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New California law brings sunshine and scrutiny to carbon credit markets

A new law effective Jan. 1 reveals that numerous large companies retired carbon credits generated by a methodology a key industry body flagged as flawed. Read More

(Updated on January 16, 2025)
The capitol building in Sacramento, California, where legislators passed new law providing for more scrutiny of carbon credit markets. Source: Visual Hunt/ sodai gomi

A new California law is bringing an increased level of scrutiny to corporate use of carbon credits.

As of Jan. 1, the law requires companies to disclose details of the credits they purchase on the voluntary carbon market. A sampling of disclosures reviewed by Trellis reveals widespread use of credits that have attracted negative publicity.

One of the newer information sources for credit buyers is the Integrity Council for the Voluntary Carbon Market (ICVCM), established in 2021 with the aim of creating threshold quality standards for the methodologies that carbon credit projects follow. Its first rulings, announced last year, included the decision to reject eight methodologies for renewable energy projects. The council ruled that the methodologies could not ensure “additionality” — meaning there was a high chance projects covered by the methodologies did not actually need carbon credit income in order to proceed.

In a sample of 20 filings under the law, known as AB1305, Trellis identified nine companies that disclosed use of credits from projects that followed at least one rejected methodology. The organizations were news and information giant Thomson Reuters, credit scorer TransUnion, the BMO bank, software manufacturer Autodesk, private equity firm KKR, Visa, eBay, financial services company Jeffries and eye care specialists WarbyParker. None of the companies returned requests for comment.

Criticism pre-dates ruling

Purchasing an ACM0002 credit is not on its own proof of lax standards. The ICVCM ruled against the methodology, not specific projects that followed it. It’s possible that some ACM0002 projects took additional steps to prove “additionality.” It’s also possible that some buyers purchased the credits before the ICVCM announced its decision in August, or worked through brokers who did not fully inform them of the issues with the credits.

However, criticism of renewable energy credits predates the ICVCM ruling. “Even if the ICVCM decision is recent, any well-informed market participant would be aware that the use of ACM0002 has been questioned by major market actors for several years,” said Danny Cullenward, a senior fellow at Kleinman Center for Energy Policy at the University of Pennsylvania. “So I think there was plenty of notice in the markets that these methodologies were associated with problematic outcomes.” 

Regardless whether any specific credit is flawed, association with a criticized credit class is a public relations risk. A high-profile Bloomberg investigation from 2022, for example, accused Delta, GE and others of buying “bogus” and “junk” renewable energy credits

“A disclosure regime increases scrutiny on companies to evaluate their purchases,” added Cullenward. “Not just for nominal compliance with registries’ requirements, but for actual quality considerations that go beyond the low bar registries often set for their offerings.” 

Disclosure and PR risk

One example of how the new law and its disclosure requirements could put companies in an uncomfortable new spotlight and present them with a public relations risk is a case involving C-Quest Capital. In October, the U.S. government brought charges against executives at C-Quest, a carbon credit project developer, for its work in Africa. The company was accused of overstating the emissions savings it produced by distributing efficient stoves that reduce the quantity of wood users burn for cooking. Verra, a carbon credit registry, cancelled 5 million credits issued to C-Quest following its own investigation into the projects.

Three filings reviewed by Trellis — from healthcare provider Kaiser Permanente, the Arch insurance group and investment firm D.E. Shaw — disclosed credits from C-Quest projects where Verra identified over-crediting. As with the renewable energy projects, this is public relations risk rather than evidence that any buyers acted in bad faith. The credits that Verra cancelled had not been sold and the registry considers C-Quest’s other credits to be valid.

“Kaiser Permanente no longer purchases offsets from C-Quest,” said Ramé Hemstreet, vice president for operations and chief energy officer at Kaiser Permanente. “We strive for accountability and in our current portfolio have substantially increased the percentage of our offset credits that have been approved by the Integrity Council for the Voluntary Carbon Market.” Arch and D.E. Shaw did not return requests for comment. 

The California legislation is just one of several laws that will bring greater transparency to corporate use of carbon credits. The European Union’s Corporate Sustainability Reporting Directive (CSRD) requires companies to disclose both details and, unlike AB1305, the quantity of credits they purchased. The first reports are due this year.  

[Get the latest insights on carbon markets, disclosure, nature and more at GreenBiz 25 — our premier sustainability event, Feb. 10-12, Phoenix.]

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