﻿Carbon credits are a way to reduce our carbon emissions and our carbon footprint to ensure a
sustainable planet for future generations. One carbon credit is a permit that allows the owner
to emit one ton of carbon dioxide or other greenhouse gases, without it contributing
to their overall carbon footprint. Just like with most ideas, carbon credits started off with honest
intentions but loopholes have turned it into a bookkeeping trick. Credits can be a greenwashing
tactic that allow companies to mislead customers without making any improvements to their business
model. Researching carbon credits and offsets for this video was a shocking, eye-opening experience.
There seem to be no limits to the corruption and fraudulent schemes in the carbon credit market. As
Morpheus would say, let’s take the red pill and see just how deep the rabbit hole goes.
There are 2 broad types of carbon markets. The first is a mandatory ‘cap and trade’ program.
Governments set a limit or cap on the emissions permitted across a certain industry. If a company
goes over their allowance, they can buy more carbon credits from their market to continue
emitting gases. They may also be penalized for a violation. However, if a company reduces their
emissions, they can sell or “trade” carbon credits to other companies. The cap and trade
program provides private companies 2 incentives to reduce greenhouse emissions. They must spend
money on extra credits if their emissions exceed the limit. They can also make money by reducing
their emissions and selling excess credits. The second type of carbon market is the voluntary
offset program. This allows businesses, nonprofits, and individuals to offset their
emissions by choice. Businesses can create and sell carbon credits by reducing, capturing and
storing emissions through different projects such as investing in renewable energy, improving energy
efficiency, carbon and methane capture, land reforestation, returning biomass to the soil and
switching to biofuels. A big part of the voluntary offset program is Corporate Social Responsibility.
Companies can win over customers by claiming to be “green”, “environmentally friendly”,
“carbon neutral” and “net zero”. For example, Starbucks uses ethically sourced coffee, they
build LEED certified stores and they are committed to recycling and conserving water and energy.
The carbon credit market was created as part of the 1997 Kyoto Protocol. This legally binding
international agreement required only developed nations to cut CO2 emissions. It aimed to decrease
overall emissions by 5% from 1990 levels. However, UN officials have since confirmed that Russian
and Ukrainian oil and gas companies exploited loopholes and actually increased carbon emissions
by 600 million tonnes. Of all the carbon credits or emission reduction units that were issued,
nearly 75% of them were bogus and lacked environmental integrity.
One example of bogus projects are those that stop the spontaneous ignition of coal. Large piles of
coal can self-ignite and burn for years, emitting carbon dioxide, carbon monoxide, nitrogen oxides
and other poisonous gases. Several Ukrainian coal companies extracted coal from the ground,
burned them in power plants and claimed millions in carbon credits. So, they made money by selling
power, they made money by extracting coal from the ground and all the emissions from burning
coal in a power plant aren’t counted. A second bogus project is the expansion of natural
gas pipelines. Natural gas is considered to be a cleaner fuel than coal or oil, which emit more
carbon dioxide. These pipeline projects were also supposed to reduce methane leaks in pipes. Several
Ukrainian pipeline projects that were registered in 2012, had already started in 2003, so they
weren’t preventing emissions. On top of that, the assumed methane leaks were 3 times the real data.
They were not as effective as they claimed and their carbon credits were meaningless.
A third bogus project is the treatment of greenhouse gases like chlorofluorocarbons or CFCs
and hydrochlorofluorocarbons or HCFCs. In 2011, the Russian Government removed extra checks
in the carbon crediting process. So, companies deliberately increased their greenhouse gases
by 4 times, then captured and destroyed them to claim millions in carbon credits.
Simply put, Russia and Ukraine were gaming the system. They took credit for projects that would
have happened anyway or already happened a decade earlier. They overestimated emission reductions,
and deliberately increased waste gases. Needless to say, these fraudulent projects were exposed
and the Kyoto protocol collapsed. The Paris Agreement of 2015
declared a new set of targets and asked all nations to reduce greenhouse gas emissions,
not just developed nations. Its goal is to limit global warming to 1.5 degrees Celsius,
compared to pre-industrial levels. The Paris agreement is voluntary and non-legally binding.
It allows nations to set their own emissions goals without legal penalties if they don’t meet their
targets. The voluntary structure of the deal was deliberate because they were addressing the
criticisms and failure of the Kyoto Protocol. The Paris Agreement was supposed to address
fraudulent business practices, but companies managed to find greenwashing loopholes.
Jim Hourdequin, CEO of Lyme Timber recently exposed the fraudulent carbon credit system
in this Bloomberg article by Ben Elgin. His company manages 1.5 million acres of US forests,
roughly the size of Delaware. In the past, Lyme Timber made most of its revenue from chopping
down trees. In 2012, they began selling carbon credits on 220,000 acres or 15% of its land.
