A wind farm in Hebei Province, China, where some older clean energy projects are now being used for carbon credits.

A wind farm in Hebei Province, China, where some older clean energy projects are now being used for carbon credits. Costfoto/Barcroft Media via Getty Images

Is the ‘Legacy’ Carbon Credit Market a Climate Plus or Just Hype?

As major corporations look to buy carbon credits to offset emissions, critics are questioning the value of “legacy” credits from green projects that are a decade or more old. What’s needed, experts say, is to reform the credit system so it delivers actual carbon reductions.

On October 20 last year, French oil giant Total docked a tanker loaded with Australian liquefied natural gas at the port of Dapeng in southern China. The company boasted that the LNG was “carbon neutral” because the emissions from burning it had been neutralized by carbon credits purchased from a 10-year-old wind farm in northern China. Environmentalists cried foul. “Handing out money to a decade-old project that will run anyway does nothing to neutralize pollution from continued use of fossil fuels,” tweeted Sam Van den plas, policy director of Carbon Market Watch, a Brussels-based nonprofit.

Four weeks later another European oil major, Royal Dutch Shell, delivered another tanker-load of LNG to a port in Taiwan. It too was labeled “carbon neutral,” thanks to the company’s investment in forest projects in Ghana, Indonesia, and Peru that date back more than a decade, raising further questions about the environmental value of purchasing such “legacy” carbon credits.

The practice of dirty industries offsetting their carbon emissions by purchasing carbon credits has long been disparaged by some environmentalists as a fig leaf to cover business-as-usual that rarely delivers real gains for the atmosphere. Yet these credits are suddenly back in vogue, as U.S. and global corporations respond to new climate policies from the Biden administration and mounting calls for corporate action to slow global warming. This month, The Wall Street Journal reported that the American Petroleum Institute will endorse carbon pricing, which will likely lead to giants such as ExxonMobil buying carbon credits in the future. Meanwhile, the world’s airlines have agreed that beginning this year they will cover any further increases in their emissions with carbon offsets.

These developments come as the gap between the PR surrounding some carbon credits and reality has widened. Critics warn of a growing market in outdated credits that offer no carbon benefit for the planet, since the carbon-saving projects they were once intended to fund have long been in operation without the benefit of sales of credits. The market “contains hundreds of millions of tons of poor-quality credits,” says Mark Maslin of University College London, co-author of a new analysis written with Trove Research, a U.K.-based carbon market analyst. There are increasing calls from industry and the finance sector to reform markets in carbon credits to improve their performance in delivering actual carbon reductions.

Banks are questioning whether they could be putting up money for credits that are of dubious climate benefit.

Carbon credits are provided for activities that claim to benefit the climate either by removing CO2 from the air or preventing it being emitted in the first place. Such projects might include low-carbon energy generation or planting or conserving trees, often called nature-based solutions. Intermediaries act as verifiers and brokers, selling the credits to companies that wish to “offset” their emissions. In theory, the sales fund the project, which would not otherwise have happened.

The danger is that some of these projects would have happened regardless, because they perform other valuable services and did not require the extra funding — in which case the “offsets” can be an illusion, and the only effect is to allow the polluter to carry on emitting CO2.

The concern is greatest for credits generated by early wind farms and other sources of renewable energy — some of them projects that are 10 or more years old. The cost of producing renewable energy has crashed in the past decade, and they generally no longer need subsidizing with carbon credits.

“In their early days, [voluntary carbon markets] did not always deliver their hoped-for climate impacts,” Bruno Vander Velde of Conservation International, who has promoted nature-based carbon credits, wrote in a recent blog post. “Major advances have been made in the past decade in ensuring their effectiveness, however.” He noted that “nature-based offsets represent one of the only immediate and effective ways for some high-emitting industries… to abate hard-to-cut emissions.” But reform, he wrote, is needed to raise standards. Many financiers appear to agree.

With a resurgence of interest in buying carbon credits, banks are increasingly questioning whether they could be putting up money for credits of dubious climate benefit. In January, a Taskforce on Scaling Voluntary Carbon Markets, headed by Mark Carney, a former Bank of England governor who is now UN special envoy on climate finance, announced plans to launch a cleaned-up and more credible carbon market in London that might soon trade $100 million a year in credits.


