The European Commission will require companies to provide details on the origination and methodologies of the carbon credits it is using, according to its new proposal aimed at countering greenwashing and misleading environmental claims.
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The EC said March 22 it is looking to target companies in Europe that make climate-related claims that are unsubstantiated, unclear, ambiguous and mislead consumers.
This comes as the credibility of voluntary carbon markets (VCMs) is under the spotlight, with several academics and media outlets questioning whether many carbon offsets projects represent genuine carbon reductions.
The EU said environmental claims on products or entities such as climate neutral, carbon neutral, 100% CO2 compensated, or net-zero are often based on offsetting of greenhouse gas emissions through carbon credits generated outside the company's value chain, like in some forestry or renewable energy projects.
In the proposal draft, the EU was very critical of VCMs saying the methodologies underpinning offsets are not always transparent, accurate, or consistent due to a lack of additionality, permanence, ambitious and dynamic crediting baselines.
These discrepancies often lead to overestimations and double counting of avoided or reduced emissions, which result in "credits of low environmental integrity and credibility that mislead consumers."
The directive proposes that companies using offsets to make claims should specify the share of total emissions that are addressed through offsetting and have details on whether these offsets relate to emission reductions or removals enhancement, and the methodology applied.
"The climate-related claims that include the use of offsets have to be substantiated by methodologies that ensure the integrity and correct accounting of these offsets and thus reflect coherently and transparently the resulting impact on the climate," according to the directive.
This proposal will have to be approved by the European Parliament and 27 members for it to become a law.
In 2020, the EC published a study saying that 53.3% of examined environmental claims in the EU were found to be vague, misleading or unfounded and 40% were unsubstantiated.
"According to the proposal, when companies choose to make a 'green claim' about their products or services, they will have to respect minimum norms on how they substantiate these claims and how they communicate them," the EC said in a statement.
The voluntary carbon market is undergoing a significant transition, with a renewed focus on integrity and quality initiatives.
The Integrity Council for the Voluntary Carbon Market will introduce high-integrity carbon credit labels in the third quarter of 2023, and it will publish its final Core Carbon Principles (CCPs) in late March to create a more transparent, liquid, high-integrity voluntary carbon market.
Meanwhile, the Voluntary Carbon Markets Integrity Initiative (VCMI) is reworking a draft consultation aimed at bringing integrity to corporate claims made about the use of carbon credits.
Nature-based carbon offsets have been particularly dogged by accusations related to greenwashing.
In mid-January, the Guardian newspaper published a report alleging that forest-based carbon credits issued by Verra were largely "worthless" and did not represent genuine carbon reductions.
Verra, the world's largest certifier of carbon credits, defended its work, and released a detailed technical review disputing the newspaper investigation, labeling it "patently unreliable" and saying it contained "multiple serious methodological deficiencies."
But the intense scrutiny has only grown since that investigation with many other projects coming under fire from other media and academia.
Prices and demand for nature-based carbon offsets have come under immense pressure in 2023.
Platts CNC, an assessment that reflects the most competitive nature-based carbon credit prices, was assessed at $2.30/mtCO2e March 22, up from the all-time low of $1.70/mtC02e Feb. 3. Platts CNC averaged $9.55/mtC02e in 2022, according to data from S&P Global Commodity Insights.