Majority of corporate carbon credits from tarnished project deemed bogus

After a two-year probe, the world’s largest certifier of carbon offsets has determined that most of the credits from a massive forest-protection project in Zimbabwe, which powered green claims of Volkswagen, Gucci, Nestle and McKinsey & Co., failed to benefit the atmosphere.

It’s a sharp blow to carbon markets, which have shrunk by more than two-thirds since 2021, amid ongoing concerns about the quality of carbon projects and a broader corporate pullback in climate action.

“This is a big deal,” said Grayson Badgley, a research scientist at Carbon Plan, a nonprofit that analyzes climate solutions. “I haven’t seen an investigation like this before.”

The probe by Verra, a nonprofit registry that issues more than half of the market’s carbon credits, focused on Kariba, a project that aimed to protect a forest the size of Puerto Rico from annihilation. Over the past decade, Kariba became the third-most widely used carbon project on the market, with companies relying on it to claim nearly 22 million tons of emission reductions — equivalent to half the annual climate footprint of Switzerland.

Verra launched its investigation after business practices at the mega-project came under intense scrutiny and outside experts found Kariba vastly overestimated the amount of forest it had saved.

Verra’s recent report, though, hasn’t put the controversy to rest. Rather, it has sparked a slew of thorny questions about the accuracy of its findings and who, if anyone, will make up for the enormous shortfall in climate benefits. If not adequately answered, these questions could further jeopardize the carbon market’s credibility, given Verra’s immense role.

“It’s a far cry from accountability after two years of inaction,” said Jonathan Crook, policy lead at Carbon Market Watch.

Verra officials declined to be interviewed, but a spokesperson said in written responses that they’re working to fix Kariba’s climate deficit. They’ve also upgraded the rules that underpinned Kariba and other problematic projects, and strengthened oversight and training. “Safeguarding environmental integrity is at the core of our work,” said the spokesperson.

Verra found that about two-thirds of Kariba’s stated climate benefits were fictitious. Although brutal, that’s less than previous estimates from carbon-ratings companies, some of which found the project’s credits had been inflated by a factor of eight. The registry has declined to release its underlying analysis and calculations, calling them confidential.

More concerning is Verra’s lack of a concrete plan to make up for the empty atmospheric claims. The nonprofit is requesting that Kariba’s owner — a small, Guernsey-based company called Carbon Green Investments — settle the score by coming up with about 12.5 million tons of emissions reductions. That would cost about $35 million if CGI were to purchase this number of credits from avoided deforestation projects at today’s average prices.

CGI declined interview requests. In recent public statements, the company expressed concern about the lack of detail in Verra’s findings, but said it would “continue working toward resolutions that uphold the highest standards.” Verra won’t discuss what happens if CGI doesn’t pay.

All of this has an improvisational feel that alarms carbon-market experts, who argue that a key player like Verra should have rules in place to handle these inevitable crises.

“What happens when things fall apart?” said Danny Cullenward, a climate economist at the University of Pennsylvania. “Either you have a rule structure that covers the losses, or you assign the losses to the atmosphere.”

The registry, meanwhile, also declared that all previously used Kariba credits should be considered “valid” — a statement sharply at odds with its acknowledgment that most Kariba credits haven’t helped the atmosphere. In essence, the registry appears to be telling the market that it will fix this, even if it hasn’t yet figured out how.

Some customers seized on this to suggest they’re off the hook to make good on past climate claims. Volkswagen used Kariba credits to tell customers it had negated emissions from building some of its cars. A spokesperson for the automaker said Verra’s conclusion means “the status of retired units, such as those used by Volkswagen, will not change and no action is required from stakeholders who have already retired them.”

Most other corporate buyers of Kariba credits remain reluctant to discuss the issue. Gucci didn’t respond to interview requests, McKinsey declined to comment and Nestle would only say that its climate goals don’t rely on offsets.

Kariba’s math was based on the premise that the forest in Zimbabwe would have been nearly wiped out without money from offsets going into protection efforts. While the project is owned by CGI, it was largely developed by Zurich-based South Pole, one of the carbon market’s biggest participants. (A South Pole spokesperson said it consistently followed Verra’s rules when establishing the project’s carbon accounting.)

It became apparent a few years ago, however, that the project’s assumptions were off. Deforestation in nearby reference areas remained a tiny fraction of what the developers expected. This meant Kariba’s trees weren’t on the cusp of annihilation. The project was responsible for far fewer climate benefits than the enormous volume of credits it received.

Things boiled into a full-blown scandal in October 2023 when the New Yorker published a report in which a CGI executive admitted they distributed the project’s funds in an untraceable way that the official described as “illegal.” South Pole cut ties with CGI, while Verra suspended the project and launched its investigation.

As part of Verra’s recent findings, it called on owners of unused Kariba credits to voluntarily cancel these instruments to help reduce the atmospheric deficit of 15.2 million credits. South Pole immediately turned in 2.5 million of them. Verra is requesting CGI to cover the remaining shortfall, which now stands at about 12.5 million tons.

Verra, like other carbon registries, operates a “buffer pool,” which acts as an insurance mechanism in case a project suffers a major setback, like a forest fire. But Verra says its buffer pool won’t be used in situations like this, where a project received too many credits.

When asked what it will do if CGI doesn’t pay up, Verra officials declined to answer. “We’re taking this one step at a time, and don’t think it’s helpful to engage in hypotheticals at this stage,” said Verra’s spokesperson.

But the registry has struggled to make the atmosphere whole in the past. When it canceled 37 rice farming projects in China last year for violating its rules, Verra found they had been issued millions of excess credits. Shell Plc was a key buyer of the credits, using them to help claim some shipments of liquefied natural gas were carbon neutral. Verra asked the project representatives to compensate for the excess credits, but they haven’t responded. As of today, the rice projects have shortchanged the atmosphere by about 3 million tons, and Verra hasn’t put forward a plan to fix it.

Verra said it’s continuing to work with “relevant stakeholders” to seek replacement credits. A Shell spokesperson said the oil giant is “now looking to Verra to find a solution” for the shortfall.

For market experts, this is the crux of the issue. Verra must ensure that corporate climate claims remain valid, even when problems inevitably arise with projects. Otherwise, companies will be reluctant to participate.

“Building trust in the market means more than just saying, ‘We’ll do better from now on,’ ” said Benja Faecks, a policy expert at Carbon Market Watch. “Trust is earned when participants know that problems of the past aren’t ignored but addressed.”

Elgin writes for Bloomberg.