Climate leadership means reducing real emissions

SOMO’s ‘Facing the facts: carbon offsets unmasked’ series debunks eight myths promoted by the offset industry.

Reality check:

In the face of growing criticism of carbon offsets, proponents have produced reports making claims that companies using carbon offsets are doing ‘better’ than others on climate-related efforts, such as emissions reductions. These reports, however, purport to be independent and frequently based on limited, self-reported corporate data, which is not independently verified.

Three reports published in 2023 by Sylvera(opens in new window) , Trove Research(opens in new window) (now MSCI) and Ecosystem Marketplace(opens in new window) , in particular, have been widely used to “prove” that companies that buy carbon credits are decarbonising faster than companies that don’t. Yet, this correlation is questionable at the very least, and even if such a correlation exists, it does not demonstrate causation: buying credits leads a company to reduce emissions. Causation and correlation are not synonyms.

A review of the reports raises several other considerations. First off, none of the reports considers how companies achieved their self-reported emissions reductions. As Carbon Market Watch observes(opens in new window) : “Companies that buy carbon credits could be companies that are more likely to buy other types of environmental certificates, such as Renewable Energy Certificates (RECs).” Corporate emissions accounting rules allow REC(opens in new window) certificates to be counted as equivalent to buying zero-carbon electricity; therefore, the purchase of RECs could appear as a decrease in “internal” emissions. Hence, as Carbon Market Watch concludes, “more market savvy companies would be more likely to both buy carbon credits and report supposedly “lower” emissions due to the purchase of RECs.”

Secondly, none of the reports state the relation between buying credits and the absolute reduction of the scope 3 emissions. Yet this is clearly an important metric since companies could appear to be decarbonising quickly despite their emissions, including scope 3, actually rising. Scope 3 emissions are often the largest part of a company’s carbon footprint.

Below, we consider other questions and concerns these reports raise.

Ecosystems Marketplace

The Ecosystems Marketplace(opens in new window) analysis uses data from companies that self-reported to the Climate Disclosure Program (CDP) in 2022, mainly covering activity in 2021. It lists the top buyers of carbon credits based on what companies disclosed to CDP. Within this list, major fossil fuel, airline and automobile companies, as well as other big polluters, are prominent. Many of these companies are far from being climate leaders. The top three buyers listed, for example, Delta Air Lines(opens in new window) , TotalEnergies(opens in new window) , and Shell(opens in new window) have all been subject to legal action by activists over climate failures.

The top 25 buyers listed in Ecosystem Marketplace’s report represent 72% of credits purchased in 2021. A review(opens in new window) of emissions data for these companies for 2020 and 2021 found that they were, on average, increasing their emissions. If the picture for the top 25 buyers is not consistent with the overall message of the report, then this, at minimum, raises questions about the analysis.

As noted above, Ecosystem Marketplace does not consider how companies achieved their self-reported emissions reductions. Take Shell, for example, which is consistently a major user of carbon credits and the third-largest buyer of carbon credits according to the Ecosystem Marketplace report. The company has been reducing its reported emissions by actions such as divesting working assets, including oil fields and refineries, to other companies. In such cases, there has been no emissions reduction – emissions are merely transferred(opens in new window) . In several cases, emissions are rising as Shell has sold assets to companies with few or no climate commitments. This is one of the main challenges with focusing only on narrow and self-reported data on emissions.

Another issue with the Ecosystem Marketplace data is that it covers just one year. The weakness in such an approach is best seen with Delta Air Lines, which was the company listed in the report as the largest buyer of carbon credits in 2021. Delta’s baseline year for its emission reduction commitments was set as 2019. In 2020 and 2021, the COVID-19 pandemic affected air travel. In 2021, Delta purchased 27 million tonnes of carbon credits to cancel out the majority of its emissions. By 2023, however, Delta reported an increase in its Scope 1 emissions,(opens in new window) which were almost back at the level of its baseline, pre-pandemic, the year of 2019. The Ecosystem Marketplace report makes no mention of COVID-19 as a possible factor in the company’s emission reductions in the period covered by the report.

Sylvera Carbon

The 2023 report from Sylvera Carbon(opens in new window) is also based on companies’ self-reported, unverified CDP data. Furthermore, there are methodological concerns. Sylvera selected 102 companies, 51 users of carbon credits and 51 non-users, without providing clear information about the sample or how it was selected. The report provides few details about the data analysis, and what is presented is insufficient to substantiate Sylvera’s claim that using “carbon credits doesn’t stop companies from taking meaningful climate action”.

