The carbon credit market is in crisis

If you’re in the credit industry, credibility is everything.

On Tuesday, the validity of carbon offset credits — credits that companies can sell to each other to incentivize reducing greenhouse gas emissions — took a major hit. The Integrity Council for the Voluntary Carbon Market (ICVCM), an independent, nonprofit organization that oversees the carbon market, issued new guidelines for what types of carbon credits it can approve. The result: About a third of existing carbon credits have lost their certification, making the planet less green than we previously thought.

Renewable energy sources are not green enough

The label that ICVCM issues to projects it deems worthy of generating carbon credits is called the Core Carbon Principles (CCP) label. ICVCM has stated that it is specifically removing the CCP label from projects issued “under existing renewable energy methodologies.” So if you’re, say, a large fossil fuel company with a renewable energy division that you use to acquire carbon credits, those credits are now stripped of their validity.

A spokesperson for Verra, another nonprofit that sets standards for carbon credits, told The Daily Upside: “The market has evolved, and grid-scale renewable energy projects in most countries are no longer dependent on climate finance, which is why Verra stopped accepting new renewable energy projects five years ago — except in the least developed countries, where carbon credits can still make the difference between new coal and new clean energy.”

Reduced effectiveness of carbon credits is latest blow to market:

• Bloomberg reports that the carbon credit market has shrunk by nearly 25% since its peak in 2022. In May, a report by Ecosystem Marketplace found that the value of transactions in the voluntary carbon market fell by 61% between 2022 and 2023.
• The market hasn’t been completely discredited, though. The Ecosystem Marketplace saw a small rebound in carbon credit prices earlier this year.

Organized Coal Crime: Questions about whether carbon credits are effective aside, some are simply scams. This week, Brazil’s environment minister, Marina Silva, said buyers of carbon credits should be vigilant: The country has discovered that criminal organizations are selling $32 million worth of illegal carbon credits using stolen land from the Amazon rainforest.