Why carbon buyers are overvaluing feel-good credits

Visit the websites of companies using nature-based solutions to offset emissions and you’ll encounter stunning images of the verdant landscapes these firms have invested in. But a growing number of signals, including new data, suggests that an emphasis on feel-good solutions may be drawing attention — and corporate money — from projects that provide more reliable climate benefits.

Chief among the neglected solutions are projects that avoid emissions of greenhouse gasses other than carbon dioxide. These include nitrous oxide, which has a global warming impact more than 250 times greater than carbon dioxide, as well as methane emitted from landfills. Figures from Ecosystem Marketplace, which collects data on markets for carbon and other environmental markets, show that credits in the organization’s waste and industrial gases categories made up only 13 percent of the roughly 100 million tons of CO₂ equivalent credits trades it tracked in 2023.

Yet projects in this category dominate the highest-scoring projects identified by independent credit raters.

The confidence driving high scores

In an update released this month by Calyx Global, 28 projects received the company’s highest A-plus rating: 26 projects from the company’s manufacturing and industry category, which includes nitrous oxide and other industrial gasses, and two that capture methane from landfills. Related initiatives make up 17 of the 37 projects that have been rated A or above by BeZero, a competitor to Calyx.

These high scores stem from confidence that the captured gasses will not be returned to the atmosphere, as well as the relatively simple mechanisms used to measure the quantity of gasses captured. With limited alternative economic incentives available to deal with the gasses, these projects are also unlikely to take place without funding from credit markets — a key attribute of credit quality, known as additionality, that can be harder to prove for other credit types.

These attributes helped win the credits a critical vote of confidence in June, when the Integrity Council for the Voluntary Carbon Market (ICVCM), an independent body that sets global standards for credit quality, rubber-stamped seven methodologies for landfill and industrial gas projects. The methodologies were the first to win the body’s approval. Two months later, the council announced that it would reject eight methodologies that have been used to generate renewable energy credits. The council estimates that the rejected methodologies underpin 236 million unretired credits, or around a third of the total market.

Carbon market experts stress that not all industrial gas credits are high quality, nor are all nature-based solutions flawed. Raters continue to find low-quality projects in all sectors, including landfill and industrial gasses. Calyx has rated over 140 projects in the waste sector, for example, and gave just two an A-plus. And this month the ICVCM approved three nature-based methodologies designed to avoid deforestation and forest degradation in developing countries. Nature-based projects can also generate important co-benefits, such as biodiversity conservation, that industrial gas credits do not supply.

Yet those caveats don’t seem to fully explain the relatively limited interest in industrial credits. The backing of the independent raters and the ICVCM might have been expected to push up the price of credits, for example. But data from Allied Offsets, a carbon market intelligence service, shows waste disposal credits selling for an average of $5.19 per ton during the first half of the year and $5.33 more recently. That’s not far off the $4.80 average for projects that reduce deforestation by supplying people in developing countries with cookstoves — a type of project that raters typically consider far more risky.

Blame it on ‘charismatic’ projects

The mismatch between quality and price may be due to a preference for so-called charismatic projects, such as protecting tropical forests. In an analysis published earlier this year, Calyx company found its higher ratings were populated largely by uncharismatic projects, such as landfill gas, and the lower ratings by charismatic ones.

“Currently our top ratings for GHG integrity are dominated by industrial gas destruction or abatement and waste-related credits, such as those from landfill gas or wastewater treatment,” said Calyx co-founder Donna Lee. “Surprisingly, these higher-rated credit types tend to sell for a lower cost. Perhaps because they are not photogenic. I feel these are the unsung, undervalued credits in today’s market.” 

That’s not to say there are no buyers. Allied Offsets data show that companies including Civitas Resources, a Colorado-based oil and gas producer, the Canadian food giant Maple Leaf Foods and Medtronic, a medical technology company based in Minneapolis, have all purchased more 100,000 tons of waste disposal credits this year. A spokesperson for Maple Leaf told Trellis that 35 percent of the company’s credit purchases were directed toward projects that avoid the release of hydrofluorocarbons from refrigeration systems. The gasses have global warming impacts hundreds or thousands of times greater than carbon dioxide.

Project developers are also working on bringing new credits to the market. Earlier this month at the COP29 summit in Baku, Azerbaijan, decarbonization specialists at ClimeCo, based in Boyertown, Pennsylvania, described how they had signed deals to create four projects that will capture nitrous oxide from chemical facilities in China. The company says the equipment will avoid an equivalent of 45 million tons of carbon dioxide emissions annually. ClimeCo CEO Bill Flederbach stressed the need to create portfolio of credits that both avoid emissions and removal carbon from the atmosphere. “That being said,” he added, “what our planet needs now is immediate positive climate impact, and we view technology emission reductions through the voluntary abatement of nitrous oxide as being key to driving that.” 

[Learn what’s next in decarbonization, disclosure, nature and more at GreenBiz 25 — our premier sustainability event, Feb. 10-12, Phoenix.]