“Our research indicates that many companies purchase carbon credits from projects with dubious climate effects. Our recommendations aim to make navigating the voluntary carbon market easier – and to avoid greenwashing,” says Sophie Bruusgaard Jewett, Climate Change and Sustainability Manager at PwC.
Many companies buy so-called carbon credits in the voluntary carbon market. But a complex and challenging market means many buy credits with no real climate effects.
This is the conclusion of a report by ZERO and PwC (PDF, 3.6MB), surveying Norwegian companies' voluntary carbon credit purchasing practices. The recommendations from this project have been summarized in a traffic light model.
“Measured against our traffic light model, there are likely no large Norwegian companies that are climate neutral right now. Many of the credits bought by Norwegian companies are given a red light and are essentially greenwashing,” says ZERO's Head of Policy, Stig Schjølset.
“Using the term ‘climate neutrality’ gives the impression that the company does not have a negative impact on the climate. Unless the company has removed carbon from the atmosphere in a quantity equivalent to its own emissions, climate neutrality is impossible. That is why we recommend credits from projects with carbon removal,” says Bruusgaard Jewett.
Sophie Bruusgaard Jewett, Climate Change and Sustainability Manager in PwC, hopes this report can be useful for companies wanting clear recommendations for how to use carbon credits in their climate strategies, sustainability reports and marketing.
The majority of companies in the survey refer to the voluntary carbon market as a “credit jungle”, characterized by a lack of transparency and standardization.
“While most companies have good intentions, there is no doubt that many buy credits from projects with dubious climate effects. This is particularly problematic if the credits are used to offset the companies’ own emissions or to meet climate neutrality objectives,” Bruusgaard Jewett says.
The poor climate effects of many carbon credits may lead companies to believe they have offset their residual emissions, while efforts to reduce the company’s own emissions are either delayed or reduced.
ZERO and PwC are calling for clearer, more stringent requirements for use of the term climate neutrality.
“It is currently too easy to use this term. The Norwegian Consumer Authority's current guidelines are outdated and incomplete, and are not in line with the objectives of the Paris Agreement. If public authorities are going to have guidelines in this area, they must establish much more stringent requirements for what it takes for a company to be climate neutral,” Schjølset says.
Companies that follow the recommendations issued by ZERO and PwC will have to work harder to be able to declare themselves climate neutral.
“It is a problem that many companies so far have bought credits with no real impact. A big part of this is caused by a market that lacks transparency and outdated guidelines. We have chosen to focus on this problem now, because we want to contribute to the green transition. In order to reach the 1.5°C target, businesses must cut emissions, including indirect emissions. Any remaining emissions must be offset by buying carbon credits that have a real impact,” says Hanne Løvstad, Head of Sustainability and Climate Risks at PwC.
“For most companies, climate neutrality will be a long-term goal, which will have to be integrated in a credible climate strategy in accordance with the objectives of the Paris Agreement,” ZERO's Stig Schjølset says.
One of the clearest findings from the survey is that most companies believe they do not know enough about the voluntary carbon market. Almost 64 per cent of respondents find the voluntary market to be difficult or very difficult to navigate.
Almost half of the companies participating in the study currently buy credits. An additional 16 per cent say they are considering buying credits in the future, which indicates that more and more companies will participate in the voluntary carbon market in the years to come.
The companies who participated in the survey buy credits from a wide range of projects. They often have portfolios of credits relating to different projects and associated with different standards. Even so, we find that the two dominant standards are CDM and Gold Standard (GS), followed by Verras Verified Carbon Standard (VCS).
Almost a third of the companies have already declared themselves to be climate neutral. In addition, 15 per cent aim to be climate neutral by 2030, whereas 19 per cent want to become climate neutral, despite not yet having defined how to achieve it.
Erlend Bjørklund, Sustainability Consultant at PwC, believes the principles developed by Oxford University and the Science Based Targets initiative should be considered by companies wanting to use carbon credits to achieve climate neutrality.
“We have used these standards to develop a traffic light model for categorizing different carbon credits,” says Bjørklund, who has been working on a new guide with Bruusgaard Jewett and Schjølset.
Go to page 27 of the report for a description of the traffic light model (PDF, 3.6MB).
“Carbon credits will only be a small part of a robust and comprehensive strategy to achieve the objectives of the Paris Agreement. To put the use of carbon credits in its proper context, we therefore focused on three main questions when we prepared our recommendations,” Bjørklund explains.
The recommendations set out: 1) what defines a good climate strategy; 2) how to purchase carbon credits responsibly; and 3) how companies should report their carbon credit purchases.
“Companies that follow our recommendations will have to work harder to be able to declare themselves climate neutral,” says Erlend Bjørklund, Sustainability Consultant at PwC.
All companies should develop a climate strategy that includes emission cuts in their own activities (Scopes 1 and 2), as well as in the value chain (Scope 3), in line with the 1.5°C target. A good climate strategy comprises:
A complete annual climate account in accordance with the Greenhouse Gas Protocol (GHG Protocol), including all significant emissions in Scope 3.
A clear goal of decarbonizing activities and the value chain in accordance with the 1.5°C target. This means a goal of net zero emissions by 2050 across all scopes, and a reduction of at least 50 per cent across Scopes 1 and 2 by 2030.
A climate plan indicating how the company will work to reduce emissions in Scopes 1, 2 and 3. The plan must include short-term milestones and specific measures.
Instruments and tools to drive decarbonization and ensure compliance with the climate plan. Among other things, companies should consider:
Developing an annual carbon budget, to be implemented in line with financial budgets.
Establishing good management structures related to decarbonization, including roles and responsibilities, procedures and incentive schemes.
Using an internal carbon price to highlight the cost of CO2 emissions in investment and business decisions.
If the company wants to use carbon credits to achieve climate neutrality or net zero emissions, they must come from projects that remove carbon from the atmosphere (categorized as green in the traffic light model).
If the company wants to contribute to emission prevention or reduction outside of its own activities, it can purchase credits from a wide range of project types, such as renewable energy and clean-burning stoves (categorized as yellow in the traffic light model). Such contributions can be communicated as climate financing, but cannot be used to achieve climate neutrality.
Companies should perform a detailed due diligence process before all carbon credit purchases (green, light green and yellow). One cannot take for granted that recommendations from brokers in the market are any guarantee that the credits will have a real impact on climate change. Carbon credit due diligence can be achieved by building competence in-house or by obtaining an assessment from a third party.
Companies should base their purchases on the guide outlined in Appendix A and report on whether or not the credits meet the evaluation criteria.
At the very least, the report should include the following information:
Project number, project type, number of credits purchased per project type and certification standard.
Price paid for the credits.
References to publicly available information about the projects.
Due diligence evaluation of the projects in accordance with the evaluation criteria in Appendix A.
A certificate of cancellation must be available upon request.
Whether a corresponding adjustment has been performed in connection with the purchase.
ZERO and PwC have conducted a survey of current carbon credit purchasing practices among Norwegian companies.
The survey consisted of a questionnaire and interviews with businesses and others in the market.
The survey included close to 30 companies, with combined total emissions of approx. 25 million CO2 equivalents and a combined total turnover of NOK 1.5 billion.
The survey was conducted in late 2021.