Where Sylvera’s analysis covers nine years (2013-2021) of CDP data, the fact that the company selected only 102 companies, the names of which are not disclosed in its report, makes its conclusions impossible to interrogate.

Despite not clarifying which companies are included in its selective analysis, Sylvera describes some companies as “the fastest decarbonising companies around the world”, a claim it does not substantiate. One of the four “fastest decarbonising companies” mentioned as examples of “decarbonising leaders” is the car maker Audi. As Carbon Market Watch notes: “Unfortunately, Audi does not report its scope 3 emissions, which typically represent the largest share of car manufacturers’ carbon footprint. The company has experienced significant growth in the number of cars produced over the period analysed by Sylvera… suggesting that these indirect emissions probably haven’t fallen and likely have risen.” Notably, Volkswagen, the parent of Audi, has seen its Scope 3 emissions rise from 321 million(opens in new window) tonnes in 2013 to 413 million(opens in new window) in 2023.

Sylvera is the only company to refer to the COVID-19 pandemic in its report, stating: “Different industries are decarbonising at varying rates. Financial services have achieved the highest emission reductions. The airlines sector also has achieved higher emission reductions, which is most likely attributable to the effects of the COVID-19 pandemic.” it also includes a caveat that: “while the decarbonisation rate matters, we must look at a company’s overall circumstances, including industry, emissions starting points, emissions in relation to revenue, and more.”

MSCI

A 2024 report by MSCI(opens in new window) updated the 2023 Trove report referred to above. While reaching similar conclusions, this report also took the precaution of saying that “To understand corporate climate performance, it therefore remains important to consider each individual company’s performance against multiple criteria”.

The MSCI research notes that 22% of the carbon credit purchases come from the energy sector. The basic premise of the report’s analysis does not hold for companies in this sector, which show -1.7% change for carbon credit users and -1.3% for non-users, a difference of just 0.4 percentage points. This is important as energy companies are some of the biggest emitters. Furthermore, the report shows no significant reduction in specific Scope 3 emissions categories among carbon credit users except for business travel, a relatively small component of total emissions.

Although both the 2023 Trove and 2024 MSIC reports use data for 2017 – 2022 (the 2024 report does not include data for 2023), neither report considers the impact of the COVID-19 pandemic. For many companies, 2021 included severe restrictions, and 2022 was still a recovery year from the pandemic. There are likely to be impacts on emissions, particularly in some sectors.

MSCI concludes that “Existing data is insufficient to determine causality — are climate leaders more likely to use carbon credits or are carbon-credit users more likely to become climate leaders?” The assumption that users of carbon credits are climate leaders is not justified in the report. That data does not show causality, nor does it support the assumption made about leadership.

What MSCI’s remark does is echo the language of Ecosystem Marketplace, which makes the claim “that voluntary credit buyers are already climate leaders,” and Sylvera, which refers to “decarbonisation leaders”. The narrative repeated across all of the reports is problematic, particularly given that both Sylvera and MSCI accept that their analysis is insufficient to really understand a company’s performance.

The limitations of these reports underscore the caution with which such analysis needs to be taken. The reports focus strongly on language that promotes the use of credits, in some cases coming close to suggesting that the use of credits is a driver of other actions, a claim that none of the reports can support.

Independent reporting?

Entities with links to the carbon offset industry produced several of the reports most frequently referenced by industry proponents. Ecosystem Marketplace is owned by Forest Trends, whose Board(opens in new window) includes representatives of several asset management companies as well as a forestry industry group. MSCI, which acquired Trove Research in November 2023, provides financial advice and services for, among others, carbon-related investments. And Sylvera is a carbon data provider that helps organisations invest in carbon offset projects. As actors within the carbon offsetting system, they cannot make claims of impartiality.

In a nutshell

The promotion of narratives about the good performance and “leadership” of carbon credit users on climate action is, at the very least, misleading. Those claims are based on self-reported, unverified data and/or compiled by entities owning or representing commercial interests in this same industry. The reports raise more questions than they answer. Yet, they try to push a narrative for rescuing an industry that is failing on all accounts to deal with the climate crisis.