Companies and other private entities purchase carbon credits on the voluntary carbon market to offset their own greenhouse gas emissions – and in so doing fund climate action projects. However, the shortage of quality in these projects and sometimes inadequate corporate climate protection strategies often raise the question of what effect these measures actually have. The Academies’ Project “Energy Systems of the Future” (ESYS) – a joint initiative of acatech, Leopoldina and Akademienunion – addresses the question of whether the voluntary carbon market is – or could be – a valuable mechanism for climate protection.

The Discussion Paper “What Is the Voluntary Carbon Market – and What Contribution Does It Make to Climate Action?” reveals that as well as insufficient regulation, both the supply and demand sides of the market are afflicted by a multitude of problems. As a result, the voluntary carbon market in its current form makes only a limited contribution to climate protection.

Overestimated contribution to climate protection, lack of public control

Many of the climate action projects that generate carbon credits for the voluntary market reduce greenhouse gases by less than they claim. One of the reasons for this is that some of the projects fail to comply with quality criteria or only do so to a limited degree. In some cases, the nature of the project makes reliable quantification and verification of the avoided greenhouse gases almost impossible, e.g. when the projects are aimed at avoiding deforestation. The absence of public supervisory authorities to put in place binding and overarching quality criteria for the climate action projects exacerbates these problems.

Low transparency in corporate climate strategies and a one-sided focus on offsetting

Demand for carbon credits on the voluntary market comes primarily from companies seeking to use them to offset their own emissions. In many cases, the companies are aiming to become “climate neutral“. This is an “open” term, which means companies can decide for themselves whether they reduce emissions or offset them using carbon credits. This can lead to companies making less effort to cut their emissions – even though, from a climate protection point of view, this should take priority over offsetting, especially if the mitigation effect of the offsetting projects is uncertain. And then there is the fact that companies often only take into account a proportion of the emissions generated by their value chain. Alternative climate protection strategies could counteract these problems to some extent, but are still in the early stages of development.

“The voluntary carbon market has the potential in principle to strengthen global climate protection and support the broad implementation of climate protection technologies,” emphasises Manfred Fischedick, Member of the ESYS Board of Directors and President and Scientific Managing Director of the Wuppertal Institute for Climate, Environment and Energy. “For it to realise this potential, though, reforms are now needed that significantly improve the quality of the climate action projects and ensure that carbon credits are only issued for those projects that reliably contribute to climate protection. COP 28 provided an opportunity to agree on central criteria at international level.”