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Carbon Expo: Small Market, Tainted Image

Carbon Expo: Small Market, Tainted Image

Leverhulme Centre PhD researcher Robbie Watt attended the 2014 annual gathering of experts and practitioners working in the fields of carbon markets and climate finance at Carbon Expo in Cologne, to gain new insights into the current state of carbon offsetting. In this short piece, Robbie argues that the tarnished reputation of carbon offsets is a key reason why people find it difficult to sell their carbon credits.

 

Carbon Market Decline

Carbon Expo was once again smaller than in previous years, reflecting the effective demise of the United Nations backed Clean Development Mechanism (CDM) and the stagnation of international voluntary carbon offset markets. These markets are still characterised by a glut in offset supply and relative absence of buyers, leading to sometimes dramatically low prices for credits. Many of Carbon Expo’s plenary sessions and side events were exploring options for increasing demand for carbon offsets among private and public sector institutions.

Conference delegates and speakers were regularly heralding the Clean Development Mechanism as a success story with much improved governance structures which, in their view, ought to be resuscitated under a new UN deal pencilled in for Paris 2015. The prospects of such a role for the CDM post-2015 seem unlikely, however, and traders were asking one another ‘Are you gloomy about the CDM?’ Some CDM participants are now aiming to sell their credits in the voluntary carbon market instead, and are aiming to make their CDM credits more attractive to companies who wish to provide ‘carbon neutral’ products or services. However, voluntary market retailers are also struggling to get money from companies with tight budgets – voluntary credit prices fell 16% compared to last year, and transaction volumes were lower too.

To explain this decline and stagnation, one could look at the politics of the UN climate talks which have stalled, the lack of serious interest in climate change among the general public, or the effects of the North Atlantic financial crisis. Each of these factors is relevant, but one other key reason for the limited economic success of carbon offsetting – a reason unpalatable for market participants – is that offsetting itself has a tainted public image.

Offsets’ hard-hitting criticisms

Critical reports over several years from among NGOs, academics, and the media have given offsets a bad reputation. Critics have argued that some offset projects have not respected local people’s rights in developing countries, leading to protests against the creation of ‘carbon dumps’ in the South. The environmental integrity of carbon offsets has been called into question due to major weaknesses in technical accounting and measurement procedures. The Clean Development Mechanism is no longer so widely respected in policy circles due to revelations that its major industrial gas project types were creating millions of tonnes of ‘hot air’, thereby undermining EU climate targets. And companies who might have considered buying offsets on a voluntary basis are less keen when they see other businesses that have offset in the past criticised for greenwashing.

Response to Controversy

Through interviews that I have been conducting with market participants for my PhD on the moral economy of carbon offsetting, I have found that carbon market actors typically recognise and reflect on these problems, downplay them somewhat, and then maintain that procedures are in place to rectify them.

New methodologies, standards and due diligence have been introduced to ensure environmental integrity, they say. Companies are carefully advised to reduce and avoid their own emissions before offsetting, and to moderate their public claims, so they can avoid labels of greenwashing. Offset companies are also trying to make carbon credit look pro-poor and inclusive by talking about stakeholder consultations, establishing new labels with words like ‘fair’ and ‘social’, and promoting positive stories, images and videos from project sites.

The CDM Executive Board, the leading advocate for its own continued existence, has commissioned reports  to highlight all the benefits the CDM is supposed to have achieved. Leading organisations in the voluntary market are similarly trying to quantify, through dollar signs, all of the value that offset projects bring to society at large.

Positive media coverage has even been paid for through sponsored features in the UK’s Guardian newspaper and funded films broadcast on the BBC. All these activities are designed to build an image and create a public conception of carbon offsetting as valuable and deserving of a place in modern society, despite the aforementioned criticisms.

The Need for Trust

The carbon economy relies on trust, reputation and credibility. Offsetters need to position themselves as an ethical, fitting response to the challenge of climate change in order to maintain a market. To the extent that the market exists, people are employed and Carbon Expo still runs, the offsetters have succeeded. But as people go back to work after Carbon Expo to try to sell more credits, or to regenerate the CDM, wondering how they can achieve more demand, they may want to reflect further on the issue of trust, which is the foundation of all economic contracts within markets.

Determining the Value of Offsets

In other words, the key reason why carbon traders are having difficulty increasing demand for products, or gaining support for the concept of offsetting more generically, is that the brand has been tainted after hard-hitting criticisms and controversies. Despite efforts by traders to reform or to conceal the difficulties, many of the flaws still remain.

There remains much work to do, both inside and outside the industry, to empirically and theoretically establish the environmental and developmental value of carbon offsetting.

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