CO2 certificates in the “climate laboratory”: Why so many forest projects are frauds

If you save a forest from the chainsaw, you can apply for CO₂ certificates – and sell them for a lot of money to companies that want to offset their emissions, be green and suddenly be “climate neutral”. Experts estimate that this market will have compensation projects as early as 2040 $1 trillion worldwide could implement. But upon closer inspection, many forest projects turn out to be fraudulent, and many certificates turn out to be worthless. “There is no government regulation,” states Lambert Schneider from the Öko-Institut im “Climate Laboratory” the biggest problem in an industry where only voluntary standards apply. There are also no objective and clear criteria as to what exactly a project must achieve in order to receive CO₂ certificates. The results are climate protection projects in which balance sheet optimization is part of everyday life – and which have recently attracted the interest of Belarus and Russia woken up.

ntv.de: Are there any projects on the market for CO₂ certificates that actually reduce emissions?

Lambert Schneider: Yes, but these projects are difficult to identify for both laypeople and institutional buyers. You have to look carefully because a lot of things can go wrong with carbon credit projects. For example, if I plant a forest that later burns down, the CO₂ will still be in the atmosphere. Therefore: The project must be additional; The reductions must be robustly quantified and not, as often happens, massively overestimated. There are a lot of details that have to be taken into account, which is what makes it so complex.

What does “additional” mean?

Let’s take a wind turbine: If it were built anyway, but I still receive CO₂ certificates and can cause further emissions, I would have emitted more CO₂ but actually saved nothing. It must therefore be proven that a climate protection measure is only made possible by the certificates and would otherwise not be implemented. As you can imagine, this question is very hypothetical. How do I know that a forest would be cut down without a compensation project? Nobody can answer that with certainty.

One of the best-known compensation projects is the Kariba project in Zimbabwe. The “New Yorker”, however reportedthat this flagship project sold many worthless CO₂ credits – surprisingly because too few trees were felled in another forest.

When it comes to projects to avoid deforestation, the crucial question is: when would the forest be cut down and to what extent? In order to answer this question, comparison areas are used – a kind of control group like in medicine. Then it is checked how much more is being cut down in this comparison area than in my area. However, this only works for comparison areas that are actually representative of the project. In the case of Kariba, it turned out that the difference between the comparison area and the project area was not as large as expected. That’s why too many certificates were issued.

Who determines the comparison areas and checks the information? Such markets are regulated.

There are voluntary standards like this Verified Carbon Standard by Verra. They set the exact rules. If I want to protect a forest from deforestation, I have to register the project there. You then have to document and prove that the emissions have actually been saved. This can be done, for example, by creating alternative sources of income for the local population so that they no longer have to rely on deforestation. The emission reduction calculations are validated by a verifier; in Germany this is done by TÜV, among others. At the end, I receive CO₂ certificates for the emissions avoided.

Does this verifier come on site and look at the project with their own eyes or does this happen remotely?

This is regulated differently depending on the regulatory standard. Most require you to be on site at least in some places, but this does not apply to all projects. Some rely on video data or satellite images. Validation is usually done when the project begins. Control follows a few years later.

Do you think Verra is a reliable standard?

Definitely not. We have massive quality problems with forestry and other projects. The majority of certificates do not reduce emissions, even if there are individual good projects. A big difference to organic farming is that I have relatively objective and clear criteria that can be easily checked: pesticides or certain fertilizers are not allowed to be used. With Carbon Credits, I find myself in a what-if world: I have to estimate what would have happened without the project. This is also made more difficult by the information asymmetry: the project developer has more information than the validators or standards like Verra and knows exactly which data source leads to more certificates. For example, the historical reference period cannot be the last five years, but rather the years before, in which much more deforestation took place.

In business this is called balance sheet optimization.

But in business, accounting rules leave less room for fraud. We analyze the carbon market very closely at the Oeko-Institut and repeatedly find that project developers have a lot of creative leeway when calculating reductions. And certifiers like TÜV are paid by the project developers. This reduces the incentive to complain, otherwise you will lose your customers.

And there is no one to supervise Verra?

No. This market is voluntary. Verra is a non-governmental organization founded out of industry. There is no government regulation, apart from anti-competitive advertising legislation in some countries. In Europe there is currently about Green Claims Directive negotiated: This directive stipulates that companies are no longer allowed to talk about climate-neutral projects if the emissions are offset with certificates.

In essence, this approach is not wrong. We have to find ways to avoid CO₂ emissions. Do you think the market can develop in a serious direction or will one project after another be exposed and companies stop buying carbon credits?

Some companies have already exited, so this market is actually at a crossroads. We have been seeing these problems in science for years. Really old studies show how much goes wrong. But the topic is only now getting more media attention. This means there is a different level of attention and a different pressure. However, there are many initiatives to improve the quality of the market. It remains to be seen whether carbon programs like Verra will seriously reform their rules or not.

Are companies putting pressure on programs like Verra? They lose money and trust when they buy worthless CO₂ certificates.

Various actors are currently exerting pressure, including companies, because their reputation is suffering and they can potentially be sued. In recent years, a whole series of rating agency startups have emerged that evaluate individual projects, like credit rating agencies do in the financial market. This creates another level of transparency.

Before the financial crisis of 2008, the rating agencies also failed. And now there’s a whole new initiative coming out of Africa, where many of these forests are located. Understandably, they want to get a piece of the trillion-dollar pie and build a kind of Wall Street for the international compensation market. However, Belarus has been brought on board as a partner and wants to sell certificates for Russian forests…

There are great expectations for the carbon market in Africa, but it is questionable whether they can be met. I don’t know the details of this deal and can’t comment on the plans, but Russia has already issued a lot of questionable carbon credits from all sorts of activities in the past. Only forest certificates were never registered, not even at Verra. I really don’t know what’s behind these certificates or if it’s just hot air. It definitely sounds very questionable.

Do we actually need this voluntary market for CO₂ compensation or would it be better to look for another way?

In any case, we need financing for climate protection – from the state. We also need government regulation. This will get us out of the climate crisis. Voluntary action can complement this, but is not the essential component.

Talked to Lambert Schneider Clara Pfeffer and Christian Herrmann. The conversation has been shortened and smoothed for better clarity.