According to a new analysis published by Nikkei, one of the world’s largest financial newspaper, nearly 40% of carbon credits acquired by firms are more than five years old, which might threaten progress on reducing greenhouse gas emissions.
Nikkei analyzed data dating back to 2009 from Verra, one of the world's major carbon offset accreditors, and found that 38% of 99,000 validated credits purchased by firms were over five years old, equating to 73 million tons of carbon dioxide, while more than 4% were at least ten years old, with only 37% were the age of three or less.
Older credits are not necessarily less effective at reducing carbon emissions than newer credits, however, they can stymie efforts to reduce greenhouse gas emissions because, once the credits were issued, it is uncommon for a third-party organization to monitor whether the projects on which the credits were based were properly maintained.
Trading emissions credits can help reduce global greenhouse gas emissions if issuers of credits can generate enough cash from their carbon-cutting programs to extend their forest conservation and afforestation operations. However, if credits remain unsold and their prices fall, issuers will find it difficult to keep projects afloat.
The limitations are well shown by an afforestation project in central India that awarded credits from 2012 to 2014. According to Nikkei's examination of satellite photographs of the area, tree removal in the project area is rising, as is the building of infrastructure.
A 100-year afforestation project in Uruguay is another example. The project has come to a halt, resulting in even more deforestation. Carbon credits for the project were issued in 2007 and were still trading last year.
Credits backed by such failed projects will sabotage global decarbonization efforts if they continue to be traded.
Experts suggest that because forests are still under risk of logging, newer credits are preferable. “Offsets that are more than five years old are less desired,” according to Second Nature, a U.S. nonprofit organization focusing on climate change issues.
When it comes to calculating carbon dioxide emissions reductions, all carbon credits are the same for the corporations who sell them, regardless of when they were validated. However, because carbon prices typically decline by half after five years, some corporations promote their carbon-cutting efforts by purchasing older, lower-cost credits.
The utilization of earlier carbon credits varies depending on the industry. Delta Air Lines was the largest buyer of credits older than five years in September 2021, purchasing the equivalent of 7.28 million tons of carbon dioxide. This accounted for 45% of the offset purchases made by the American carrier.
Shell offset 79% of their emissions with certificates that were more than five years old. Older credits were also actively purchased by luxury fashion labels and financial organizations, among others. The Walt Disney Company, Chanel, and Goldman Sachs, on the other hand, used no credits older than five years.
According to certain experts, there should be markets for exchanging only credits that are continuously verified. It is vital to develop a method that would improve the transparency of carbon dioxide emission reduction efforts by allowing funding to flow to high-quality credits on a regular basis.