The basis for the environmental benefit of selling carbon credits is that they offer “additionality,” either by removing carbon from the atmosphere, such as by planting trees, or by preventing emissions from other sources, for instance by replacing coal burning with wind turbines, or protecting forests from deforestation. But Trove CEO Guy Turner contends that more than 60 percent of credits on the market are from projects that have “questionable additionality claims,” including old renewable energy projects.

A tanker carrying liquefied natural gas that oil giant Total calls carbon neutral because of credits purchased from a 10-year-old wind farm.

A tanker carrying liquefied natural gas that oil giant Total calls carbon neutral because of credits purchased from a 10-year-old wind farm. Credit: Total

Calculating this “additionality” is usually hard. It depends on a counterfactual: What would have happened without the project. Would the coal-fired power station have been built? Would the forest being conserved have been destroyed? How long will the planted trees survive? Was the finance from selling the credits the critical factor in whether the carbon-reduction project went ahead?

The answers are often unknowable to outsiders. As the authors of a carbon offset guide published in 2019 by the Stockholm Environment Institute and GHG Management Institute put it: “Only a project developer can say whether the prospect of selling carbon offset credits was truly decisive; but regardless of the truth, every project developer has an incentive to argue that it was.”

Nobody doubts that conservation and renewable energy projects can and often do keep carbon out of the air. And some projects genuinely do need the cash from selling credits to get them off the ground.

Some large environment groups, including The Nature Conservancy, are supportive of carbon credits as a means of generating money for nature-based solutions to climate change. TNC sells credits connected with arranging environmental easements to prevent future damage to protected areas.

But the risk of wishful thinking, or even fraud, exists. Critics such as Turner contend a majority of carbon credits generated by such projects may fall into that category. The good carbon-saving schemes risk being lost in an avalanche of dodgy credits.

Over the last two decades, a sizable industry has grown up around certifying and marketing these carbon credits.

The credits that Total purchased to offset its LNG shipment represent the emissions saved when Huadian Power International Corporation built the 100-megawatt wind farm rather than a coal-fired power station. Project documents in 2011 claimed that without the project, electricity on the North China Power Grid would continue to come mainly from burning fossil fuels. On that basis, Huadian claimed credits of 225,000 tons of CO2 per year, some of which Total later bought.

But China’s energy system did not evolve as forecast. In the past decade, the country has been building hundreds of wind farms, often without recourse to carbon credits. It currently has 280 gigawatts of wind capacity. Yet the credits from the early wind farms continue to be sold as if nothing had changed. Where, critics ask, is the additionality? Total did not respond to a request to answer that question.

Similar questions persist around the three forest projects that Shell says offset its recent LNG shipments. One of them is from a 370,000-acre project to protect swamp forests at Katingan in Indonesian Borneo. The project began in 2007 and issued credits on the basis that the forest would otherwise be cut down for industrial acacia plantations. That eventuality was the baseline from which carbon benefits were calculated. The project website carries a live update of CO2 it says the project has kept out of the air by preventing this deforestation. The claimed offset increases by a ton every five seconds, and at the time of writing was more than 39.6 million tons. Shell and Volkswagen have each bought credits, with their cash helping to fund the projects. But whether their purchases made any difference on the ground, say critics, is far from clear. In a statement, Shell said it “only trades credits that have been assessed by independent third-party processes.”

Greenpeace claims the credits are illusory because the plantation plan was conjecture, and the forest has been covered since 2011 by a national moratorium on new forest concessions. Permian Global, the company that organized the credit sales, provided evidence that a plantation company had applied to take over a third of the project area in 2008, and was only thwarted by the prior establishment of the project. But the belief that the remaining two-thirds would ultimately have gone the same way assumes that any “projected” applicants would have found ways to get around the moratorium.


Trade in carbon credits began as part of the 1997 UN Kyoto Protocol, the first international agreement to cut CO2 emissions. Its Clean Development Mechanism (CDM) allowed industrialized countries to reduce emissions abroad where that might be cheaper than at home, such as by planting trees in the tropics. But in practice most trading has been in “voluntary” markets, in which companies buy credits, some originating under the CDM. A sizable industry has grown up around certifying and marketing these credits.

