The integrity of one of the
largest sources of carbon credits in the market, worth $2 billion, is seriously
in doubt following the collapse of the partnership behind the Kariba, a mega
project in Zimbabwe supported by leading global sellers for carbon offsetting.
South Pole, the company
responsible for selling most of the credits associated with this forest
protection project, announced last Friday that they have terminated their
contract with Carbon Green Investments, the entity that owns and develops the
site. Dozens of corporate giants, including Volkswagen AG, Nestle SA, LOreal
SA, Gucci, and McKinsey, have purchased Kariba credits representing millions of
tons of greenhouse gas emissions.
Business practices within
this mega project have come under repeated scrutiny, including an investigation
by Bloomberg Green in March that uncovered significant flaws in the carbon
credit accounting of Kariba. Most of the projects revenue flowed to its two
partners rather than the rural communities fighting deforestation, as claimed
by these companies.
The decision to terminate
the agreement with Kariba "follows careful consideration of the project,
the issues involved, and the allegations that have been made," said South
Pole in their statement. "All activities related to carbon certification
and carbon credits" from Kariba, a project roughly the size of Puerto
Rico, "now fall under the responsibility of CGI, and South Poles role as
a carbon asset developer has come to an end."
Over the past decade,
Kariba carbon credits have been the foundation of groundbreaking claims in
emission reduction for corporate clients. The project has generated nearly $100
million by selling credits for over 23 million tons of emissions contributing
to global warming, approximately half of Switzerlands annual climate
footprint.
Corporate emission
accounting supported by Kariba credits will be shaken by these developments.
While major brands have not disclosed how they manage Kariba credits until now,
at least one small company has reportedly removed them, according to an anonymous
source familiar with the matter who did not wish to be identified.
The collapse of Kariba
could also pose a threat to other carbon markets, which have slowed down this
year due to concerns about quality and accusations of "greenwashing."
This news risks undermining a fundamental insurance mechanism of the market,
known in the industry as the "credit buffer pool." Such backstops are
essential because hundreds of carbon projects worldwide are associated with
forests or other vulnerable natural landscapes prone to wildfires and droughts.
The buffer pool should ensure that climate benefits are not eliminated by
unforeseen issues.
News reports earlier this
year, including from Bloomberg Green, found that the project had overestimated
its climate benefits by at least five times while providing less money than
indicated to the Zimbabwean communities tasked with protecting the forest. This
month, a report in The New Yorker raised further concerns. Steve Wentzel, the
operator of Carbon Green Investments, explained an untraceable way to channel
funds to Zimbabwe. "Its illegal," he told the magazine. (Wentzel did
not respond to recent requests for comment before South Poles statement
release.)
The impact of multiple
investigations into the project had already cast doubts on Kariba credits
before the collapse of its backers. Verra, a Washington, D.C.-based nonprofit
that sets rules for carbon offsetting and oversees the Kariba project, announced
they would "suspend" the project during the investigation.
However, the issues that
emerged on Friday increase the real possibility that the Kariba project could
collapse. South Pole has set a minimum operational cost of $60,000 per month.
Replacing already issued excess credits could require site operations for
years, or even decades, without new sales, according to Sylvera, a London-based
carbon project quality assessor.
South Pole told Bloomberg
Green earlier this year that the factors driving deforestation in Zimbabwe had
changed since they launched the project, leading to the issuance of more
credits than the projects carbon savings. At the time, the company said they
would sell credits more slowly to cover the gap. But the market for Kariba
credits has shrunk as investigations into the project intensified.
If Kariba is closed,
meaning the forests within the project are no longer protected, all credits
issued since the projects inception will be canceled. This would render the
claims of companies based on these credits meaningless.
To prevent this, Verra said
they would replace these canceled credits using their buffer pool. Verra
officials told Bloomberg Green earlier this year that doing so for a project as
large as Kariba would be an "unprecedented situation" and could
consume between 38% to 51% of their entire buffer pool.
"This might be the
biggest real-world test weve seen so far of the buffer pool," said Gilles
Dufrasne, the head of policy at Carbon Market Watch. "Of course, the
buffer pool can support one large project. It would affect it massively, but
those numbers show it can replace those credits. But you cant do it if there
are four, five, or six projects."
This is one of a series of
issues concerning how offset programs use backstops to protect their climate
integrity. Most programs require natural-based projects, vulnerable to
wildfires or disease, to allocate usually between 10% to 20% of their credits for
insurance purposes. Kariba, for example, has put 5 million credits into a
buffer pool managed by Verra.
However, with increasing
climate risks to natural landscapes, some scientists worry that this insurance
mechanism is not adequately supported. The nonprofit organization CarbonPlan
warned in 2020 that wildfires could easily deplete Californias carbon market
buffer pool. At least one forest carbon offset project was damaged by wildfires
in Canada during the summer. Researchers at the University of California,
Berkeley found last month that popular forest carbon offset project categories
had underestimated the risks of natural phenomena, such as wildfires and pests,
by a factor of 10.
"Allocating some
[credits] as insurance is not a bad idea conceptually," said Jess Roberts,
vice president of Sylvera. "We just want to see the calculations made more
robust. The more [credits], the better."
The Kariba situation also
raises significant questions about who should replenish the buffer pool after a
major blow, so that other projects are not overly exposed. Verras rules state
that in cases of poor project management, the project initiators must replenish
the buffer pool. For Kariba, that would be Carbon Green Investments, the
company operated by Wentzel. The rules also add that project initiators will
not receive credits for other carbon projects "until the deficit is
rectified."
Carbon Green Investments is
pursuing a new carbon project to protect over 350,000 hectares of land in
Zimbabwe, according to records in Verras registry. South Pole is listed as a
partner in this project. However, the project has not yet received credits, and
it is unclear whether Verras rules will be effective.
A Verra spokesperson stated
in a release that the organization "is aware of these risk and
accountability issues and continues to investigate the Kariba project and
explore the best way to proceed."