They earned $53 million from these environmental transactions over the past two years.
At the risk of losing business, he exposed the flaws in the carbon credit system. For example,
his company set aside a portion of forest and protected it from timber harvesting or logging.
In addition to being paid for protecting the forest, they could also sell carbon credits on it,
which made no sense. The trees were not going to be cut down, so the credits had
no impact on the atmosphere. The oil and gas company, Chevron, purchased more than
20,000 of Lyme Timber’s carbon credits, so some of its pollution cuts were fictitious.
Lyme Timber also received $20 million for protecting 47,000 acres of hardwood forest
in West Virginia. However, the land was so rugged and steep that the trees couldn’t have
been harvested anyway. The carbon credits issued didn’t have any benefit to the climate.
There are several other examples of carbon credit misuse. Environmental groups such as
the Nature Conservancy and the National Audubon Society sold credits for protecting trees that
weren’t in danger of being harvested. This allowed companies like Walt Disney and JP Morgan Chase,
who bought those credits, to make misleading claims of lower emissions.
GreenTrees, one of North America’s largest carbon reforestation projects,
sold credits for trees that were already planted through government programs 10 years earlier. This
resulted in inflated and meaningless carbon reduction claims by Bank of America.
Here’s another example of dodgy carbon credits. An oil company, Royal Dutch Shell, delivered a carbon
neutral tanker of LNG or liquified natural gas to Taiwan by investing in ten year old
forest projects in Ghana, Indonesia and Peru. In 2020, a French oil company, Total, also delivered
its first shipment of carbon neutral LNG. How can you extract natural gas in Australia,
ship it to China and claim it’s carbon neutral? By buying a 10 year old wind farm in northern China
called Hebei (Yale). Let’s cut through all the bs. There is no such thing as carbon neutral or net
zero fossil fuels. A wind farm isn’t negating the emissions from burning natural gas. But,
the flawed carbon credit system allows companies to make such ridiculous, nonsensical claims.
Shell has been buying carbon credits from the Katingan Mentaya project,
a 370,000 acre project to protect swamp forests in Indonesia. The project claims to prevent the
release of 447 million tonnes of CO2 over 60 years. It is apparently the world’s largest
forest-based carbon credit project. Shell and Volkswagen are two of the hundreds of companies
that have bought their credits. Greenpeace claims that the credits are an illusion
because the forest has been protected by the Indonesian Government since 2011.
In addition to these greenwashing loopholes, the actual cost of each carbon credit can vary
drastically from less than $1 per ton to over $50 per ton. The cost depends on the
effectiveness of the carbon offset project, the location and additional benefits. For example,
Bill Gates spends $600 per ton to negate emissions from his private jet. Microsoft pays an average of
$20 per ton. On the lower end, Delta Air lines pays about $2.30 per ton. They spent $30 million
on 13 million offsets, so they were able to declare themselves carbon neutral last year.
We should be very careful about such claims and question whether carbon credits that cost
just $2.30 per ton are actually helping our environment. In my video on planting trees,
we discussed the ineffectiveness of tree planting drives. Most of those programs
get millions in funding, receive carbon credits, and then cut down the trees after 10 years.
Tackling carbon emissions and climate change is very tricky. Carbon credits are a way to
quantify emissions and pollutants so they are a step in the right direction. But it
is very important to identify the loopholes, flaws or scams in the system and address them
instead of ignoring them due to the fear of being labeled a climate change denier. Kyle Harrison,
the head of sustainability research for Bloomberg NEF said that “the current design of the voluntary
carbon market is doomed to fail.” We need more insiders like Jim Hourdequin
to expose the problem with carbon markets. He says “that weak rules have created strong incentives
for landowners to develop offset projects that don’t actually change the way forests are managed,
and therefore do little to help the climate.” His company, Lyme Timber,
has now decided to only sell carbon credits that genuinely benefit the climate. This has raised
the cost of his company’s carbon credits to $60 which unfortunately turns many clients away.
It’s important to balance optimism of climate action initiatives with criticism. We need to
be concerned about the misuse of carbon credits, because the increased cost to run businesses
will eventually trickle down to us, consumers. We should be concerned about the misuse of taxpayer
money, and greenwashing tactics. If you’ve heard of other companies like Lyme Timber
that are trying to fix the carbon market, leave me a comment below.
Also let me know what you think about the system and whether you’ve bought carbon credits to offset
your flights or purchases. I’ll link my Patreon page in the description. If you can support me,
I’d really appreciate it. A big thank you to everyone already supporting me. I’ll link all
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