Who calculates the carbon credit

What are compensation credits and why are they so controversial?

"Compensating instead of reducing" is becoming more and more popular in international environmental protection: A company can legally exceed an upper limit, for example for the emission of greenhouse gases, as long as evidence is provided that the emission of greenhouse gases has also been reduced elsewhere The destruction of primeval forests or the increase in greenhouse gas emissions in the atmosphere cannot be prevented by trading in compensation credits. What is allegedly reduced in emissions at one point or avoided in the form of primeval forest destruction allows overexploitation and the release of greenhouse gases beyond legal or socially standardized limit values ​​elsewhere.

So at best it is a zero-sum game. Ultimately, however, it is not possible to verify whether the allegedly saved emissions would actually have been released or whether the allegedly prevented destruction would have actually taken place without a compensation project. Since the compensation credit allows an additional emission or destruction, the result of trading with compensation credits is often more, but never less, destruction or pollution than without trading credits.

The inspiration for trading offsetting credits is the Kyoto Protocol, the United Nations agreement on the reduction of greenhouse gases that came into force in 2005. It sets targets for the reduction of greenhouse gas emissions in industrialized countries, but at the same time allows industrialized countries to buy themselves free from the reduction obligation in their own country. The instrument for this is emissions trading, in particular the trading of so-called emissions credits, called “carbon offsets” or “carbon credits”. The purchase of such carbon credits allows companies to legally exceed the limit value for greenhouse gas emissions set out in the Kyoto Protocol for factories, refineries and other industrial plants in industrialized countries, as long as evidence is provided that the emissions are elsewhere of greenhouse gases has also been reduced.

With biodiversity compensation credits, buyers can claim that any damage they caused has been compensated. The damage - the destruction of biological diversity - also goes beyond a valid limit. In the case of compensation credits for loss of biodiversity, such a limit exists, for example, in the prohibition of mining in protected areas or particularly species-rich forests; or it arises from social norms, such as the promise of food companies to manufacture their products without destroying forests.

Compensation credits for loss of biodiversity facilitate the expansion of mining in protected areas or the clearing of species-rich forests for oil palm and soy plantations or for industrial cattle breeding. The products from this overexploitation are then marketed by corporations as "free of primeval forests", "carbon-neutral" or as "mining with a net positive impact on biodiversity".

How does trading in compensation credits work?

A compensation credit allows soiling or destruction to exceed a limit value. This additional pollution must be compensated for by a compensation project. The project must demonstrate that it is maintaining a habitat that would otherwise not have been protected, or that it prevents emissions that would otherwise have been released. But if it is a question of protection or renaturation measures that were already planned, no habitat will be created additionally preserved or renatured.

A additional So damage is not compensated. If emission reductions were also planned without a compensation project, the saving is also not additional, although the credit offered by the compensation project allows additional emissions of fossil carbon (coal, crude oil, natural gas). The result is then not a net zero-sum game, but an increase in greenhouse gas emissions or the destruction of nature beyond the agreed limit values.

Cheat Neutral: Short film about the conceptual contradictions of compensation credits

Such a result should be avoided if every compensation project proves through extensive external tests and documentation that without the project no savings would have been achieved or no forest would have been preserved, and the credits therefore actually represent additional emission reductions or forest conservation. The problem with this is that the claim that the emission reduction or forest conservation would not have come about without a compensation project is ultimately not verifiable. And yet behind every compensation credit is the assumption that this additionality can be proven and has been verified by independent auditors.

How does an offset project calculate the amount of marketable credits?

When grain, oil, cotton, or real estate is traded, buyers or speculators know that a certain amount of this commodity, of well-defined quality, physically exists (or will exist) somewhere, either in a warehouse, in a field, or in an oil tanker, or as a Property. It is not necessarily the goods themselves that are traded, but a placeholder that represents a clearly defined quantity and quality of the goods being traded. Placeholders are also bought and sold when trading in compensation credits.

Trading in compensation credits differs fundamentally from trading in goods in at least one aspect. The compensation credits represent the promise to preserve a certain habitat or a certain ecosystem function (carbon storage, water filtration). This habitat was allegedly in danger and providers of the credit promise to refrain from the allegedly planned destruction of the habitat or the release of emissions. The compensation credit represents this failure to act.

The omitted action, however, always remains a hypothetical one, because it is prevented by the compensation project. Compensation projects, whether for greenhouse gas reduction or to compensate for biodiversity losses, always calculate the amount of marketable credits in relation to a hypothetical hazard: X hectares of forest would have been destroyed by local use had the compensation project not existed. The difference between the area that (hypothetically) would have been destroyed and the forest area currently protected by the compensation project gives the number of compensation credits that such a compensation project for forest biodiversity can market.

