open


When Swedish bank SEB AB announced recently that it wanted to buy into the
market for carbon credits, what it got was a pile of duds. 

Hans Beyer, SEB’s chief sustainability officer, says most of the roughly 150
pitches that he received last year weren’t backed by any recognized body
validating claims to be permanently removing carbon dioxide from the atmosphere.
And some were pitched on the basis of doing nothing at all -- merely pledges to
avoid emitting CO2 in the future.



More from
Bloomberg green
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Just A Third of Largest Banks Have Set Robust 2030 Climate Goals

The buying and selling of credits that purport to offset a company’s pollution
has become a cornerstone of the effort to limit global warming, and it’s being
bolstered by a deal to create an international market mechanism struck at the
COP26 talks in Glasgow last year. But the regulation of projects to cut carbon
and win those credits is still its infancy, and amid hopes that the market will
balloon to some $180 billion by the end of the decade, opportunism is rife. 



“The whole concept of ‘I will not pollute and therefore I should get paid’
solutions are likely the worst,” Beyer said. “This will be a crazy market until
it is regulated, completely crazy.”


PALTRY OFFERING

Less than 5% of offsets actually remove carbon dioxide from the atmosphere



Source: TSVCM inventory analysis for 2020

Note: Avoided emissions credits prevent hypothetical polluting activity

In an October report, the United Nations warned that without stronger
emissions-reduction targets, the world will warm 2.7°C by 2100, with
catastrophic consequences. That’s creating a new wave of urgency to announce
that businesses will be “net zero” in terms of carbon emissions within the
coming decades. Global banks with a combined $130 trillion balance sheet are
piling in.



Read More: Math Behind ‘Carbon Neutral’ Trading Doesn’t Actually Work

At COP26, global leaders agreed on general principles for projects that generate
carbon credits, which include initiatives as diverse as re-forestation,
renewable power installation or measures to help household energy efficiency.
The guidelines now say that projects which generate credits by claiming to
remove carbon emissions must not have been done otherwise; reductions must be
long-term and not lead to polluting elsewhere. COP26 also agreed to the creation
of a registry, to track credits and the use of proceeds from their issuance.

As of now though, the industry is covered by a patchwork of voluntary,
private-sector standards bodies that fall far short of joined-up global
oversight. Skepticism over the real carbon-removing credentials of projects is
also growing, and only a tiny fraction of projects actually remove CO2 from the
air.



Read More: BNP Chairman Worries Structured Finance May Add to Greenwashing



“We need regulation,” said Alberto Carrillo Pineda, the founder of the Science
Based Targets initiative, a voluntary program for reviewing plans that aim for
zero emissions by 2050. Considered among the best available, the standards set
by Pineda’s organization limit businesses’ use of credits to offset only
so-called residual emissions, those that are left after real cuts to operations
are made.



Demand for offsets is soaring as companies race to make “net-zero” commitments
-- pledging to eliminate emissions from their activities or balance them with an
equivalent amount of greenhouse-gas removal. Pineda says investors and consumers
increasingly are deciding where to put money based on the plans, yet there’s
little to hold companies accountable for the promises they make. Regulatory
focus is on “risk and disclosure,” not “ambition and performance.”

Worth just $300 million in 2019, the offset market could climb to $180 billion
in 2030, according to the Task Force on Scaling Voluntary Carbon Markets, a body
backed by the Institute of International Finance, a financial industry lobby
group. 

Read More: Blackrock’s Offset Use Raises Questions for Its Holdings: BNEF



Europe is making the fastest progress toward setting out rules. The European
Commission took a first step in December, proposing a framework for certifying
carbon removal projects as part of a larger plan to create demand for credits
that would be generated by European farmers and forestry companies. 

The market’s potential is “significant” but a lack of trust stands in the way,
the commission said. “Private schemes apply very different benchmarks and rules
to the carbon credits placed on the voluntary markets.” 



Compensate, a Finnish non-profit that manages a portfolio of carbon-credit
projects, last year reviewed more than 100 certified by leading organizations.
It found just 10% met its criteria on ensuring that projects didn’t inflate
carbon savings, weren’t already planned and other factors including human
rights.



The offset industry is responding. In recent years, standard setters have
excluded issuing credits from new renewable energy projects in developed
economies, and demanded increased monitoring of projects to ensure they deliver,
according to a 2021 report by Ecosystem Marketplace. Specialist rating agencies
akin to credit rating companies are being established to provide more guidance.



Even the financial industry isn’t completely equipped to gauge the quality of
projects and their role in net zero plans, making such changes critical, says
Ana Haurie, chief executive of Respira International, which invests in and
brokers long-term projects. While needed, regulation takes time, something the
planet and polluters don’t have.

“The cost of inaction may well be higher both financially and in terms of
climate strategy,” Haurie said.

For banks, the market represents a way to offset their own emissions and those
of companies in which they invest and to which they lend -- and earn fees in the
process. So-called “financed emissions” exceed banks’ own direct emissions by as
much as 700 times, by some estimates.

Read More: Goldman Sachs Says It Plans to Reduce Financed Emissions 



Developers already are ramping up production, with issuance through November
twice that compared with the same period a year earlier, according to data
compiled by BloombergNEF. 

Amid growing criticism that low-quality offsets are being used as a license to
justify ongoing pollution, some corporate actors have started using the label
“carbon neutral” in marketing campaigns as a workaround instead. Consumers are
told that products have been made “carbon neutral” even though the companies
don’t count the offsets toward their official net-zero goals.



The confusion around terminology is “a new door for greenwashing,” said Francois
Millet, head of ETF strategy and ESG at Lyxor Asset Management. 



Various industry associations for the asset-management industry are currently
working on providing more guidance to their members, who manage more than $55
trillion. The organizations have recommended use of credits only when emissions
cannot be cut because of financial or technical constraints, according to a Net
Zero Investment Framework launched in 2021.



Read More: BNEF Theme: Carbon Pricing, the Basics -- Research

The goal is to deliver more specific recommendations before April, according to
the Asia Investment Group on Climate Change, whose members include Amundi SA,
BlackRock Inc. and Shin Kong Life. The organization declined to provide more
information. 

But such industry initiatives aren’t enough, says Jonathan Crook, a policy
expert at the not-for-profit Carbon Market Watch. 

“Many firms will continue to bend already lax rules and take advantage of the
lack of regulation to simply greenwash themselves and their products.” 

(Updates to add background, comment from carbon credit provider)




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GREEN DATA DASH

+0. 84° C
Dec. 2021 increase in global temperature vs. 1900s average
$69. 9B
Renewable power investment worldwide in Q2 2020
25%
Carbon-free net power in the U.K., most recent data
-5. 89%
Today's arctic ice area vs. historic average
Lahore, Pakistan
Most polluted air today, in sensor range
0
6
5
4
3
2
0
4
3
2
1
0
0
3
2
1
0
9
.
0
6
5
4
3
2
0
6
5
4
3
2
0
8
7
6
5
4
0
2
1
0
9
8
0
5
4
3
2
1
0
0
9
8
7
6
Parts per million CO2 in the atmosphere
52, 000
Million metric tons of greenhouse emissions, most recent annual data
0
3
2
1
0
9
,
0
2
1
0
9
8
0
9
8
7
6
5
0
9
8
7
6
5
Soccer pitches of forest lost this hour, most recent data
Open

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