The Katingan Project, from which Shell has purchased carbon credits, began in 2007 and has helped protect swamp forests in Indonesian Borneo.

The Katingan Project, from which Shell has purchased carbon credits, began in 2007 and has helped protect swamp forests in Indonesian Borneo. Credit: Katingan Project

To date, credits for about a billion tons of CO2 have been put up for sale to would-be carbon offsetters on the voluntary market. But there have been more sellers than buyers. The surplus is “getting bigger every year,” says Maslin. “At the moment, 600-700 million tons of old carbon credits could be claimed,” which is “seven to eight times the current annual demand.”

Turner says that “although in principle historic credits may have some legitimacy, in practice they risk swamping the market, with little or no additionality, and so little or no climate benefit.”

Others agree. A 2016 report for the European Union by Martin Cames of the Oko-Institut in Freiburg, Germany, concluded that only 2 percent of past CDM projects have “a high likelihood” of delivering the promised benefits to the atmosphere.

“The CDM is a zombie market — it has not helped to reduce emissions,” says Gilles Dufrasne, policy officer at Carbon Market Watch. The CDM was due to shut down last year, as the Kyoto Protocol is replaced by the Paris Accord. But the required meetings were never held because of the pandemic, and it lives on. Dufrasne says credits from some CDM projects have been allowed for trading under a new international aviation carbon-trading scheme that starts this year.

Some tech companies have already taken the lead in the recent upsurge of purchases of carbon credits. Microsoft has purchased 1.3 million tons worth from 26 projects. Many of these credits are new. In January, Micosoft bought newly-created credits from an Australian cattle ranch, Wilmot Cattle, which says that in three years its careful grazing systems have added 40,000 tons of carbon to its soils.

While many tech companies say they see purchasing carbon credits as an interim solution as they work to eliminate their emissions entirely, other corporations plan on continued growth in credit purchases. Italian oil major Eni said in November that it was aiming to increase its carbon credit portfolio to 10 million tons of CO2 per annum by 2025, and 30 million annually by 2050, delivering “an 80 percent reduction in net emissions.”

If companies want to stop contributing to climate change, a recent report noted, they should first reduce their own emissions.

Turner, of Trove Research, predicts that corporate spending on credits will rise 20-fold in the next decade, to more than $10 billion. He fears much of that demand could be met from the surplus stocks of dubious old credits.

So what should be done? Some want to reform the existing carbon credit markets to weed out the junk. “New rules are needed to exclude older credits from the market,” says University College London’s Maslin. Turner hopes Carney’s proposed new, bigger voluntary market can clean up the business. But Dufrasne, of Carbon Market Watch, calls the new initiative “so far mostly a PR stunt… for the financial sector to legitimize their new-found enthusiasm for carbon markets.”

Last September, a group of academics at Oxford University came up with a set of “principles for net zero aligned carbon offsetting.” They said that if companies want to end their contribution to climate change, they should first reduce their own emissions. Then, if they need offsets, they should shift from projects that avoid emissions to projects that deliver direct carbon removal. And they should concentrate on schemes that deliver the longest-lasting CO2 removal. That means chemically capturing carbon from the air or stack emissions and burying it underground. It would effectively exclude offsets that use trees and soils to suck up carbon, because of what Oxford ecologist and co-author Yadvinder Malhi calls “the risk of reversal, if ecosystems are degraded.”

Another group of around 50 academics and activists who wrote to Carney in December took a similar line about forest-based carbon credits. “There is an inherent high risk that forest offset credits do not represent real emission reductions,” they said. The “appalling track record” of the CDM, they added, showed that “carbon offsetting does not accelerate but on the contrary has been shown to delay climate action.”

One of the signatories, Doreen Stabinsky of the College of the Atlantic in Maine, sees credits as often benefitting corporations seeking “to maintain the status quo.” Total exemplified that, she said. While boasting of its “carbon-neutral” LNG, the company is pressing ahead with a $4 billion pipeline to take oil 900 miles from new wells it is drilling on the shore of Lake Albert to an Indian Ocean port in Tanzania.

“In the end,” says Oxford climate scientist Myles Allen, “offsetting schemes need to recognise that the only way to compensate for the impact of pulling carbon out of rocks is to put it back.” No amount of creative accounting can alter that.