Carbon credits

Overview

Companies and individuals purchase carbon credits to offset their own greenhouse gas (GHG) emissions and to support climate work elsewhere. The carbon market is growing rapidly.

Carbon credits can be produced through various activities. Forestation projects remove carbon from the atmosphere by storing it in trees. Renewable energy plants replace fossil fuel plants, reducing GHG emissions. Energy efficiency projects, such as improved cookstove projects, reduce the use of coal, wood or other energy sources.

Fairtrade partners with The Gold Standard Foundation to support farmers and communities in producing carbon credits through reforestation/afforestation, renewable energy, and energy efficiency projects.

Salient issues

Carbon credits must not replace emission reductions by wealthy corporations and individuals.

Still, credits have their own role in global climate efforts. At best, they fund climate work and bring income to vulnerable producers and communities.

However, many carbon credit projects have failed to reduce emissions, reduced biodiversity or harmed local people’s livelihoods, land rights or access to water. It is crucial that projects are planned by or at least in meaningful engagement with the local people.

The carbon credits industry is relatively new and weakly regulated. The rules about calculating baseline emissions, additionality of measures, and permanence of results are improving but have been weak.

The salient issues in the carbon credits sector (in the order of saliency):

Climate: The climate impacts of a carbon credit project depend on many variables. Many projects have failed to reduce emissions or remove carbon from the atmosphere.
Water and Biodiversity: In some forestation projects, invasive, fast-growing trees have been planted, altering local biodiversity. Hydropower projects may change the flow of rivers, aquatic biodiversity and livelihoods downstream.
Self-determination: Many large carbon projects have been planned without meaningful engagement with local people and have caused forced displacement, land grabbing and changes in livelihoods.
Living Income: Some carbon projects have provided employment, technical training and technology transfer to local people but many have not. Some projects reduce local livelihoods, through changes in land use or water resources.
More information on risks in carbon credits

Root causes

Lack of regulation: Weak standardisation and regulation of the carbon credit industry leaves space for subjectivity, exaggeration and greenwashing. At the same time, some recent studies suggest that companies buying carbon credits are also more likely to reduce their emissions than companies which are not.

Unequal distribution of value: The price of carbon credits has been low. Middlemen between carbon credit buyers and producers are many, and very little financial value usually accrues to local communities.

Rapidly growing market: The rapidly growing demand puts pressure on project timelines and often trumps proper analysis of projects’ human rights and environmental externalities.

Scientific complexity: Carbon credits can only be gained from projects that are “additional” to business-as-usual, but this additionality rests on complex baseline estimations. It can also be difficult to estimate the full lifecycle impacts of a project.

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