Billions at risk: carbon credit speculators may face losses as offsets turn to dust

Carbon credit speculators are facing the risk of losing substantial sums of money as scientific evidence reveals that many purchased offsets hold no environmental value and have become stranded assets. The unregulated voluntary market, which grew to $2 billion in size in 2021, has accumulated a surplus of carbon credits equivalent to the annual emissions of Japan, a top global polluter. Despite being championed by major corporations like Apple, Disney, and Gucci for their sustainability initiatives, these credits have often failed to deliver on their promises of mitigating global heating.

Numerous carbon credits in the market are associated with alleged human rights concerns and have been found ineffective in addressing climate change. This has led to a decline in demand and prices for offsetting, prompting some investors to write off investments that were worth millions of dollars just a year ago. Regulators have also intervened, with the US derivatives market regulator launching an environmental fraud task force in response to fraud and misconduct in carbon markets.

A recent study by scientists and economists from the University of Cambridge and VU Amsterdam, published in the journal Science, discovered that many forest carbon credits certified by Verra, a leading certifier, hold little value and might even worsen global heating if used for offsetting. The analysis revealed that major forest offsetting projects generated carbon credits with inflated conservation impact calculations. As a result, these schemes did not effectively reduce deforestation, rendering the credits essentially useless.

This alarming situation has raised concerns among speculators, traders, and market experts. While some advocate for a redefinition of Paris-compliant carbon credits to provide more certainty and buyer confidence, others recognise the inherent evolution of carbon markets and stress the need for continual adaptation to align with scientific advancements and changing circumstances.

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