The carbon offset market shrank dramatically last year, from US$1.9 billion ($1.5 billion) in 2022 to US$723 million in 2023, a new report shows. The decline came after a series of scientific and media reports showed that many compensation schemes are doing nothing to alleviate the climate crisis and biodiversity loss.
The research from Ecosystem Marketplacea non-profit initiative that collects data on the carbon market from brokers and traders found that the market had shrunk by 61%.
It attributed the cutback to a flurry of scientific studies and media reports that concluded millions in compensation were “worthless,” with some projects linked to human rights issues.
Each carbon credit is intended to represent the reduction or removal of one tonne of CO22 emissions removals or reductions, and they have been used by leading companies to label their products ‘carbon neutral’, or to tell consumers they can fly, buy new clothes or eat certain foods without worsening the climate and biodiversity crises.
Offsets generated by rainforest protection programs, the most popular type, lost 62% of their value between 2022 and 2023. These programs were the focus of a joint investigation by the Guardian, which found that more than 90% of carbon offsets in rainforests came from a large sample. of the projects of Verra – the largest certifier in the world – are worthless and have exposed potential human rights violations in a flagship project. Verra disputed the findings.
Julia Jones, co-author of one of the studies in the study and a professor at Bangor University, said urgent reforms are needed for carbon markets to work as intended.
“The media research showing that many projects providing Redd+ credits to the voluntary carbon market have sold more credits than justified is important,” she said.
“However, I am deeply concerned that some of the recent reporting on this issue gives the impression that the very idea of tackling climate change by slowing tropical deforestation is a scam – this is not true and the idea would can damage.
“More financing is urgently needed to halt the ongoing loss of forests and the essential services they provide – a reformed voluntary carbon market could play a key role in providing that financing,” she said.
On Tuesday, the White House held an event in support of industry-led efforts to reform carbon markets, backing initiatives to help companies avoid greenwashing and ensure credits represent actual environmental impacts.
US Treasury Secretary Janet Yellen said companies should do the same prioritize reducing emissionsbut the Biden administration still wanted carbon credits to “be successful.”
The move comes amid deep divisions among environmental groups over the role of carbon credits in helping companies meet net-zero targets.
Stephen Lezak, program manager at the Smith School of Enterprise and the Environment, University of Oxford, said people should not turn away from carbon markets.
“The current carbon offset market looks a bit like a burning building. We need people to be firefighters and run to it, instead of walking away and letting it burn to the ground. Limiting global warming to 1.5 degrees Celsius is simply not feasible without a functioning market for this type of climate finance,” he said.
Kaya Axelsson, research fellow at Oxford Net Zero, said: “This is a crucial transition moment. Carbon markets will lose their relevance unless they are radically reformed in line with net zero targets.”
Rene Velasquez, managing partner at carbon markets consultancy Valitera, disputed the size of the decline reported by Ecosystem Marketplace and said there were problems with the methodology.
“As in previous years, their report is incomplete and relies on a survey of market participants to provide confidential trading data,” he said. “The reality is that fewer and fewer institutional respondents are participating. Although I have to admit that the market has retreated, this distorts the figures.”
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