The New Collective Quantified Goal (NCQG) is the single most important text being discussed in the COP 29 universe. There is little likelihood of any final text emerging soon, given the extremely diverse positions relating to financial commitments.
Quantification of financial fund flow from developed to developing countries is key to any serious climate action. Developing countries want to restrict accounting of climate finance to outright grants and concessional loans, while developed countries wish to account a whole array of investments, loans and financing under NCQG, on which they can earn a payback.
It is with respect to voluntary carbon credits that the scope for transfer of finance can be disciplined and ramped up. Developing countries, or rather the communities at the grassroots, are being seriously short-changed here.
Climate action of corporates, couched in phrases such as ‘emissions reductions, carbon neutrality, environmentally conscious emitters, net zero’, have been based on buying voluntary carbon credits generated in developing countries at rock bottom prices. The carbon credits market is cumulatively estimated at $11 billion till 2023 (since 2005). A miniscule portion of the finance reaches the actual emissions reducers.
Remarkably, these individuals — the persons whose diligent daily actions lead to decarbonisation on the ground — do not even find a mention in terms of a specific nomenclature in the vast body of climate terminology. Most emission reducers are based in extremely poor communities in the developing world. Low investment projects like ‘smokeless chulha/efficient stoves’ have claimed supporting communities, preventing deforestation, and avoiding carbon emissions. Indian companies have a significant presence in the offset creation business.
Paris Olympics, for instance, claimed being ‘green’ and the ‘lowest carbon emitting Olympics yet’. Water boiling and efficient cookstoves project in Kenya, Democratic Republic of Congo and Nigeria were the major suppliers of 5,89,000 tonnes carbon offsets for Paris Olympics.
There are two aspects to this operation: first, the organisers of the Olympics manage to ‘offset’ or conceal their pollution by buying these credits; and second, the money so transferred filters through a labyrinthine trail of experts, consultants and developers who pocket most of the sums disbursed, leaving next to nothing for the communities at the end of the chain who actually generate these carbon offsets. Their only gain is these stoves at a discounted price.
In another instance that borders on the absurd, the Nyagatare project in Rwanda provided carbon offsets of 1,22,000 tonnes to the Paris Olympics. Here, the project developer set up a case for carbon credits by repairing existing borewells and handpumps, rendering the water safe to use. The project assumed a daily per person consumption of seven litres of water that would no longer have to be boiled with firewood, thereby generating carbon credits.
Multiple investigations regarding such projects have demonstrated inherent gaps in the assumptions, ground realities, and the quality of emissions avoidance/reductions claims. The fraud behind such offsets and massive spending through carbon exchanges is coming into public glare.
Press exposes
In a scandalous expose, the Guardian newspaper proclaimed last year that 90 per cent of voluntary offset credit purchased mostly by large MNCs, were fraud. No real emissions reductions had occurred. Washington Post investigated into these carbon credits, only to find a bigger fraud, particularly in the Amazon basin. The report of the Centre for Science and Environment’s on the Indian voluntary carbon market paints a similar disturbing picture.
Carbon rights, which were later traded for millions of dollars, were signed off by the persons creating emissions reductions. Scavenging on the innocence, gullibility, credulity of these communities, individuals/companies in the super complex web of carbon trading make millions of dollars. Despite a large unwieldy, complex superstructure of verifier, auditors, technical persons, scientific advisers, the offsets perpetrate a huge fraud on the emission reducers at the bottom of the pyramid.
The poverty and low socio-economic status of the hands that decarbonise allows making these claims. Their diligent day-to-day action reduces emissions and compensates for carbon emitted by rich individuals in rich countries. They have been made to sign off on their extremely valuable financial rights on carbon emissions reduction signifying the worst kind of exploitation.
Investigations into the voluntary carbon offset/credit market have been silent on this equity aspect of the carbon offset mess. They focus on the quality, reliability, and mitigation outcomes of these credits.
Voluntary offsets
Scandals in the offsets market have led to denouncement and denial of the utility of voluntary offsets. In the context of NCQG, voluntary offsets as an instrument must not be thrown away. Rather as a tool it should be sharpened, disciplined and used efficiently to improve the flow of private finance from rich to poorer countries. Corporates must be held accountable for their net-zero commitments. Voluntary offset is a useful instrument to transfer finances to developing countries provided it is ably delivered.
India has also recently included carbon offsets as an emissions reduction tool in its carbon market for voluntary baseline and credit based projects. Keen oversight of governments in the offset generating geographies is the missing factor. Developing country governments have largely stayed away from regulating the offset market.
Equity-based mechanisms must be introduced to bring greater discipline and transparency into this market. Mandatory inclusion of environmental finance training of the emission reducers would ensure that they understand the value of their action.
Inclusion of a minimum floor price of the offset and a continuing royalty-like payment to the emissions reducer each time the offset changes hands in the carbon market, could ensure that finances reach the hands that decarbonised.
The writer is former IRS officer. She researches and teaches the intersection of Environmental and Trade Governance