The calculation method also has the effect that a compensation project generates more credits, the more dirty or destroyed the hypothetical future is described without a compensation project.

Depending on the quality and comparability of the assumed additionally protected with the actually destroyed area, buyers then calculate the amount of compensation credits that are necessary to compensate for the destruction. Viewed objectively, buyers of offset credits are more likely to pay for a good story than for demonstrably additional renaturation, for additional protection of habitats or for additional emission savings.

Arguments against compensation credits

Numerous civil society groups and social movements, especially in the global south, reject the trade in compensation credits. The arguments for this position are varied and refer to the negative social, ecological and economic effects of compensation projects, which often hit disadvantaged population groups particularly hard. The criticism also relates to the unfounded assumption, which underlies the principle of trading in compensation measures, that the additional savings or protective measure can be proven.

The rejection is based on the following arguments for the previously most widespread trade in compensation credits, the trade in emissions credits:

  • Carbon trading does not reduce emissions, it just shifts them. The additional emission reduction to be verified through the compensation project, which is financed through trading in such credits, allows fossil carbon to be released elsewhere above a legal or moral limit. The bottom line is that there is a maximum of a net zero when trading emissions credits.
  • The additionality of an emission reduction, which represents the emission credit, cannot be verified because, in the case of compensation projects, the calculation is based on a comparison of the current emissions in the project with a hypothetical reference scenario. All projects that market carbon credits are confronted with the dilemma of not only checking and confirming the correctness of a future forecast, but also of quantifying it down to the tonne of carbon dioxide. The amount of potentially caused emissions is calculated that would have been released had the offsetting project not existed. In a second calculation, the amount of emissions with the compensation project is calculated. The difference between the two figures gives the number of tons of greenhouse gas that were allegedly saved as a result of the offsetting project, which in turn results in the amount of emission credits that the offsetting project can market. However, hypothetical stories are fundamentally not verifiable, and the projected volume of greenhouse gas emissions without a project becomes unchecked by reality with a project. A consequence of this basic assumption, which assumes the unverifiable as verifiable, is that the emission scenarios of numerous offsetting projects forecast very high hypothetical emission values ​​in order to maximize the amount of credits that a project can sell. Scientific studies on the credibility of REDD + projects are therefore increasingly describing offsetting credits from REDD + projects as “virtual reductions”, ie as emission credits that are not based on any actual (additional) emission reductions.
  • Because the additionality of an emission reduction is fundamentally not verifiable, but at the same time the emission credit justifies emissions above a limit value, trading in emission credits will probably contribute to a further increase in the concentration of greenhouse gases in the atmosphere.
  • The dilemma that carbon credits result from a calculation that assumes the verifiability of hypothetical emissions is particularly serious for projects that market carbon credits from land use projects. Here the factors that influence future land use are even more diverse and variable - and thus the forecasts are even more speculative - than in other areas.
  • Trading in carbon credits is essentially unfair because those who have contributed the least to the problem should also reduce emissions so that the largest emitters can continue to use excessive natural resources - in the case of carbon credits, fossil fuels.
  • In the implementation process, injustices and inherent inadequacies are exacerbated: up to 75 percent of the carbon credits traded from CDM projects demonstrably do not represent any additional emission reductions. A large number of projects, especially those offering emission credits from REDD + and land use projects, are responsible for human rights violations and displacement of families who have rights of use but no land titles for the land they use Access to land seals of various certification standards awarded.

This article is part of our dossier "New Economy of Nature".

For further reading:

  1. Kill, J. (2015): Economic Valuation and Payment for Environmental Services. Recognizing Nature's Value of Pricing Nature's Destruction? Heinrich Böll Foundation E-Paper.
  2. FERN (2010): Trading carbon: how it works and why it is controversial.
  3. Altvater, E. and A. Wellnengräber (eds.) (2006): Trade in indulgences against climate change? Market-based instruments in global climate policy and their alternatives. VSA publishing house.
  4. Louise Carver (2015): Measuring the value of what? An ethnographic account of the transformation of Nature ’under the DEFRA biodiversity offsetting metric. LCSV Working Paper Series No. 11. Leverhulme Center for the Study of Value.
  5. Climate Fraud Offsetting website. The site contains a promotional video, a fake CO2-Calculator as well as a presentation of real offsetting projects that offer carbon credits.
  6. Cheat neutral. 5-minute film that shows the conceptual contradictions of compensation credits.