In an interview with the EPBR website, our Preventive coordinator, Dr. Deisy Granado, comments on the crisis in the voluntary carbon market.

Doubts about project quality and their climate impacts led to a 4% drop in carbon credit trading in 2022.

In June 2023, the Voluntary Carbon Market Integrity Initiative (VCMI) launched a code of conduct to guide companies purchasing credits in the voluntary market, in an attempt to make climate claims credible.

The publication came after a year of decline in the trading of bonds. Doubts about the quality of projects and their real climate impacts led to a 4% drop in the voluntary carbon credit market in 2022, when compared to the same period in 2021.

According to a survey by BloombergNEF, companies acquired 155 million assets to offset their emissions in 2022. The supply of these credits also grew little: just 2%, with 255 million offsets created by projects around the world.

There was also a drop in the issuance of bonds for avoided deforestation, which decreased by a third in the annual comparison.

The figures reflect concerns among companies about the mechanism's reputation, following repeated allegations of greenwashing for purchasing offsets for projects with questionable environmental impact.

The voluntary market is going through a crisis of confidence, including in Brazil.

On Monday (10/31), a report by Folha revealed that Petrobras bought carbon credits to neutralize the Podium gasoline-related emissions of a project with problems in documenting land ownership and deforestation records.

Located in municipality of Feijo, in Acre, Envira Amazônia occupies an area of just over 39 thousand hectares, of which 570 hectares – something like 800 football fields the size of Maracanã – were specifically earmarked to offset emissions from Petrobras' premium fuel.

However, even before Petrobras announced the purchase of the credits, in September 2023, Verra, the project's certifier, had already denied the renewal of the certification – in May.

The US-based non-profit is now the world's largest certifier of voluntary carbon offsets, but its filter has missed some questionable projects.
Also in 2023, the British portals The Guardian and the Brazilian G1 reported complaints involving the appropriation of public lands in the state of Pará, by five Brazilian and three foreign companies, for the issuance of forest preservation credits.

Experts consulted by epbr agency explain that these specific cases, by themselves, do not invalidate the voluntary market, an important mechanism for preserving forests and helping companies on their decarbonization journeys. But they highlight the need for more robust governance to ensure transparency and integrity.

Where do voluntary market credits come from?

These credits can be generated by different types of CO2 reduction or removal projects, such as reforestation, solid waste management and renewable energy.

As the transaction is carried out between private individuals – that is, without State intervention – the certifications vary, as do the prices and quality of the titles.

But one rule is general: to issue the credit, the project must have additionality. This means saying how much the project contributed to preventing an area from being deforested, for example, and what this means in terms of carbon.

What is the function of the voluntary market?

The voluntary carbon market is used by companies to offset their greenhouse gas emissions by purchasing credits.

The idea is that it will be a complementary mechanism in decarbonization strategies, used by companies that have greater difficulty reducing their emissions intensity by replacing fossil fuels and improving energy efficiency, for example.

What has generated the integrity crisis?

“Recently, there have been reports of inconsistencies in the projects, with more carbon credits being generated than emissions are actually being reduced, in addition to reports involving threats to indigenous peoples and traditional communities,” lists Deisy Vanessa Granado, from Luchesi Advogados.
Among the factors that can lead to the vulnerability of this market, the lawyer cites the lack of technical quality of some projects and traceability, resulting in fraudulent credits.

The absence of auditable mechanisms that observe requirements that go beyond the formal ones, methodologies lacking taxonomy and a lack of government oversight are other points.

Tatiana Cymbalista, a partner at Manesco Advogados, says that there has recently been a credibility crisis in carbon credits, especially those associated with REDD+, which maintains standing forests, because they depend on estimates of emission reductions that are more difficult to calculate than those of energy projects, for example.

“To prove that there was sequestration or that greenhouse gas emissions were avoided, you need to estimate, in this case, what the risk was for that forest to be destroyed without the project. It is this delta that will give you the amount of carbon credits,” he explains.

“If it’s deep in the Amazon, in a super-protected place, the carbon credit tends to be tiny. If it’s right on the agricultural frontier, there in Mato Grosso, you have much more carbon credit because you contributed more to keeping the forest standing,” he adds.

Land issues

The lack of land data on properties located mainly in the Amazon region is a point that can contribute to problems such as the one reported in Pará, as it generates uncertainty regarding the ownership of the properties and who can, in fact, authorize activities in that specific area, analyzes lawyer Guilherme Leal, partner at the Graça Couto law firm.

He notes that the specific case of Pará, although it may be considered punctual and insufficient to “trigger a lack of credibility in the voluntary market”, brings to light the repercussions of land disputes on the generation of credits.

“We must be careful not to generalize and create a credibility crisis based on specific actions that have not yet been challenged or even decided. There is a land issue in Brazil that could contribute to these disputes,” he comments.

Leal explains that, even though verification firms use methodologies that seek to guarantee the credibility of credits, they will hardly be enough to solve a chronic Brazilian land problem.

“This is a broader issue, which is not specific to this market. The question is what degree of land certainty the certification will require in order to be issued,” he points out.

“The problem is the problem of space, the occupation of Brazilian territory and the rural and urban conflict. This has emerged as a point that deserves attention.”

Approved by the Senate and under discussion in the Chamber, the PL 412/22, which creates the regulated carbon market, also provides for the definition of some rules that aim to give more credibility to the volunteer's titles.
For Leal, the solution to these land issues, however, is broader.

“It has a practical aspect, of property registration, overlapping, land grabbing, crime, document forgery. It is a much bigger problem,” he lists.

Secondary market

Jean Marc Sasson, specialist in Environmental Law, co-founder and Legal Director of Atmmos, also draws attention to the creation of a secondary market, where agents buy carbon credits to speculate and sell at a high price.

Or the non-retirement of the title – when an organization offsets its emissions and does not withdraw the credit from circulation.

“Once [the ton of carbon] has been offset, the credit where it was generated must be retired. This is done manually, by the generator itself. But some don’t do it. This has generated a debate about using the same credit once again,” explains Sasson.

How to ensure the quality of credits?

According to Cymbalista, the private sector itself has been engaged in a movement to ensure that there is increasingly more seriousness, uniformity and standardization in the credits that are issued.

“There are also state movements that try to recognize these methodologies, saying this one makes sense, this one doesn’t. It has to be linked to science, it has to follow the steps for certification,” he says.
The lawyer mentions Verra's own case, which announced the review of its criteria to differentiate tropical forests from temperate forests, where the certifier designed its standards.

This helped to hold back the issuance of credits, which had been doubling annually and raising doubts about the real climate contribution of the transactions.

Auditing and blockchain

The recommendation from the director of Atmmos is to use technology to bring more transparency and carry out independent audits to verify the origin of the credits.

“What I always suggest to anyone who is going to buy these carbon credits is that they audit them, because the process of generating the titles is often not transparent.”

Sasson believes that independent auditing is important to understand who the owner is, the origin of the credit and its value generation.

“Because if you buy credit that is not fair, you are ultimately encouraging illegal behavior, such as land grabbing, deforestation, and so on. So it is very important to do this audit to ensure that what you are buying is in fact fair, that you are not buying a hare instead of a cat.”

Blockchain can also be an ally. Another recommendation from Sasson is to tokenize carbon credits.

“Blockchain is a technology that provides credit traceability. It allows us to track all transactions, from when they were generated to their current status, and what was done with them. This provides a lot of transparency and, logically, influences the integrity of the credit itself,” he argues.

He says that some initiatives already use artificial intelligence and satellite images that allow us to see where the project is located, increasing the efficiency of the check.

Reproduction source: EPBR website